Advising across the generations

A leading adviser has commented that the profession should adapt its practices to reach different generations
October 2019
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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Capital is at risk and investors may not get back the original amount invested.

Screening out sectors or companies may result in less diversification and hence more volatility in investment values.

Key takeaways:

  • An introduction to variation across gender and demography when it comes to responsible investing
  • Making a difference: ‘real world’ attitudes to investing are on the rise
  • Understand the movement towards ESG-linked investment vehicles among next generation investors

A leading adviser has commented that the profession should adapt its practices to reach different generations. Kusal Ariyawansa, from Manchester-based Appleton Gerrard, believes advisers should change their advice according to a client’s financial goals because it often determines the amount of risk they can take on. He said a client’s risk profile varies depending on whether they aim to accumulate or decumulate their wealth.

“Risk, being inversely proportional to the length of investment, is really dependent on the objective. For example, buying a house and saving for a deposit over three years means you can’t take risk. But retiring in 30-years-time means you can take risk, because you have time to make up for any short-term losses.

“Likewise, the need for income in retirement follows a similar strategy – if you can’t take risk, you buy an annuity. If you can, and have other guaranteed income sources, you can view the pension money as a lifetime source of income or a legacy plan. In the case of the latter you can, again, adopt more risk.”

He added that responsible investments are becoming more common irrespective of a client’s age. “Investing responsibly is quite topical and people of all generations and faiths are asking more about where their money is being invested. Most do not want it to be invested in arms or unethical organisations.”

His comments come after research undertaken to mark Good Money Week1 last year suggested that 1 in 4 women like the idea that their investment choices could make a positive difference in the world. Only 9% of women are not interested in where or how their money is invested.

Also, according to a recent study by Morgan Stanley2, millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.

Alice Evans, co-head of the Responsible Investment team at BMO Global Asset Management, noted that “people are now understanding that what they do with their pension pot is not disconnected from the real world. Their money means something, and they want it to reflect their values and concerns.”

However, it’s a leap to say that clients are now seeking ‘green’ portfolios as standard, says James Wyman, a financial adviser at Hitchin-based Lyndhurst Financial Management. Wyman’s clients do not push for ESG-specific portfolios because many mainstream companies have already incorporated green values, across the board.

He said: “With the rise of companies actively looking to reduce their carbon footprint as well as the green movement getting significantly more traction, I personally have seen little increase in clients wishing to have full exposure to an ESG portfolio as the majority of companies now are making positive inroads to be more green.”

Still, Lesley James, co-founder and director at Marlow-based Simplified Money, said ESG investments are a great tool to engage the new generation of young investors. She added: “I think ESG is an excellent way to engage younger people with their money. You need to be pretty close to retirement for the concept itself to be a motivator for saving. Show a younger person how their money can help the greater good, however, and the idea of saving can become more interesting.”

However, it is not just millennials who have shifted their focus on responsible investing. In fact, chartered financial planner, Alan Chan, said most of his engagement for responsible investing comes from clients who are in their 30s to 50s. The director at London-based IFS Wealth & Pensions said: “We generally find most engagement for ESG and ethical investing comes from clients in the 30s and 50s age group. I’m not sure exactly why that is, but they are generally more conscious about where their money is invested and may have access to more information about ESG or ethical investing.”

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Capital is at risk and investors may not get back the original amount invested.

Screening out sectors or companies may result in less diversification and hence more volatility in investment values.

Actions to consider

  • Ask your older clients how their children’s investment attitudes differ to theirs, if at all. Use this insight as ‘qualitative’ research. It could help shape your advice to younger clients should they come on to your books.
  • Keep a record of annual research reports into investment attitudes across gender and age group. Each will have executive summaries. By glancing through the summaries, you will have quick reference to the trends.