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Ethical investment key to satisfying next generation of wealth clients: survey

Patrick Buncsi28 November 2023
Ethical investment wealth transfer

Financial advisers who actively encourage clients’ children or beneficiaries to be involved in the wealth-transfer process had significantly higher client retention and satisfaction rates than those who failed to do so, according to a study by ethical investment firm Australian Ethical.

Data from the Australian Ethical’s latest whitepaper, Opportunity Next, showed that the availability and advisers’ knowledge of ethical investment options is now a key determinant of client satisfaction, particularly for those actively or about to be engaged in the wealth transfer process.

Around 73% of advisers engaged in the wealth transfer process and who incorporated responsible investing into their offering reported greater client satisfaction, versus just 62% who did not.

This, according to Australian Ethical, reflects the changing values and objectives of the next generation of investors.

Similarly, advisers with responsible investing in their value proposition reported a 75%  increase in touchpoints with clients’ children and/or beneficiaries.

“While Baby Boomers are focused on the preservation and orderly transfer of their wealth, their children [and] beneficiaries will inherit these assets with new objectives and a distinctly different set of values – how they invest won’t necessarily resemble the way of their parents,” Australian Ethical wrote in its paper.

Data from the Responsible Investment Association of Australia (RIAA), released last year, shows the increasing preference for ethically sound investments among the next generation of wealth holders, with around 45% of Gen Zs and 36% of Millennials planning to invest responsibly over the next 12 months, versus just 15% of Boomers.

However, just two out of five surveyed advisers (41%) said they had actively encouraged clients to involve their children and/or beneficiaries in wealth transfer conversations.

“Advisers are going to be increasingly called on to meet the needs of their clients’ children and beneficiaries, who may have different values or greater focus on responsible investing than their parents did,” said Australian Ethical’s head of client relationships, Leah Willis.

“It’s critical that advisers can have these conversations.”

‘Great wealth transfer’ ushers in next gen of ethically conscious investors

A little under two in three (61%) surveyed advisers have clients who have already transferred wealth to their children or are in the process of doing so, with Australian Ethical finding that many wealth holders are wanting to begin the transfer process “while they’re still alive”.

Just under two-thirds of consumers now expect financial advisers to be knowledgeable about responsible investment options – ahead of investment returns as the top expectation Australians place on financial advisers, according to RIAA.

However, Australian Ethical reported that a little over half of surveyed advisers (52%) agreed that demonstrating a strong understanding of responsible investing can help attract more young clients, with a similar number declaring that they are already incorporating responsible investing into their advice value proposition.

“There’s an advantage for financial advisers in engaging early on with beneficiaries… to help facilitate the intergenerational wealth transfer,” Willis said.

“It is clear advisers need to take a proactive approach to engaging with the next generation, and understand their investment values and drivers. We’re already seeing that advisers who incorporate responsible investing into their offerings report higher client satisfaction.”

She added: “Responsible investment principles are going to be part of conversations going forward, and being able to understand younger generations values and drivers is going to become increasingly important in attracting younger clients.”

Data from the Productivity Commission shows around $3.5 trillion dollars will be transferred from Baby Boomers to their children or beneficiaries over the next two decades in a process it said has “has already begun”.

Around 300 advisers were surveyed for the whitepaper, which was based on research designed and produced by CoreData.


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