Alan Shields explains how private banks are tackling the issues thrown up by an aging client base.
According to ABS statistics, approximately 13 per cent of Australians were aged 65 and above – retirement age – in 2008, and a further 11 per cent were aged between 55 and 64. Among the Australian high-net-worth (HNW) population, however, that proportion is likely to be much higher.
The Australian Private Banking Council (APBC) estimates that approximately 44 per cent of HNW individuals (HNWIs) are aged 65 and above and an incredible 81 per cent are aged over 55. HNWIs are therefore likely to be looking at long-term strategies that will address their needs in retirement and their families’ needs beyond this.
Providing for the long-term needs of clients and building up a relationship with their families provides multiple benefits for private banks, both aiding in account retention over the long term and providing for the current client’s needs.
Among HNWIs, there is interest in products and services that will provide for their families after they are gone. The feeling of security is an important aspect that private banks can provide; and looking after the needs of the family can be a very effective way of doing this. Estate planning and philanthropy are two key offerings that should form part of any private banking or wealth management service.
ESTATE PLANNING – HELPING WITH THE UNKNOWN
It is staggering that approximately 50 per cent of HNWIs with less than $5 million in investible assets, and 25 per cent with more than $5 million, currently have no estate plan in place, suggesting that private banks have an enormous opportunity to address the long-term wellbeing of clients and their families.
In a recent APBC HNW survey, 21 per cent of those aged 65 and older stated that they would be likely to use Will and estate planning services if their private bank offered them, compared to 22 per cent of those aged 55 to 64 and 30 per cent of those aged under 55. The fact is that many HNW individuals simply do not understand the importance of a robust estate plan, so private banks also have a role to play in educating clients.
PHILANTHROPY – HELPING CLIENTS GIVE THEIR MONEY AWAY
Philanthropy can also be a valuable way for a private client service provider to continue relationships with the client’s family, while offering them financial education. A private philanthropic trust can be directed to a cause with personal significance for the client, allowing the private bank to tailor its service to the client’s specific needs. For a private bank, establishing philanthropic funds for clients enables it to build an ongoing relationship with clients’ children and provide them with education.
Philanthropic funds are also set up in perpetuity, which means that they need to be managed – for a fee – in perpetuity.
TACKLING THE OBSTACLES
As their clients age, it is important that private banks build multi-generational relationships with their clients’ families and provide services to assist inter-generational wealth transfer. These service offerings are important for HNWIs, and will help build relationships between private banks and families that will lead to long-term partnerships.
Some of the service offerings that can smooth the wealth transfer process include estate planning as well as the establishment of philanthropic trusts. The primary advantage of these services is that they can be used to engage and educate the next generation of HNWIs..
Private banks need to ensure they have the capabilities to offer these types of services – either in-house or via professional referral partnerships. It is also important to communicate with the client about their needs, and to educate them on the benefits of different options as they plan for their future. This process is in turn valuable for building client relationships, and an opportunity to involve the next generation in planning and decision-making, ultimately laying the groundwork for the future.
Alan Shields is research director for Retail Finance Intelligence (RFI) – www.rfintelligence.com.au
