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Next gen referrals

17 October 2016 |Multi-generational planning
Discover how gearing can be applied to the right client's investment strategy to support their financial goals on a chart background.

Next gen referrals

17 October 2016 |Multi-generational planning

According to the New York Times, 65% of all new business comes from referrals. For many of us, recommendations don’t carry more weight than from our parents, especially with big financial decisions. This is why talking with your clients about their children’s needs should be a priority for all advisers.

A discussion around family finances is a great place to start. One question could be: how might your client’s retirement be impacted if their children’s finances aren’t in order?

The best-laid plans of clients – and their advisers – can change dramatically if parents find themselves called upon to help their children. Parents can be tapped to help fund their children’s first car, HECS-HELP debt, first home deposit, grandchildren’s education or other support.

Human nature being what it is, few parents will refuse to help if they can. But, it can be frustrating as an adviser to see a well-structured retirement plan threatened by an unexpected call for assistance – particularly if that call results from lack of planning, or appropriate saving or insurance, on the part of the child.

It’s a dilemma for advisers, but it’s also an opportunity.

Child’s play

To guard against this happening, the best thing to do is to make sure your clients’ children – whether they are adolescents or adults – are financially literate and understand investment and risk protection concepts well. And the best way of ensuring this is simple: to make them your clients, too.

Advisers have to engage with their current clients’ families – and talking to them about their parents’ retirement is how this process can start. If advisers do not engage with the next generation, the risks to their business run well beyond the possibility of children derailing the plans they’ve put in place for their parents – it could mean the end of the adviser’s business. If you don’t have new clients coming onboard, your business could wither as your clients age.

Your clients’ children should be encouraged to establish some sound financial disciplines around debt management, gearing strategies, investments and tax-effective investment. This will then set up these accumulators with the necessary skills required later in life when they may need to manage significant inheritances.

Who better to help them with these skills and this knowledge but you?

Ready-made referrals

An integral part of broadening your value proposition through estate planning is talking to your clients’ beneficiaries. Bringing children – even grandchildren – into the conversation not only makes sense, it is your ready-made client pool: it allows you to introduce a different range of services to the next generation, and establishes you as a trusted family adviser.

Depending on their ages, your clients’ children could be looking for help with a variety of financial needs. For some of these, a margin loan can be a handy alternative, to accelerate saving for a particular goal, such as a house deposit, or even travel: given rising house prices and decreasing affordability, many Generation Y and ‘millennial’ investors may prioritise travel over saving for a house. Older ‘accumulators’ may be looking to build retirement savings outside the superannuation system – with recent changes to the super system, it is arguably a much more uncertain retirement savings vehicle than ever before.

Investment Funds Multiplier could help

Our Investment Funds Multiplier (IFM) can play a pivotal role in your offering to these younger clients. This is a margin loan and, as a gearing tool, it can magnify both investment gains, as well investment losses; however, its margin call process is truly unique. Changes to the loan-to-value ratio (LVR) due to adverse market movements are addressed through monthly periodic repayments. In effect, the margin call event is paid off over time rather than traditionally as a lump sum, giving the client time to reassess their investment position and the market time to recover, hopefully back to its earlier levels.

An IFM can be used to ‘gear for goals’ – a house deposit, paying off HECS-HELP debt, post-graduate or overseas university courses, or travel. And because there is no set date for repayment, an IFM can be kept open, allowing your client to save for one-offs and build ongoing wealth.

The flexibility of the IFM makes it a practical product to offer younger clients – and it’s a great way to start a conversation about financial goals and how they can be achieved. If you’re not having this conversation with your clients’ adult children – you should be.

This information is correct as at 17 October 2016.

Things you should know

Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. Past performance is not an indication of future performance. The information provided in this document has not been verified and may be subject to change. It is given in good faith and has been derived from sources believed to be accurate. Accordingly no representation or warranty, express or implied is made as to the fairness, accuracy, completeness or correction of the information and opinions contained in this article. To the maximum extent permitted by law, no entity in the Group, its agents or officers shall be liable for any loss or damage arising from the reliance upon, or use of the information contained in this article.

Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). This information is correct as at the time of issue, and is for general information purposes only. It is intended for AFS Licence Holders (or authorised representatives of AFS Licence Holders) only. It is not to be distributed or provided to any other person.

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