Why mum and dad don't always know best when it comes to money

In a mature industry like wealth management, most firms will reference themselves as ‘client-centric’ on some medium or other – and so it should be natural for clients seeking wealth-related guidance to turn to their advisers for support.

But recent research by RBC Wealth Management and Scorpio Partnership proves a reality check for advisers. High net worth individuals feel more comfortable turning to their relatives for education on money matters than their wealth manager, or any other professional source for that matter.

For advisers gearing up to attract the clients of tomorrow, this finding presents a stark challenge.

According to the 2017 Wealth Transfer Report, which covers the UK, US and Canada – an estimated $4tn of HNW assets will pass from one generation to the next in the coming years. The opportunity to support next-gen clients is therefore obvious. And yet, as they approach some of the most important financial junctures in their life, today’s clients find themselves looking overwhelmingly homewards.

When it comes to learning about wealth, HNWIs are keeping it in the family [Figure 1]. General conversations with relatives, backed up by reading around the subject, are more popular routes to learning about wealth than more formalised initiatives, such as financial literacy programmes.

The gravitational pull of family guidance becomes even stronger at emotionally charged times. For example, at the point of inheritance, only 15 per cent of individuals rely on support from a professional.

And the apple does not fall far from the tree as parents later replicate their personal experiences when making education choices for their children. For example, parents can over-emphasise subjects that they prioritised in their own financial learning, such as budgeting and investing, rather than broadening the thematic content to areas which may also be more beneficial, like family governance or portfolio management.  

Interestingly, the research also highlighted that the informal tactics deployed in financial learning do not necessarily lead to higher confidence later in life. Despite low take up, clients feel that formal initiatives are more effective at improving their financial knowledge than family conversations; the most confident clients are those who have had a ‘blended’ education of formal and self-directed learning from a young age.

Empirically, we also know that wealthy individuals who started their education before the age of 18 are now, on average, more confident in their financial understanding. Yet most are typically aged 27 before they start to learn about money matters, suggesting families are leaving it too late.

And while all will acknowledge that it is natural to seek familial support in difficult or emotional times, many will also agree that ad hoc financial home-schooling is not a suitable strategy for long-term wealth preservation. Clients will need to broaden their horizons when it comes to their financial learning but wealth managers will need to expand their educational appeal to highlight how and why clients should come to them to enhance their expertise.  

Tasha Vashisht is senior manager at wealth management think-tank Scorpio Partnership