The generational investment divide threatening family wealth

Technology, cryptocurrency, environmental and social themes, and borrowing to invest are among the sources of family friction.

The head of William Buck’s family office division, Adrian Frinsdorf, said the difference in values between generations “ultimately threatens a family’s legacy”.

“There are enormously important discussions that need to be had right now among family members across Australia,” Mr Frinsdorf said.

“Poor communication leads to conflict, relationship breakdown and fracture of family wealth.”

Mr Frinsdorf said ethical and digital investments were two key areas of contention.

“We’re seeing Gen Y as a whole wanting a greater focus on investing with purpose within the family’s wealth strategy,” he said.

“They wish to allocate a greater proportion of the family’s wealth into ethical investments. This is often at odds with their grandparents who have traditionally pursued a more returns-based approach.”

Meanwhile, a digital divide was emerging as many older Australians viewed technology as an “untested and risky area to invest”, Mr Frinsdorf said.

“Bitcoin is one of the more contentious examples of this,” he said.

Other financial advisers say investing in technology stocks is viewed differently by different ages.

MBA Financial Strategists director Darren James said young investors were asking more about AI, robotics and automation.

“They’re seeing it through their workplace … those that are still in the workforce are absolutely asking a lot about the digital, AI, tech stuff, especially after the Magnificent Seven has been in the news so much,” Mr James said.

The seven tech giants – Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla – now dominate the US and global stockmarkets.

“That is potentially denting the returns off some of those older generations because they may not have focused as heavily on that massively profitable part of the market in the last year or so,” Mr James said.

He said families were now investing more as a group, particularly through self-managed superannuation, but the levels of risk they were prepared to take varied widely between ages, “creating conflicting needs”.

A majority of SMSFs contained pooled assets, Mr James said, so families should communicate their desired level of risk, compromise where needed, and perhaps consider segregated investments within a family-owned fund.

CreationWealth senior financial adviser Andrew Zbik said families using an SMSF should ideally be at a similar stage of life, because if some members were conservative and drawing a pension while others were aggressively growing their nest egg, the complexity could increase substantially.

“What I’ll advise people to do is sharing an SMSF with your siblings if you get along well with them, because you’re at a similar stage of life,” he said. “I say keep it horizontal.”

Mr Zbik said seniors still tended to buy the big banks and invest heavily in the Australian market, which was dominated by banks and resources.

“I have a whole session that I actually spend a lot of time explaining to them that Australia only makes up 2 per cent of the world share market … I do a lot of education on exchange trade funds,” he said.

Mr Zbik said a common cause of generational family friction was parents warning children about debt and leverage, despite that being a strategy that worked for them.

“I find a lot of these older people are almost talking their children out of doing what they did themselves,” he said.

“They borrowed money to buy their home then built equity in the home. They then borrowed money when they bought an investment property.”

Mr Frinsdorf said differing views among family members were to be expected.

“Bringing these views to the table for open discussion can be very beneficial to a family’s long-term wealth strategy,” he said.

“At the same time, tried and trusted investments in quality assets will always have a place.

“It’s not the different generational views that is the problem … the problems really arise when families do not effectively communicate with each other.”

This article first appeared in The Australian as Investment divide: A generational clash threatening family wealth