A family affair: why intergenerational planning really matters

by | Jun 6, 2022

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M&G Wealth’s Vince Smith-Hughes talks to Sue Whitbread about the latest Family Wealth Unlocked report and how advice can reduce the Inheritance Tax challenges of tomorrow… while supporting the generations of today.

SW: Inter-generational financial planning is becoming a much more strategic goal for many advisers. What were the key findings of the latest M&G Wealth Family Wealth Unlocked Report which was issued recently?

VSH: The latest research looks at how advice can help reduce the Inheritance Tax challenges both for today’s clients and also their beneficiaries down the line.

As the research in this report shows, intergenerational planning can be at its most effective when involving more generations than the one currently “caretaking” the wealth (those currently owning and holding it for future generations).

To me, this report shows how advisers can take advantage of the opportunities for intergenerational planning, to grow and protect their client base and build a more resilient and future proof advice business.

The report looks at advised families across the generations. We found that of those surveyed, one in three families who are advised share the same adviser, with 57% of them sharing the same adviser as their parents.

The reasons for this are many, but, understandably, amongst the top ones are saving money on tax, being treated fairly amongst other family members, and of course being aware of each other’s family situation as well, which is important. Another one that also scored highly was helping younger family members. This is something I see a lot, especially when you talk to people of my age, is where they’re helping their family out with things like deposits for houses.

The other key theme was supporting parents and grandparents and just making sure that financially they are okay. There are some really interesting findings and, keeping it all in the family does seem to be the case with a lot of people who are seeing an adviser.

Also what came through was that different generations have different concerns. Averaged across all generations, the research found that primary among these concerns was the impact of rising inflation (25%). Second to this was concerns about “investments losing money” (15%), stock market volatility and inflation clearly front of mind. Allied to this were long-term concerns about “having a reduced income” (14%) and “the inability to save any money” (14%) as inflation pressurises household incomes.

SW: Why do you think the report and its findings are so important for advisers and their clients?

VSH: Firstly, and most importantly, it’s all about delivering what the client wants, and making sure that this is in line with their big overarching objectives. That could be things like reducing inheritance tax which is a big worry for a lot of people. The need for intergenerational advice has been further fed by the chancellor freezing IHT allowances until at least 2026, resulting in growing numbers of people becoming liable to IHT– often without even knowing it.

Also, taking advantage of whatever tax breaks are available is also important. That might be paying into pensions for younger family members, which, as advisers will know, can be really effective from a tax perspective. As well as getting income tax relief, there’s also the impact on IHT too. But then there’s also a point around who’s controlling the money. With that in mind, I think writing cases under trust can help to keep the control with the right people, something that’s really popular too.

There is a short list of things that I think all need immediately addressing for a lot of people. Very simply, examples of these are, have they made a will? Appointed executors? Have the expression of wish forms been completed for the client’s pension benefits? Have lasting powers of attorney been set up? Have you considered gifting to the next generation, possibly as a way of reducing inheritance tax?

Finally, have you talked to clients about keeping all their financial information in one place where everybody can find it and where it is secure? This is so often overlooked and can cause real problems for families in the event of a family member passing away. For example, for my own situation, I use a fireproof box which contains all the relevant information that my family would need should anything happen to me. My wife and my son know exactly where it is and then they would know who to contact. It sounds simple, but so often it doesn’t happen.

In today’s digital world, we have added complications too. It’s much more commonplace for people to deal with their financial affairs online, via emails, via logins, basically not creating a paper trail. That’s entirely understandable and it’s really easy for people to do so. However, this is all very well but it means that there isn’t the paper trail, in many cases, that there used to be.

The first point of contact in these situations is often going to be the financial adviser. It might well be that they link them with an accountant or a solicitor as well perhaps. But absolutely, the first port of call is the financial adviser.

It’s absolutely essential for advisers to ensure that their clients start thinking about this as early as possible.

Clearly in a situation where a client has died, the adviser is going to want to retain the family as clients and to retain the funds under management. Even if it’s an adviser who may be looking to sell their business at some point in the not-too-distant future.

We were doing a webinar last year with some specialists who help advisers to buy and sell businesses. They were saying that it’s now very commonplace for people who are looking to acquire adviser businesses to ask the question, ‘what are you doing about engaging with the next generation of clients?’ It’s because they want to see a plan in place/ a continuity strategy, before they start actually talking about buying a business.

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