Estate planning is one of the fastest growing sectors in the Financial Services world. This is not surprising given the increase in individual wealth.
This provides opportunities for advisers to increase the value of their business. The right approach can widen their client base through building relationships with the family recipients of wealth, thus preserving assets to manage over the longer term.
Business Relief may appear to be straightforward and attractive option. However, the products are somewhat complex, and can cause problems and uncertainty for advisers, especially if it is a sector that they only tackle once in a while. They need to understand the products and the investment risks involved in order to be confident with the outcome.
The Hardman & Co Bespoke Business Relief Consultancy Services can help advisers on a case-specific basis, saving time and providing higher standards of client service.
Understanding the risks
Business Relief products may typically be perceived as low risk, asset-backed, modest return investments where the primary aim is capital preservation. However, the underlying investments carry risk; it is of paramount importance to appreciate this at the outset. It is also crucial to diversify exposure across available investment strategies and by provider.
Investing in BR products means investing directly into one or more unquoted companies or limited partnerships. Investors need to appreciate the underlying complexity of these assets, the governance involved, fee structures and liquidity.
Underlying valuations may involve a degree of subjectivity, too – an area in which Hardman & Co has substantial knowledge.
Importantly, while the products are marketed with targeted returns for investors of 3-4% per annum, some providers may be looking to achieve gross returns in excess of 10%, which clearly raises the risk profile materially. In addition, consideration should be given as to whether the client’s exposure is adequately diversified by provider as well as by product.
The risk of getting it wrong
It takes time and specialist knowledge to thoroughly understand and research the market; time that most advisers don’t have. Referring to an independent fund review alone may not be enough.
Unless advisers understand the nuances of this market, and how the different BR products are structured, they could run the risk of offering inappropriate or unsuitable advice.
In addition, the market is not static; new products are entering the market, and one or two providers have encountered difficulties in recent years. Advisers should review IHT plans regularly to ensure that they are still meeting the needs of their clients, and confirm that providers’ investment focus remains consistent.
The benefits are very clear:
- Expertise is available precisely when you need it.
- It saves advisers many hours of time and is cost effective. No longer is it necessary to undertake a review of the whole market, just for one case.
- Advisers have the reassurance that the advice they are giving to their clients is based on high quality independent research and analysis.
This means that the outcomes are satisfactory for both the client and advisers.
Richard Angus, Hardman & Co