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Baby-boomers’ succession strategies boosted by advisers

Baby-boomers, born in the 1940s, 50s and 60s, are the richest generation in history and are reaching a new perspective on their wealth

The private wealth transfer which sees money move from baby-boomers into the hands of their children over the coming decades is putting a new spotlight on advisers to high-net-worth families globally to make sure succession runs smoothly.

As a new generation prepares to inherit great wealth over the coming decades, advisers have a critical role to play in ensuring a smooth handover. Estera gathered a group of senior professionals together for a roundtable discussion on what that role constitutes.

Ella Pinnock, Client and Operations Director at Estera said “Advisers have a key role to play in helping clients to work through the transition of wealth in a collaborative and methodical way, and can bring critical support through preparation, relationship-building and governance.” Indeed, figures from the Knight Frank Wealth Report 2018 suggest that only a quarter of families have a wealth transfer plan in place, suggesting an important role for professionals in sharing insights on what can be done to ease the process.

Preparation for handover

Richard Prosser, Group Director at Estera questioned “Have these baby-boomers been clear with their children and grandchildren about what they stand to inherit or what they would like them to do when they take over?”

What became immediately clear during the round table discussions was the need for advisers to work with the founder generation to think about planning a handover strategy early, encouraging them to facilitate conversations with younger family members in good time and plan ahead. As Rupert Phelps, Partner, Smith & Williamson, said: “Many families, even in an era where effective governance is valued more, still have in effect a situation where they will try and put in place succession planning only once somebody dies. To try and get the family working together as a unit when they settle their parents’ estate is not the best time.”

Much better is for the adviser to begin building relationships early with all family members to understand both the founder’s vision and wishes for the assets moving forward, and to identify any potential variation between that and the vision of the beneficiaries. This is the point at which difficult conversations may need to be had, and when the older generation may need advice on the benefits of putting structures in place.

Posing questions

Sometimes the older generation may not have a clear idea as to what should happen to their wealth after their death, other than wishing to avoid excessive taxes and perhaps having views on people that they do not wish to take a chunk of it. That can prevent founders from taking action on succession planning, as can a wish to hold on to the money in case they need it later in their own lives. Advisers are well placed to help the baby-boomers crystallise their wishes.

If there are children who stand to benefit, it may turn to the advisers to nurture and encourage open conversations between the two generations about what the longer-term asset management might look like.

Ella Pinnock said “There are those awkward questions to be raised about mortality. English people in particular do not like to go there. But as advisers we are one step removed and we can delicately raise things. Every so often when it is a family situation, things can become very hostile and very emotional very quickly.”

Introducing governance

Once those conversations have been initiated, a framework can be put in place to guide future decision-making. Advisers can help with the establishment of family councils, which can in turn take the lead on setting up succession plans, putting in place family constitutions and establishing steering committees to lead on certain aspects of the handover.

Rupert Phelps said “One can prepare and future-proof with education, planning and by codifying governance through instruments that might be found and expanded in a family constitution, maybe a family council or a family assembly if they are large enough. All these techniques can be enormously beneficial.”

This is particularly the case where there is a family business involved “The other thing is to try to marry the values of the family and the family governance with the strategy of the business and the corporate governance, to see where they could be aligned and where they could learn from each other quickly,” said Rupert Phelps.

A family constitution can be used to establish what the money represents to the family, and what the principles are around which that wealth should be managed. Nick Barran, Managing Director, Rothschild & Co Wealth Management, added “Allied to a constitution is the idea of a family archive; a record of the endeavours of the family, which is really important. It is a bit of an old-fashioned notion, but it is a great basis upon which the constitution can be linked.”

Smooth communications

In preparing for wealth transfer, advisers can often find that they need softer skills around education and communication, to help make sure the process runs smoothly and all those involved remain aligned. Trustees may need to set up meetings with the next generation and spend time educating them on the trust structure, the roles and duties of the trustees, and what they need to know and understand as beneficiaries. Investment managers may need to support beneficiaries in understanding the current portfolio and learning about asset management.

Richard Prosser added “There may be instances of conflict or potential conflict among the next generation, or they may have immediate health or educational needs that need addressing, and it will be important for advisers to understand their aims and aspirations in looking after the assets moving forward.”

He concluded “As the largest wealth transfer in history begins to take shape, with families all over the world preparing to pass money to the next generation, often for the first time, the role of wealth advisers is coming to the fore. Many face new challenges as they work with families to cement relationships and unite generations around common goals.”

 


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