Investment

It’s a well-worn phrase that I’m sure you’ve heard before.
The grandparents start the business, it becomes successful, the next generation build it further and the grandchildren subsequently ruin it and squander the wealth.
Of course it doesn’t happen this way every time. When we look at our typical client profile we see a great similarity – Families running businesses trying to build better lives for the future generations. And leave a lasting legacy.
We have developed what I guess market-teers would call a strap-line for our business that explains what we do – “We look after families, their businesses and their wealth across the generations”
By identifying this particular niche we can see that there are common financial planning requirements that come up frequently. That’s not to say that each situation is not unique but there are similarities in what each family is trying to achieve financially.
We find that we are often referred up and down the family generations and it really helps when there is family understanding and consensus when building the financial plan. Using our cash flow modelling process also provides a long term view of how wealth and indeed the value built up in the business can help families for a great number of years.
We can establish when it might be right to exit a business and extract wealth tax efficiently for the current generation while leaving a viable firm for the next generation.
We strongly believe that as family wealth financial planners we need to take a much longer view of our clients and consider 40 years, 50 years and even longer relationships.
Taking a cross-generational view also helps with our passively engineered investment approach by allowing capital markets to reward you for investing over the much longer term. You can let the beauty of compound returns achieve the family financial goals without exposing yourself to unnecessary risk.
In other words, if 5% pa or 6% pa return over the next 30 years gets you there, then don’t aim for 10% pa and find you are exposed to greater volatility and portfolio value swings than you’d like to be.
Being smart across generations with robust tax-planning can also provide greater wealth for the family and taxes such Inheritance Tax, can be mitigated or avoided altogether by taking the long term view.
Protecting the family and the business by using third-parties to shoulder the risk if something happening to the driving family member is vitally important and again something that should be known and understood by the family group. There is little point in creating wealth only to have is lost on the death or serious illness of one individual family member.
From a cost point of view, there are other benefits to this approach. There are often family discounts to be had by pooling assets on an investment platform – we do this through our Personal Investment Account and it can lead to substantially reduced costs that apply to all members of the family group over a long period of time.
I hear that slow-cooking is now become the natural antidote to fast-food and perhaps it’s time to apply this approach to your financial planning – easy does it, take long term considered views and we might just get beyond three generations.
Please speak to us if you have any concerns that your current financial arrangements are quite what you’d hope they’d be.
Roland Oliver
October 2013