It's a family affair

30 May 2018

Kicking off our series on intergenerational planning, Neale Smith shows how there’s more ways to preserve wealth than just through IHT planning



There is much we can do to improve how we serve different generations of clients, writes Neale Smith

If one of your client’s parents passed away, would they call you? If one of your clients passed away, would their children call you? How many of your clients are named as executors or hold power of attorney? These questions have been troubling advisers in the US, where thoughts on generational planning are perhaps more prevalent than in the UK.

When we consider preserving wealth and planning for the next generation, the first thing that springs to mind is minimising the impact of inheritance tax (IHT) on a client’s estate. You could argue quite rightly so.

However, even the best IHT planning runs the risk of simply passing the problem on to the next generation. According to Royal London, a ‘cascading wall of wealth’ worth as much as £400 billion is due to move between the generations in the coming years. This will primarily move from the baby boomer generation (born 1945-64) to generation X (born 1965-79) and the millennial generation (born 1980-95), or put more simply from grandparents to kids and grandkids.

The challenge facing our industry is to ensure we continue to look after this wealth as it cascades down the generations. It is incumbent on platforms and providers to deliver the products and tools to help advisers do so.


Why is this important? US studies have shown that up to 70% of family wealth is lost by the end of the second generation and up to 90% by the end of the third generation1. This is further compounded by an equally worrying statistic that 66% of advisers in the States are sacked by their client’s children2 once their inheritance has landed. While I don’t believe the UK is in exactly the same predicament as the financial services sector across the pond, there is a lot we can learn from their experience.

You may think the high loss ratio of wealth detailed above is due to poor choice of tax wrapper and mismanagement of investments, but this has been attributed to less than 3% of overall wealth lost. The main contributing factors are lack of communication (60%) and unprepared heirs (25%)1.


When it comes to leaving a financial legacy, quite often fear is the dominant emotion. Fear of the donor running out of money themselves, fear of limiting one’s options by acting too early, fear of creating an entitlement mentality amongst heirs, fear of creating sibling rivalries and fear of the inheritance being squandered.

To overcome these fears, clients should be asked to consider what their wealth means to them: What does money mean to me? What are the attitudes towards money I want to teach my heirs? How can I help my heirs develop their financial competency? Who will inherit my wealth: family, friends, charity, HMRC? What are my options for controlling the transfer of my wealth? How can I best communicate this to my heirs.

Once the answers to these questions are known the following planning ideas may prove useful:

  • Financial planning as gifts – clients pay for their kids to receive advice (which can also serve to reduce the value of an estate for IHT purposes when using the annual exemption and gifting rules).
  • Pro bono yearly reviews for children up to age 30 as a way to encourage the next generation to consider the benefits of financial planning and to cement future relationships – an idea proposed by an adviser at a recent Zurich workshop.
  • Hold family meetings and create family plans and bring the generations together.
  • Stories – reach out to next generation to explain the meaning of the plan. Explaining the sacrifices made by parents in creating a legacy allows children to fully understand the importance of the inheritance they will receive and to attribute a higher value to it.

Intergenerational planning will also reap rewards for adviser businesses. The value of a business that encompasses multiple generations will be much higher than one where the core client bank is in retirement and decumulating assets.

Employing the services of younger advisers to service the younger generations of a family will strengthen an advisory firm’s relationship with that family and also assist with transitioning the business itself should the principal(s) wish to retire.

As a final thought, I will leave you with the words of Warren Buffett: “Parents should leave their children enough so they feel they could do anything, but not so much they feel like doing nothing.”

Neale Smith is a wealth specialist at Zurich UK

If you wish to know more about the intergenerational planning solutions that Zurich can offer on our platform along with our range of protection products and trusts, please contact your Zurich business account manager

Sources: 1 Lost Inheritance, The Wall Street Journal, March 2013; 2 Investment News, 2015

Related Topics