As the wealth planning requirements of wealthy families have become more sophisticated, the value of efficient solutions and experienced counsellors have grown significantly, as this article explains.

The following article from Lombard International Assurance (see a previous interview with that firm by this news service here) examines inter-generational wealth management. The author is Simon Gorbutt, associate director, wealth structuring solutions. This publication is pleased to share these views and invites readers to respond. They can email the editor at tom.burroughes@wealthbriefing.com.

As the lives of high net worth individuals and their families become increasingly multifaceted, so do the strategies they apply to manage their wealth. With growing international lifestyles, global business ventures and a rapidly changing regulatory environment, it is unsurprising to see that more and more of the ultra-wealthy are turning to trusted advisors to help them navigate and manage their legacies effectively. 

As the wealth planning requirements of wealthy families have become more sophisticated, the value of efficient solutions and experienced counsellors have grown significantly as individuals look to guard assets from unnecessary risks.

One common way that advisors do this is to build diverse portfolios that are not reliant on a single solution. So it’s often the case that high net worth and ultra-high net worth families use a combination of insurance, trusts, funds and foundations to protect and conserve their wealth.

Growing concerns
For many high net worth families, the coming years will be the first time that significant wealth has been transferred from one generation to the next. It is expected that ultra-high net worth individuals across the globe will transfer more than $3.9 trillion between generations over the next decade - enough to purchase the 10 largest companies in the world outright. This figure is estimated to rise to more than $16 trillion of assets transferred over the next 30 years (source: Wealth-X and NFP Preparing For Tomorrow: A Report On Family Wealth Transfer 2016).

Furthermore, the authors of the 2016 Capgemini World Wealth Report observe that the impact of wealth transfer will increase significantly over the next decade. Interestingly, 23.2 per cent of respondents under 40 described expertise in estate planning and wealth transfer as one of the most important elements in wealth manager selection, as opposed to only 19.3 per cent for those aged over 60.

Wealth transfer is not only a concern for the individuals but for governments as well, as they are still grappling with the increased mobility of global wealth in a bid to boost transparency. Consequently, we now live in a world where we are seeing new regulation being introduced all the time.

It is little surprise, therefore, that successfully transferring family wealth to the next generation is a growing priority. Yet many clients (and even some consultants) still pay insufficient attention to succession planning. Individuals and their advisors should make sure that they are well informed about the different solutions available. The results of one option will differ from the next, so getting a good understanding of what each can offer is essential.

Weighing in options
With so many high net worth individuals crossing geographical boundaries to work, marry, raise families, educate their children and/or retire, there has never been a greater need for solutions that protect, preserve and increase legacies in a way that is transparent and compliant with local fiscal laws.

There are several factors to consider when formulating robust international wealth plans, including the complexity of local legislation and fiscal regulations; the fact that many clients have interests across different countries and continents; and the specific requirements of ensuring that assets get to the right person at the right time.

Inevitably, the conversation with a self-made entrepreneur for whom wealth transfer is a new concept will be very different to that with a third-generation member of a wealthy family. For instance, the latter will often be preoccupied with preserving a business that has been built up over years or even decades. This means that the next generation will not only have to be provided for equally so they don’t have to dismantle the business, but will also have to be well prepared to handle their inheritance.

However, there are some constants that are applicable to everyone looking to transfer their wealth. For example, it’s always best to start making provisions as soon as possible. This can be a lengthy and complex process and the longer it is delayed, the more limited the options become. It’s also never advisable to have the majority of a family’s wealth tied up in a single investment. 

As a general rule, one of the best ways to tackle any form of uncertainty is through diversification, ensuring one is never overly exposed to a single country, currency, asset or industry. Therefore the retirement or passing away of an individual can represent an opportunity to diversify family wealth. 

Providing assurance
As mentioned above, high net worth individuals and families increasingly require flexible wealth planning solutions. This is one of the reasons that life insurance is becoming a more popular mechanism because, unlike other investment solutions, it has proven longevity and remains as effective as ever. 

This is due in part to the fact that it is subject to established legal and fiscal regimes, meaning that it can be adjusted to reflect new requirements. It also benefits from political support as a long-term savings and investment product.

In addition, an insurance plan enables the holder to combine non-traditional assets (hedge funds, real estate and private equity) and traditional investments with the coverage of an insurance policy, making it a valuable component of a diverse portfolio.  

That’s not to say that life insurance is a "one size fits all" solution, but it can be tailored to meet the needs of specific clients, which is a real asset in some instances. If, for example there was an untimely death and the beneficiaries were underage, clauses could be introduced to ensure that the wealth wasn’t transferred to the children until they were better equipped to manage it.

There will be some situations where insurance is not the best solution, and this is why it’s important to know all the options available. Given the challenges of managing large investments across multiple jurisdictions, it is not surprising that very wealthy people typically need many banking relationships in order to find all of the products and services they need - including high-level portfolio management, estate planning and tax advice covering multiple asset classes and countries.

Conclusion
Life assurance proves that just because the wealth planning needs of wealthy families have become increasingly multi-dimensional, this does not mean that the solutions have to be complex.

However, a major part of effective wealth planning is to ensure that the chosen solution is fit for purpose and matches the client’s appetite for risk. People want their wealth to act in different ways, so finding a solution that is aligned to their specific expectations is one way to mitigate any unexpected outcomes.

Increasingly international business and family situations, not to mention unexpected relocation due to economic or political instability, all add an additional dimension to wealth planning - and not all wealth planning solutions are equipped to respond to these changing circumstances.

It is important that high net worth individuals and families work with their advisors and insurers to stay on top of and cope with these developments and demands. To this end, investments need to be monitored and modified on an ongoing basis and those responsible for them must be prepared to respond immediately to any changes in status or requests.

About the author: Simon Gorbutt is a solicitor, qualified in England and Wales, and trust and estate practitioner specialising in cross-border wealth planning for high net worth individuals. Gorbutt heads an in-house team focusing on Northern European and US expatriate clients as part of Lombard International Assurance’s wealth structuring solutions capability.