1. Introduction
The fourth instalment of the Masterclass series addressed the seismic shift taking place in the independent financial advice sector as client assets pass from the current owners to the next generation on death. While many clients remain loyal to their chosen financial advisor during their lifetime, research in the United States indicates that 70% of heirs plan to change their financial advisor when they inherit assets.
A significant contributor to this phenomenon is that very few heirs have existing relationships with their parents’ financial advisor. In the session Albert Coetzee, Head of Global Investment Platform, and Marc Lindley, Product Specialist, shared how advisors can use platform functionality and family pricing to pursue new clients, protect existing assets and create cost efficiencies.
2. Beneficiary nominations provide for a seamless cascade of wealth
- Policy wrappers such as the Ninety One Life Portfolio play an important role in the estate- planning process. The beneficiary nomination creates an inherent link between the current asset owner and the heir. This creates an opportunity for the advisor to involve the next generation in the discussion from the outset and establish relationships with potential heirs at the earliest opportunity.
- They also ensure that ownership can be transferred from the deceased to the beneficiary in an efficient manner, which reduces the potential for leakage of assets on death.
- Beneficiary nominations ensure that these investments fall outside the control of the executor and the master’s office. The term falls away on death, which means that heirs can have access to capital and/or income within a short period of time following the death of the original asset owner.
- By avoiding the involvement of the executor, associated fees are eliminated, which provides a saving of up to 4.03%. Where a benefit changes hands on death, it is also a ‘rollover’ event in terms of capital gains tax – irrespective of who the beneficiary is. These combined benefits have a significant impact on the investment amount that can be preserved across generational transfers.
- We highlighted the use of trusts as beneficiaries on policy wrappers as a tool to manage vulnerability, to create tax efficiency and to shield from future estate duty.
- We provided solutions to advisors whereby clients invested in cash or near cash can “house” it in the Ninety One Life Portfolio, where the tax rate of 30% could present a material saving relative to the 45% the taxpayer would pay on a bank deposit. We also highlighted the ease of succession on death versus bank accounts and the power of using the available loan facility in future if required.
3. Family pricing provides significant planning opportunities
Making donations
- We explored how advisors can encourage their existing clients to make small donations to their children while they are alive such as investing in Tax Free Savings Accounts. This a repeatable process that allows the principal family member to gradually reduce the value of their estate over time while progressively transferring wealth to their loved ones.
- Importantly, family pricing means that the passing value from the principal member has no impact on the fees paid and the children benefit from the scale of the remaining family assets.
- This enables the advisor to bring the children into the advice net and improves the chances of retaining assets when the main family member passes away.
- The strategy generates cost efficiencies that can create improved outcomes for families while also proving revenue positive for advisors who earn their fees on a larger pool of assets.
- We applied this to the offshore space and the opportunities that the recent relaxation of the movement of money from an exchange control perspective provides. We considered how family pricing allows for outright cessions of policies to family members to reduce the size of a dutiable estate and to create tax-efficient transfers of wealth.
Disallowed contributions to retirement funds
- We highlighted the benefit of making smaller, more regular contributions to retirement funds over an extended time.
- Where contributions are made between spouses it provides the opportunity for sustainability of capital to be maximised due to reduced impact of the PAYE tables. Family pricing helps to ensure that there are no fee implications for accumulating savings in two accounts rather than one.
- This is another strategy that can help to establish a relationship between the advisor and a new family member while also creating greater flexibility around death.
4. Creating certainty of advice
- Investing offshore can be complicated and it is vital to understand the various global product structures available. An incorrect or sub-optimal structure can be more unfavourable than underperforming markets, especially when family dynamics are complicated.
- We highlighted how seemingly small nuances in structure could lead to uncertainty of outcome that could have major financial implications for your clients - potentially undoing years of financial planning.
- We highlighted the simple nature of the Ninety One Global products in creating absolute clarity in client outcomes based on changing circumstances. This is key to removing advice risk and providing advisors with confidence.
- We interrogated the factors to consider when using Offshore Trusts such as the establishment fees, annual costs, interest on loan account and time charges.
- The session concluded with insights into offshore trust structures including the recent SARS binding ruling on Offshore Pension Schemes (40EE).
Global trends indicate that tens of trillions of dollars are expected to be transferred from current asset owners to the next generation over the next couple of decades. To retain family wealth and to appeal to a different demographic, financial advisory firms need to find ways of engaging with future generations and recognise that deepening client relationships across generations is essential for the long-term success of their business. A platform needs to create functionality that encourages good client financial behaviours and enhances advisor practices to help deliver the best financial planning outcome for clients. This Masterclass series highlighted how Ninety One Investment Platform and advisors can work together to close this generational gap and create mutual prosperity.
Watch replay:
Download the PDF