Managing Expat Wealth:
In 2015 George Osborne’s pension freedoms created a dash for cash by retirees. The public might want to focus their attention on the tail-end of his changes – the ability to cascade cash down the generations to manage their expat wealth.
The ‘Fifties generation (BIFs)
The post-war demographic boom that created the Born In the ‘Fifties generation (BIFs) awarded that cohort with unprecedented privilege. Beyond free university education and low-deposit housing, most significant was a fundamental shift in financial opportunity. In 1956 Ross Goobey, the manager of Imperial Tobacco’s pension fund, revolutionised long-term investment strategy. This was when he declared shares provided better long-term inflation-adjusted returns than bonds. This sparked the engine of a massive global transfer of pension assets from bonds into equity.
Twenty years later, BIFs were working and beginning to generate growth in earnest. Both UK inflation and interest rates reached 17% in late 1979. Western governments responded by adopting economic strategies championed by Milton Friedman. So-called ‘free-market’ economics disavowed state interference. It also created a freewheeling, debt-driven, deregulated and high-growth global economy. Since 1980, the FTSE All Share index has returned over 12% a year. UK Treasuries have produced over 7.5% pa. I repeat, that’s compound, per annum, over 35 years. The US story is almost identical. By 2011 bond markets had delivered more than over any 30 yr period since 1861.
Transfer of expat wealth and fortune
We now have interest rates at rock bottom. Since 2000, we’ve begun to see the demographic impact turning negative. Instead of accumulating and acquiring, BIFs are focused on decumulating and lifestyle maintenance. Consumer driven growth (in the West) will wane, while the next generation will be the first that is likely to be less wealthy than its parents. Those who see their families struggling to find tuition fees and house deposits are faced with rising interest rates and low growth. These are problems they never had but may want to do something about it.
US wealth managers are well used to planning the transfer of wealth through generations. Their experience mirrors the ‘Buddenbrooks effect’ named after the eponymous novel by Thomas Mann, which chronicles the rise and fall of a family’s fortune and expat wealth over the generations. In précis, the first generation makes it, the second spends it, and the third blows it. This knowledge should underline the importance of financial planning versus investment advice in the new pensions landscape. Comparing the efficacy of an inherited drawdown fund, versus a bypass trust where ‘control from beyond the grave’ can protect the family from a spendthrift beneficiary should be hugely valued versus mere ‘fund picking’. But that assumes advisers care about, and engage with, their clients’ children.
Maintaing relationships through generations
Those US advisers are servicing the same generation as UK and international advisers. They have already recognised that if you don’t take on new clients, intending to sell-out and retire, a savvy buyer will want to know how close you are to the whole family and not just Mum and Dad.
If you think this is a minor issue, consider this: in a recent survey of US financial advisers*, 66% of children ‘fired’ their parents’ financial adviser after receiving an inheritance. Over 70% of financial advisers questioned said they rarely or never engaged with clients’ children – and bear in mind we’re talking about ‘kids’ who are probably beyond their teens at least.
Harrison Brook offer a ‘family office’ type service to work through the generations. We are dedicated to creating a sustainable business, where we have a succession plan for our clients. Our holistic advice proposition identifies the need to serve a client base that expects a different, more digitally based service experience. An experience that builds, maintains and protects your family’s wealth, not just yours.
Get in touch today, we are here to help!
Chris Hall- Private Client Adviser