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Succession | Intergenerational Wealth Transfer | Financial Planning | Legacy Planning
Achieving and maintaining financial freedom whilst protecting your assets can very easily feel overwhelming for affluent individuals.
Fortunately, in collaboration with the right professionals, these challenges can be overcome.
In this article, we explore some of the key areas of concern high-net-worth (HNW) individuals and families face and how proactive planning and foresight can help avoid some of the most common threats to generational wealth preservation.
Threat #1 – Insufficient flow of wealth in the long-run
Solution – Establish a long-term financial plan and run the course
Among many other benefits of long-term financial plans, the two well-known ones are security against unexpected risks and disciplined action. The recent pandemic was a timely reminder that the world is filled with uncertainty and that certain events can impact our lives more than others.
One key lesson of this crisis was the realisation that we must always be prepared for any eventuality in life, in this case, financially. One way to do this is by creating a financial safety net through long-term financial planning. By having a long-term plan, you are more likely to be focused on your end goals. Any short-term market noise or volatility won’t distract you from your destination or have too much impact as you have time on your side. You’re also put in a better position to understand your asset allocation and, with the help of a team of professionals, be in an even better position to fast-track your portfolio by taking advantage of market lows.
Subsequently, long-term financial planning is most valuable when accompanied by other planning processes, as you will uncover in the rest of the article.
Threat #2 – The impact of market uncertainty on investment value
Solution – Create a diversified investment portfolio to weather any storm
Investing in the markets is one of the best ways to build wealth and reach your long-term financial goals. But with that comes the inevitable consequence of market volatility and uncertainty, which is more prominent today than ever.
Whilst diversifying your portfolio may sound complicated and daunting at first, there are many reasons why you should consider this approach to steadily grow your wealth over time. A common debate for investors is the property vs stock market debate, wherein investors believe returns on real estate far outperform the markets.
Many investors view property as one of the safest investments one could make, as you own a physical asset. It has traditionally been viewed as the ultimate stable investment that will protect your wealth during unstable economic times.
A recent report by Saltus Wealth Index showed that 84% of respondents would be using housing wealth to fund at least part of their retirement, with 70% planning to fund at least 25% of the cost. On the contrary, 25-34-year-olds don’t plan to use any housing wealth to fund their retirement.
However, relying heavily on any single investment for any financial plan is a fundamentally risky strategy, especially regarding real estate.
Our recent article on investing in property vs. stock markets shares key examples and evidence that prove the importance of a diversified approach in the long run.
Threat #3 – Inability to control the generational transfer of assets and wealth
Solution – Thorough estate planning with the help of qualified advisers working collaboratively
You’ve worked hard to build a life you love, so it’s only natural to want to preserve your legacy for your loved ones and the many generations to follow. Effective estate planning with the right team of qualified professionals can make or break legacy plans.
By taking the right steps and planning your estate now, you will be in better control no matter what the future holds. Estate planning not only helps you protect what matters most but also helps in easing the burden on your loved ones. Many misunderstand that a will would suffice when it comes to estate planning when in reality, it is only a good place to begin your journey as it’s part of the bigger picture. Wealth is global these days, and it is important to understand the many implications that could arise based on where your assets are held, for example, tax or even probate.
In addition to establishing a will, here are a few key elements to consider when creating a legacy plan:
· Preparing an inventory of your assets and liabilities.
· Drafting a list of your estate-planning objectives.
· Determining the actions needed to achieve your objectives.
· Consulting with appropriate advisors to support and help implement components of your plan including philanthropic efforts
· Conducting periodic reviews of your plan.
Another commonly overlooked part of estate planning is having conversations with loved ones before making key decisions about your executor, guardians, and the beneficiaries of your assets. These conversations can help you make better decisions regarding your overall plan whilst ensuring the long-term protection of your wealth and assets.
Introducing your family to your professional advisers is a very good way to start relationships, and they know whom to turn to when required.
Threat #4 – Potential legal obligations and liabilities
Solution – Having appropriate legal documentation and insurance in place
Many fail to realise the versatility of using insurance to protect and preserve generational wealth. It is often seen as a protective measure taken to negate risks associated with health and general items. But that’s just scratching the surface of insurance solutions and their capabilities.
Insurance, if used right, can be an important component of managing and protecting your financial future by reducing risk in your financial plan. Offloading or transferring risk to a third party can help eliminate liabilities such as estate or death tax, meaning you are more likely to preserve your wealth and pass on your legacy as you intended.
Most countries in the world have legislation that applies a ‘death’ tax in some shape, which taxes the value of your estate that you leave behind, and using insurance as a planning tool can provide much-needed liquidity after your death.
There are many different solutions available from insurance providers, so selecting the right plan for your specific needs can be complex and time-consuming. The right adviser will help you understand the importance of integrating insurance into your broader wealth management plan, as well as using the right tools and resources necessary to review, analyse, and compare your options, helping you overcome these challenges.
Whilst these strategies provide a starting point, there are many other ways to protect your wealth that may be more applicable to your specific financial situation.
As HNW individuals, your financial affairs are as unique as you are and require bespoke solutions. In the world of financial planning, a one-size fits all approach very rarely meets the requirements of complex financial matters.
Having a team of practitioners, certified public accountants, insurance specialists, attorneys and other professionals dedicated to helping you achieve your goals is vital to protecting and preserving your wealth for generations to come.
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