For most of us, when it comes to life’s big decisions and questions around how to manage our wealth, family is never far from our thoughts. But as the world grows more complex, how can you stop wealth transfers from dividing your family?
Scott Duncan, Wealth Planner in Julius Baer’s International Advisory team, discussed with us the kaleidoscope of complexity when dealing with family dynamics and the differing laws from one country to another when managing cross-border estates. For him, the key to avoiding conflict lies in transparent communication: “Holding regular meetings with all family members to discuss your estate plans openly can address concerns, clarify your intentions and make sure that everyone understands that plan.”
Scott provided a reminder that no plan needs to be cast in stone. “No one solution is going to be an evergreen magical panacea,” he said. “Even when you have a wealth plan in place, it doesn’t need to stay the same way forever. It can be changed and modified. Once a succession plan is in place, keep reviewing it and revisiting it regularly. The key thing is to start somewhere and take action!”
A house doesn’t need to be a home when investing
Every family needs somewhere to call home, but aside from residential property, real estate is an asset class that holds varying opportunities for investors. “If you plan to invest in real estate as an asset class, diversification, liquidity and risk-return parameters are important to consider,” advised Markus Waeber, Head of Indirect Real Estate Advisory and Intelligence.
With recent interest rate rises putting home ownership out of reach for many, Markus outlined that investing in a multi-family house could be an interesting option now to benefit from rising rents. “In Zurich, there’s been a 10% increase year-on-year, which is quite a lot from an investors’ point of view,” said Markus. He also drew a distinction between ‘direct’ real estate investment, which involves the purchase of physical real estate by high-net-worth individuals or institutional investors, and ‘indirect’ investment, which involves investing in real estate through listed REITs or funds rather than owning the bricks and mortar.
He adds: "When we look back at the last 22 years on a total return basis for global property investments, you could earn a decent total return of 7% on average. Of that 7%, 5% would have come from the income return, and the other 2% from capital growth.”
Get personal when it comes to protecting your purchasing power
Property prices around the world also featured in our podcast with John Franklin, Editor-in-Chief of the 2023 Global Wealth and Lifestyle Report. The report uses an index of discretionary goods and services to provide insights into the changing lifestyles, habits and priorities of high-net-worth individuals around the world.
In 2023, the overall price of the index increased on average by 13% in local currencies in the cities surveyed, and by 6% in US dollars overall. “The price changes of both goods and services in the index show the impact of general conditions that the whole world is experiencing,” explained John. “These include increased energy, raw material, staffing and running costs, coupled with inflation and currency fluctuations as well as ongoing supply chain disruption. Every industry, business and consumer is feeling the effects.”
Faced with this global inflation in prices, John underlined the importance of being aware of your personal inflation rates. “This means appreciating the changes in the price of goods and services that you buy regularly, be it baguettes or boats, and ensuring that you have sufficient income or investment returns so as not to lose your purchasing power,” he said.
Take time to exit your business
Our podcasts in 2023 also explored the different options open to those who’re looking to transition to the next stage of their life, be it by exiting their business, planning their succession, or entering retirement.
In March, Glenn Branney, UK Regional Head of Wealth Planning, discussed how entrepreneurs can prepare appropriately for a business exit. “In my experience, a well-crafted exit strategy both optimises trading profit and also increases the eventual selling price,” he said. As with many aspects of financial planning, timing is crucial in achieving this. “It’s never too early to be prepared – the earlier the better,” said Glenn. “There are always bear traps, so being able to think well in advance and plan accordingly will serve you well in the long run.”
Glenn also recommended a healthy dose of self-reflection. “Think about your ultimate purpose. What is the wealth for? What do you want your legacy to be?” He impressed upon listeners the need, above all else, to create a will and lasting power of attorney – and to make sure they’re up to date and accurate. “Ensure that all three legs of the stool are being considered, namely your business, your family, and of course, most importantly, yourself.”
Succession planning is for all age groups
Given that the greatest transfer of wealth in history is due to take place between generations in the next 25 years or so, it was surprising to learn during our podcast with Gabriele Di Girolamo, Head of Wealth Planning Europe, that some 70% of ultra-high-net-worth families don’t have a succession plan in place.
This might owe to misconceptions about what succession planning means. “People usually think that succession planning is only a topic for older people – that it’s basically just how to transfer your assets to the next generation. In reality, it’s more than that and it’s not strictly related to any age group,” said Gabriele. “If the father of a young family is an entrepreneur or executive, his family’s lifestyle is truly linked to the income that he is able to generate. If something happens to him, the family will suffer.”
Gabriele had a handy workaround for those who’ve not yet got around to full succession planning. “Take the tiny step of preparing an emergency folder in which you collect important information and documentation. When you do, you’ll realise that some pieces of the puzzle are not in place. This can really help your family, because at the end of the day you don’t want to add further stress to them in a difficult situation. There’s a lot of wisdom in the words ‘hope for the best, prepare for the worst’.”
Retirement is more than just a numbers game
As Gaetano Petrocelli, Head of Wealth Planning Insurance, knows, one stage of life where all of us hope for the best but don’t necessarily prepare as well as we might is retirement. “First and foremost, it’s important to recognise that state and employer pension plans may not be sufficient,” explained Gaetano. “Depending on factors like domicile, age, family situation and target plans, private clients may need additional tailored solutions. Products that provide passive income, liquidity, stable growth, and longevity protection are key.”
According to Gaetano, time horizon, liquidity needs, and liabilities, including taxes, are all common factors to consider in making your wealth last. “The longer the time horizon, the more risk one can take in investment strategy. As retirement approaches, the investment horizon decreases, leading to a shift towards income strategies. Longevity is also important to consider, as life expectancy has increased globally. It’s essential to anticipate the impact of inflation, mortgage payments, medical expenses, and the desire for travel and hobbies, while also avoiding the erosion of your wealth by the time it will be transferred to the next generation."
Gaetano advised listeners to think beyond wealth. “Think about what really matters to you. You not only have financial assets to look at, but also intellectual and human assets – intellectual assets being the experience and knowledge that you want to pass on, and human assets being the things you love, like your family and your hobbies.”
Experts make the difference
Throughout the podcast discussions we’ve held with our experts over the past year, one piece of advice has cropped up more than any other: the importance of seeking out the support of a professional.
We’ll leave the last word to John Franklin, who appeared as both a host and as an expert interviewee in 2023. “I think more than ever this year underlined the importance of a robust wealth management strategy. This is essential to support the needs of both the individual and their families for generations to come. As complexity grows across cities, continents, financial jurisdictions, whatever it may be, the value of a trusted partner by your side to navigate through this is incalculable.”