Praemium Advice Leaders Newsletters September 2024 In the now: the great wealth transfer has begun

It is a pivotal era in wealth management as the great wealth transfer is now underway. With over $1.9 trillion poised to be transferred, financial advisers are best placed to assist their clients in navigating this transition successfully.

In just the last year, there has been a considerable jump from 25% in 2023 to 33% in 2024 in high-net-worth (HNW) individuals beginning to transfer their wealth. This trend is even more pronounced among those working with financial advisers, with 39% already in the transition phase. This underscores the critical role advisers play in initiating early conversations and highlighting the benefits of early planning, including tax efficiency, asset protection, and value alignment.

This movement of assets not only highlights the effectiveness of wealth accumulation strategies among the affluent but also emphasises the need for strategic planning to manage these transitions smoothly.

Preferred Structures for Wealth Transfer

When it comes to the structures used for wealth transfer, Self-Managed Superannuation Funds (SMSFs) remain a top choice among HNW investors, with 36% either currently using or intending to use SMSFs for this purpose. Among those who have initiated the transfer process, trusts are another popular option. With many wishing to preserve their wealth beyond their lifetime, ultra-high-net-worth individuals overwhelmingly favour family trusts (63%) and testamentary trusts (40%) for transferring their wealth. These structures provide protection in complex family situations and support succession planning for intricate needs, such as managing family businesses and other non-liquid assets.

As such, building a strong referral network with lawyers specialising in estate planning not only enhances your service to clients but also helps you build valuable connections with experts in allied fields. To learn more about navigating successful estate planning and building referral networks, click here.

Giving for good

As many HNW investors secure their retirement and begin transferring a portion of their wealth to their families, a growing number are turning their attention to philanthropy. Charitable giving is increasingly becoming a central element of wealth transfer plans among affluent individuals, with 54% of HNW investors intending to leave some of their wealth outside their immediate family, primarily to charitable organisations. This trend reflects a deepening desire among wealthy individuals to positively impact society and support causes they care about.

To ensure their philanthropic efforts are both impactful and tax-efficient, HNW investors are increasingly seeking strategic advice. This includes guidance on setting up foundations or donor-advised funds, identifying organisations that align with their values, and structuring donations in a way that maximises their impact. Among UHNW investors, 12% express a strong interest in receiving advice on strategic philanthropy, underscoring the importance of thoughtful planning in this area.

Intergenerational Planning: Beyond Tax Efficiency

Intergenerational planning is about more than just minimising taxes. While tax effectiveness remains a top priority, educating beneficiaries and enhancing their investment knowledge is becoming equally important. For HNW investors who have already begun the wealth transfer process, the need for estate planning is slightly lower (59%) compared to the overall figure (62%). However, they recognise the importance of enhancing the financial literacy of their beneficiaries, with 19% of those in the transfer process prioritising this, compared to 17% overall.

With the expression "from shirtsleeves to shirtsleeves in three generations", a Scottish proverb highlighting how by the third generation the wealth built by the grand-parents is lost, particularly infamous within the HNW sector, supporting beneficiaries through the wealth transfer process is crucial—especially considering that a third of HNW investors have already started this journey. Providing the next generation with the knowledge and skills to manage and grow their inheritance is an essential component of a successful wealth transfer strategy.

Given the increasingly complex needs of high-net-worth individuals and families, advisers must take a proactive role by initiating early discussions on wealth transfer, tailoring strategies to clients' unique needs, and expanding services to include philanthropy and financial education. Those who position themselves as comprehensive partners in wealth transfer will build stronger relationships with current clients and attract future generations seeking thoughtful planning.