FUND SPOTLIGHT 2 - Summer 2019

FUND SPOTLIGHT – 13

Ben Charington Head of Estates and Probate, Octopus

Dr Eliza Filby Generations Expert

I N T E R G E N E R AT I O N A L P L A N N I N G – WH Y I T C A N B E T R I C K Y A N D H OW T O G E T I T R I G H T

This generation was encouraged in the 1980s to buy assets that accumulated in value, amid a culture that incentivised long-term behaviour. There has not been that culture at all for millennials. It’s therefore unsurprising that as they enter their mid-life stage, the financial services industry is scrambling to engage with them and finding it difficult. This generation is set to inherit the largest transfer of wealth in history. The financial services industry has a role to play in educating millennials so they are ready. BC: If no planning is done then a big chunk of the wealth someone’s built up goes to the government as inheritance tax. So good intergenerational planning is clearly important for those wanting to pass as much as possible to their beneficiaries, and for those beneficiaries themselves. But it’s also very important for financial advisers. Getting this right means an adviser has the opportunity to take on a whole new generation of clients. It also means retaining assets under advice built up with the original client and unlocking the planning opportunity for their beneficiaries and their wider estates. Firms that successfully retain assets while taking on a younger client base should increase the value of their business. WHAT CAN INHIBIT SUCCESSFUL INTERGENERATIONAL PLANNING? EF: It’s always difficult talking about money. There’s also a power imbalance between generations. One generation has all the money, and millennials can feel infantilised by their parents. The financial services industry sometimes mirrors that, concentrating its attention on millennials’ parents and not on those who will receive the wealth. The industry struggles to educate millennials in a medium they understand and prefer, like video. What needs to be realised is that millennials will have a very different life cycle to their parents. They can expect to work until they’re 80. Therefore it makes sense to think of a pension as more of a social care fund. Millennials will see the world during their working life. They’re not saving for that retirement cruise. Intergenerational planning should account for

The life experiences of millennials (those born between 1981 and 1996) and their baby boomer parents (born between 1946 and 1964) differ enormously. This poses a challenge for financial advisers working with clients on intergenerational planning. Below, generations expert Dr Eliza Filby and Ben Charrington, Head of Estates and Probate at Octopus Investments, share their thoughts on this important topic. Ben Charrington: Inheritance is changing for a number of reasons. The two big ones are that people are living longer, and the value of their estates has increased. Because their parents are living longer, beneficiaries tend to be older when they receive their inheritance. And because estates are larger, we’ve seen an increase in inheritance tax receipts, which hit a record high last year. Eliza Filby: The intergenerational transfer that’s happening right now is having a profound impact on how people think about money, and on how millennials and their parents navigate that. There are examples of millennials and their parents deciding to exchange money while the parents are alive, for instance to help their children get on the housing ladder. But this is complicated by the fact that baby boomers are living longer, so need their money for longer to cover living costs and potentially care costs. We see this reflected in public as a political divide, with generations pitted against each other. Crucially, this public tension tends not to exist in private. Families are closer than ever before, with grandparents doing an awful lot of childcare. Families are taking the initiative and beginning to have those conversations. WHY IS INTERGENERATIONAL PLANNING SO IMPORTANT? EF: Baby boomers are the best financially planned generation in history. One in five baby boomers in the UK is a millionaire, many as a result of rising property prices, so they need the right estate planning. HOW IS THE NATURE OF INHERITANCE CHANGING?

the very different life cycle millennials will have.

BC: Talking about death is one of the hardest conversations an adviser can have with their client. It can be even harder for them to talk to their children about it. So we see a lot of procrastination, which gets in the way of good planning. “I’ll put this off until I retire” or “I’ll do it when I turn 75.” All that happens is the conversation gets harder to have and sometimes ends up not being had at all. I would also add that the probate process is not given enough respect. People usually go to a solicitor and leave them to deal with it. Financial advisers and the expertise they bring are too often left out of the process. I got a phone call recently from a beneficiary who was clearing out her father’s house. During the probate process, they had taken an investment they had with us and sold it down and taken it as cash. The solicitor and the beneficiary didn’t know they could have claimed inheritance tax relief on this investment. Had she not picked up the phone, the beneficiary would’ve been out of pocket for £80,000. Financial advisers can prevent this sort of thing, but only if they are involved during the probate process. ESTATE PLANNING THROUGH THE GENERATIONS Octopus has put together practical tips and information on engaging with the next generation as part of estate planning. You will find them – along with further findings from our research – at octopusinvestments.com/ intergenerational. For professional advisers and paraplanners only. Not to be relied upon by retail investors. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. Issued: May 2019. CAM008184.

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