This is a question I put to a client, Jeff, recently. That figure is what Jeff’s son was likely to receive after payment of inheritance tax on his estate. In the course of our conversation, it became clear that Jeff, like many others in my experience, had their number one priority as building wealth. That all makes sense, but there is a danger of subconsciously thinking that a) you can carry on forever and b) the next generation will see the world in exactly the same way as you do.
What came out of our conversation was that there was a clear need to think about not just the level of wealth, but the thought process around it. Had he asked his son if he had thoughts about an inheritance? Has he ever looked at investments? What does he understand of the stock market? Does Jeff’s son feel very strongly about certain issues? Money can be a great way to influence change- did he have any thoughts around giving to charity or certain issues or causes that he would want to use his wealth to help?
Part of our role as investment professionals or ‘trusted advisers’ as we are sometimes called, is to think about the broader picture and the soft skills around wealth. It isn’t just all about the numbers. Wealth is built, and importantly, is maintained, through shared values, an understanding of thelong-term goals, and the impact of excessive withdrawals over time.
As our conversation rolled on, it became apparent that Jeff thought of his wealth as something that should last for multiple generations. It should be grown, not eroded. This prompted me to explain that Jeff should really discuss his vision for the wealth with his son. As part of the family’s circle of advisers, I offered to facilitate this discussion and be on hand to explain investment concepts and the benefits of long-term compounding. One particular point of interest was the idea of housing. Jeff had assumed that some of the wealth would go towards financing a house, but how much? £1.45m is a lot of money but in certain areas of the UK, it may not go as far as you think. Did Jeff think, or expect, that his son would still take out a mortgage? Or just buy the house outright from his inheritance? Did he see investment in a house as a valid investment strategy?
Another point I made was around general millennial attitudes to investing. This is a sweeping generalisation but it serves a purpose, as I will explain. In the case of his son, Jeff has to remember that his economic experience has been one fraught with downside – the 2008 financial crisis occurred just as he was beginning work (or attempting to) and now, around a decade later, the COVID-19 pandemic hits, setting him back quite some way in his career. Research shows that Millennials tend to be quite cautious investors, favouring cash and lower risk investments. But does that logic make sense if we are looking at investing for potentially more than 100 years, i.e., more than 2 generations?
All things considered, inheritance and financial (or perhaps investing) education are quite broad topics.
However, if you are in this kind of situation here are 3 things you might want to think about:
1. It’s about the way you think, not the numbers: It was once explained to me that money is an idea, not a possession. Someone who is given a lot of money and doesn’t understand it, can lose it quite quickly. However, someone who understands money and wealth can take risks with it, because they are confident that they can make it back again if needed. This is an absolutely fundamental point to understand.
2. Compare notes: Do you and the next generation think about wealth in the same way? Where are the differences? How can you reconcile the different views?
3. Start early: Investing education should start as early as possible, not in your 30’s. Getting familiar with the concepts and applying them to your set of values takes time. Advisers can undoubtedly help, but you own the wealth so ultimately, it is down to you.
I really hope this has been useful, and I’d love to hear any feedback.
All the best,
Louis
The views expressed in this article are my own.
This information does not constitute advice or a personal recommendation.
Client name changed for anonymity.
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