By John Doidge, Chairman, Geneva Management Group
According to Joseph Coughlin, Director of the AgeLab at the Massachusetts Institute of Technology, “Global ageing is the most dramatic demographic change facing the world today.” In fact, nearly 4 million people in the world will be 100 or more by 2050.
And Britain is facing “…a life expectancy timebomb: By 2030, the average man will live to 85 and women will reach 87.” Some reports suggest that, for the first time, a group of men – those who are wealthy and educated – will outlive women in the UK.
All this means that wealth management has to change to meet the needs of this ageing cohort.
Although there have been significant improvements in medical care, which results in the longer lifespans, living longer does not necessarily mean that people will live in better health. The conditions associated with old age – long-term conditions such as diabetes and dementia -are still present, and require medical interventions: regular health check-ups, medical tests, medicine, assisted living, and so on. All of this comes with a financial cost and with greater administrative requirements, and this may create an added role for family offices having to manage the processing of medical care for their clients. In addition, there is a risk that the wealthy will face paying higher taxes to fund longer and better health and social care, and this is where the wealth manager can add value by advising on structuring to limit tax liabilities.
Living longer is likely to result in an increase in the number of people suffering from dementia and Alzheimer’s Disease. Here the family office can play an important role in assisting the older person and the family prior to the onset of a condition of this sort by advising on the benefit of housing wealth in a trust – should one of these conditions arise, the financial affairs of the person can continue as before without the family having to apply for a legal process to place the ill person under curatorship.
Control of family businesses is another significant element. The wealth manager will have to become more directly involved in the passing of control over to the 2nd or 3rd generation. While the founder of the business could have a major role to play beyond the traditional retirement age of 60 or 65, holding onto the Number 1 position beyond the age of 75 or 80 can be problematic, both for the family and for the business. It will be the responsibility of the wealth manager to nudge the transfer of control over to other generations.
Where today we deal with a family of perhaps two generations – the original client and their children – it is likely that we will in the future have up to four generations making up the client for whom we manage wealth. The wealth manager may have to develop more advanced personal skills to handle conflict within families relating to the family finances, or to dealing with a principal client who has begun to show signs of mental impairment as a result of old age. A strong relationship with all the members of the family can help with this situation. It may involve taking difficult decisions regarding care homes, and the wealth manager can assist the family with this, acting in a professional capacity without any family emotional ties.
As for the transfer of wealth, gifting strategies are likely to play a larger part in a wealth portfolio as the wealth manager advises the clients to transfer assets to other generations in order to benefit from lower income tax rates and to defer estate duties.
With education having become increasingly expensive, the 3rd and 4th generations can benefit from earlier transfers of wealth used to fund private schooling and university education. Wealth advisors will more and more have a role to play in advising grandparents in this regard. Methods such as Advance Fee Schemes, setting up family businesses that pay dividends to grandchildren, and investments into international investment bonds are particular ways in which wealth managers will be able to assist families.
Internationally, the concept of ‘ageing in place’ is gaining traction, and this impacts on the wealth manager, too. This involves an older person choosing to remain in a family home, with carers and other service-providers coming into the home. Again, the administrative function needed for this may rest with the family office.
Investment strategies will also have to be relooked. So, where, for instance, today one would consider more conservative investments for someone in their 60s, it may in future be better to retain investments with a high risk-profile and the chance of greater growth, since the longer lifespans mean that there will be a greater chance to recover any value lost on something that does not perform as well as was expected. This applies particularly where the first-generation wealth-creator remains involved in the family business.
Wealth managers always have to be conscious of new developments that impact their role, and longer lifespans are certainly a factor to be considered.