Secrets of success

  • Author : Frank Akers-Douglas
  • Author : Wilson Cotton
  • Author : Charles Gowlland
  • Date : April 2013
ABOUT THE AUTHORS: Frank Akers-Douglas and Wilson Cotton are Partners in Private Client Tax and Charles Gowlland is Director of Investment Management at Smith & Williamson

The key is flexibility. All families are different, with their own particular idiosyncrasies and aspirations. Even within a family, each generation and each individual will have different requirements; there’s no one-size-fits-all solution.

This means it’s vital to build very strong relationships over the long term to understand a family’s various needs and be ready to adapt accordingly. Trying to fit a family to an off-the- shelf product or service simply doesn’t work.

In our view, it’s important to encourage longevity in client relationships and this can best be achieved by retaining key advisors, making it easier to build long-term relationships and provide clients with tailored options.

How do you deal with succession planning?

It’s about the strength of your client relationship allowing you to be flexible enough to anticipate changes, and trusted enough to bring them about.

Changes span the inevitable marriages, deaths and divorces, as well as external factors such as reforms to tax and trust legislation. Inheritance tax is always a hot topic and there are often complex and sometimes sensitive questions about the most efficient way to pass money to the next generation.

Succession planning should follow as a natural consequence of this ongoing relationship. If you have the trust of the family, it’s far easier to convince them of the merits of a particular course of action that will benefit them over the longer term.

Where a family has substantial business interests, it’s obviously important to implement structures ahead of time that will ensure a smooth transition of control and an appropriate exit plan for the older generation. This might involve buying out peripheral family members and having suitable incentives in place for new management, particularly if they’re being brought in from outside.

What current issues affect your family clients?

Aside from the unprecedented changes in tax, trust and pension legislation (under both the previous and current UK governments), many families are becoming much more international in outlook and facing more complex concerns because of family members working, marrying or buying property overseas.

At the same time, the opportunities for offshore arrangements are becoming more challenging. We’re seeing an increasing exchange of information between tax authorities, and pressure on financial institutions for greater transparency.

In these circumstances, it’s critical to be able to create flexible structures to protect family assets in different jurisdictions while also understanding the views of the various regulators, wherever they may be. Being part of an international network is a major benefit in dealing with these issues.

How do you help to manage conflict?

Conflict often comes from the diverging aspirations of a family’s different generations.

The death of a patriarch can be the trigger for conflict, sometimes with the realisation that there is less money in the pot than had been anticipated. Or distribution of the wealth may cause divisions. Either way emotions can run high and a key part of our role is to act as honest broker to come to a sensible solution. However, you simply can’t afford to be a yes man, as it won’t help in the long term.

Putting in place the right advisor for each generation and introducing them at the right time is also important. We find it often helps to have a degree of independence for each family member and to have different generations represented by different individuals within the core team.

The key is managing expectations so that each member of the family understands their position in relation to the family’s assets, whether it’s the family home, a role in the business or a treasured heirloom. Sometimes a family constitution can help by setting out what will happen in certain circumstances, such as the sale of the family business.

How do you manage assets in this downturn?

As always with investment, it depends on your attitude to risk. Many traditional families are extremely risk-adverse.

Taking a relatively conservative course of action and focusing on liquid assets (that can be easily realised if circumstances dictate rapid action) has worked well over many decades, and not just since the start of the current financial crisis.

Although efficient structures are available to pool a family’s investments, tax is just one element of the family’s financial strategy and shouldn’t lead investment decisions; rather, these should be driven by the family’s overall strategic financial objectives.

Getting a decent return on cash balances has become a higher priority for many families, with interest rates at historic lows. It’s important to offer straightforward yet effective solutions that provide reasonable returns with controlled risk.

Fundamentally, we like to keep things as simple as possible rather than focusing on overly complicated, opaque structures that clients don’t understand.


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