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Taking the tension out of succession and managing difficult conversations

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Taking the tension out of succession and managing difficult conversations

As ‘The Great Wealth Transfer’ begins to take shape, Richard Prosser, Group Director and Trusts Service Line Lead reflects on our wealth management roundtable discussion to identify how advisers can smooth the ride for their clients when passing down wealth.

Trillions of dollars are expected to pass from one generation to the next across the world over the coming years, as the great wealth generators of the past 30 years hand their assets to their children and grandchildren. As many as one in three families involved in succession planning is likely to suffer conflict as part of the process, according to research by Coutts & Company, so advisers have a key role to play in bringing about a succession free of tension.

Recently, we brought together senior professionals from the fields of trusts, law, family office and wealth management to discuss the transfer of assets to the next generation. Those present shared their views on how professionals can play a part in minimising the risk of fall-out when parents pass on money to their offspring.

Avoiding arguments

The risk of conflict is increasing when it comes to succession planning, as families become more complex in their make-up and more often feature second and third marriages, stepchildren, family members living overseas and founders retaining control until much later in life. Advisers bring an air of impartiality and can assist by guiding families through the process in a way that transparently addresses the family’s needs, rather than individual desires.

A large part of avoiding family dispute is about careful preparation and planning. The vast majority of issues that arise in these situations are predictable and with a far-sighted approach advisers can do much to head off issues before they arise.”

It can be useful to start by pushing the founder to give careful consideration to succession, and then encouraging the articulation of his or her vision for the family wealth in a constitution. Difficult questions may need to be asked about how the wealth is to be distributed, and the use to which the founder would like to see their legacy put.

All of these can be tricky for the founder generation to think about, and there may be some reluctance. But it is often the avoidance of these difficult subjects that leads to arguments down the road, so advisers need to help by steering the process.

Matthew Braithwaite, Partner at Wedlake Bell, said that certain events can prompt a client to start thinking about succession planning, such as the impending marriage of a child prompting the signing of a prenuptial agreement, but that at this stage, planning is already too late. He said “If you have a family constitution and the framework in place earlier on, you have a point of reference to say, ‘Actually, we have agreed as a family.’ It makes that whole dialogue that much easier when you are saying to your prospective partner, ‘By the way, as a family we have agreed that we must have a prenup’.”

Asking questions

All the professionals present were able to share stories of situations where they had felt it necessary to challenge their clients, and to push them to consider the best interests of the family.

A participant at the roundtable shared their experience of a situation where the client was not necessarily acting in everyone’s best interests and needed to suggest that the plans were not necessarily the best thing for everybody. The consultation was a very gradual process and took sensitivity and tenacity until matters were settled. By the end, everyone was satisfied with the outcome and a robust plan for a smooth succession is in place.

It is about communication – you can never have enough communication. As an adviser you need to make sure you devote enough time to developing the relationship so that you know the client well enough to ask the difficult questions.

Staying loyal

Professionals need to be mindful about situations where their loyalties may be questioned by different generations. It can be a tough line to navigate when preparing the next generation but staying true to the wishes of the older generation.

Michelle Tring, Trust Director at Ocorian commented, “Loyalties may be perceived between founder generations and their original advisers and perhaps the next generation feel it is impossible for the same adviser to act in the best interests of everybody. We find the advantage of having a team of multi-generational advisers is that there are younger people on the team who get to know the client well and can be perceived as more relevant by the inheritor generation.”

Riding the horse

There’s an old saying that a good adviser always rides or steers the horse, and never, ever walks alongside.

Riding a course through a successful succession invariably relies on a clear vision and purpose, set out transparently and executed fairly. Advisers have a critical role to play in guiding the first generation and must frequently act as a critical sounding board.

Over time the adviser’s role matures. An established relationship between a client and their adviser encounters critical moments along the timeline; when it comes to succession planning, and having difficult conversations, that’s where all the work that has gone into building the relationship over time genuinely comes into its own. This is not a process you can force. We are human beings, and the plans we make together with our clients, well, they shape other people’s lives. The difference a skilled adviser can make is not something to be underestimated.

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