Estate planning the top unmet advice need for wealthy investors

Speaking on a recent episode of the ifa podcast, general manager distribution Queensland/Northern Territory at Praemium, Matt van Dijk, said inheritance and estate planning is the top unmet advice need for high-net-worth investors.

“What these investors are really looking for is how they can support and educate their children to manage the wealth when they’re going to inherit it, and that’s a really challenging one,” Mr van Dijk said.

“I think one of the greatest thing advisers can often forget is that their expertise and what they’re able to do every day is because they’ve done this often for a very long time, and they can sometimes forget that it’s something that is not a skill that people are born with — they need to be taught.

“There’s a lot of value that they can really deliver to their clients by sharing some of that knowledge that’s in place. And so being able to bring the family together, and it can start from a very, very early age.”

Mr van Dijk added a key component in estate planning and inheritance is ensuring the children are financially literate from a young age.

“I often like to give the example of how I run a couple of very simple ETF portfolios for my children that I started when they were quite young,” he said.

“The idea is to be able to show them the impact of contributions and volatility and the benefits of diversification over a long period. So, when they’re 18 or 21 or 25, depending on how mean I’m feeling at the time and we hand the money to them, they’ve been able to really see and participate and be involved with some core financial theories and principles and do it in a tangible and meaningful way.

“That’s a very simple example, but it’s absolutely true as well. Then it becomes even more relevant once you’re dealing with larger amounts of wealth, often complex tax structures, entities and multiple layers that get involved.”

According to Mr van Dijk, while strategies to reduce tax are another unmet need for high-net-worth investors, how a person has made their money can impact their advice needs.

“When we look at the emerging high-net-worth or emerging affluent and the established affluent, they do have slightly different advice needs,” he explained.

“The emerging affluent will have a much greater focus on retirement planning because they’re often coming from a salaried or small business background. Retirement’s a very ingrained concept for these investors.

“That’s going to be a different conversation when you’re looking at planning for regular income as opposed to your more traditional high-net-worth clients where there’s going to be more of a focus on protecting and maintaining wealth rather than thinking about wealth from an income replacement perspective.”

He added that often for this cohort, it is rarely the second generation that will fritter away their wealth.

“How do we avoid the third-generation trap problem? You can pass money to the second generation, which often understands how it was accumulated and they value it,” Mr van Dijk said.

“But often, the third generation’s never seen the trials and tribulations that the earlier generations have gone through. They don’t value or appreciate what it took to get to that position in life as much and can often struggle to maintain the family wealth.”

To hear more from Matt van Dijk, tune in here.