Aussies lacking insight into future use of inheritance
There is a gap in the market for Australian advisers to help individuals with succession planning as the country has been noted by Capital Group for being overly “hands off” around inheritances.
According to a study by asset manager Capital Group and research firm CoreData, 60 per cent of the 600 global high-net-worth individuals surveyed expressed disappointment with how their inheritance was utilised.
A third said they were disappointed that they had not invested more of the sum.
Earlier research by Fidelity found two in five individuals aged under 59 expect to receive an inheritance in the future, and half believe it will be greater than $200,000 which will subsequently be used to pay off debts, buy a home, or support family.
Capital Group noted that Australians were especially “hands off” with their inheritance compared to other markets globally. While 79 per cent globally said they would leave no specific wish on how inheritance must be used, this rose to 92 per cent in Australia.
As a result, much of Australian inheritance is sitting “dormant”, the firm said, with only 29 per cent having invested it in mutual funds and 33 per cent invested it in their superannuation.
There is also greater capacity for individuals to receive financial advice on the matter with only 20 per cent of individuals globally saying they use financial advisers to handle succession matters. Instead, they looked to lawyers and accountants for assistance.
This echoes earlier CoreData research that found more than half of inheritors lack an ongoing relationship with an adviser to manage this incoming wealth. It stated those who have an established relationship tend to retain over 60 per cent of funds invested with them.
Guy Henriques, president of the Europe and Asia client group at Capital Group, said: “Our study reveals that most wealth holders wish they had used their inheritance differently and invested more.
“We believe that by considering investing some of their newly acquired capital, HNW individuals could achieve long-term wealth generation.”
While advisers do have a role to play in succession planning, the Financial Advice Association Australia’s Phil Anderson has flagged the potential conflicts that can occur in this scenario. The association’s general manager for policy, advocacy and standards said working with multiple generations can cause behavioural difficulties for advisers.
“You need to make sure that you are acting in the best interest of your client in that meeting and know very clearly who your client is if you’re sitting in front of multiple parties. They may all be your clients but, for that meeting, you have to be very clear who you have a duty towards. You can’t do anything that goes against their best interest, especially if that’s a parent.
“If the parents are willing to give some money as a gift to their children and seek your help, then you can help them with that, but you shouldn’t initiate it or be an advocate for the children.”
AUTHOR
Laura Dew
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