Planning for the next generation

This comes as the so-called baby boomer generation begins to retire and starts the intergenerational transfer of wealth to their children – and the numbers are staggering.

"Planning is critical to a well-considered wealth transfer and while each plan will be unique, the most successful plans share a common pathway.”

About $3.5 trillion in assets will likely change hands in Australia by 2050, according to a Productivity Commission report.

This will mostly be in the form of residential property, unspent superannuation funds and other investment assets bequeathed to family beneficiaries. Inherited assets currently total about $120 billion per year in Australia, and this is forecast to quadruple to about $500 billion per year over the next 25 years.

Many of the baby boomer generation will also be considering the future of family businesses, looking at either selling or succession planning to the next generation of leaders. Quite often these are companies or individuals classified as ultra high net worth customers ($50 million in assets and above).

A recent study by ANZ Private Bank found about 80 per cent of our banking clients were concerned about their succession planning.

How should these individuals and entities best prepare for this transfer of wealth? And how can they manage the transition to the benefit of all parties involved? Getting good advice plays a big role..

Planning is critical to a well-considered wealth transfer and while each plan will be unique, the most successful plans share a common pathway.

It has to be a strategy tailored to the next generation and it’s important to begin a relationship with that next generation as early as possible.

Discovering an alignment between the generations is crucial because problems can emerge as second and third generations introduce more complexity through an increased number of family members and relationships.

Achieving goals

Including the next generation in conversations about transferring wealth can help equip them with the necessary skills to continue the plan in the future.

Within ANZ, many of these customers are serviced by our Private Bank. It’s the part of the bank that works with high-net-worth individuals and families, supporting their wealth and helping them to achieve their goals.

Many people think of banks like ANZ as a place for lending and deposits. ANZ Private is a large collector of deposits – just as the bank takes deposits across other parts of the market including Retail, Commercial and Institutional customers. We also have a dedicated Chief Investment Office which manages close to $10 billion in assets for our customers.

As part of the broader ANZ Group, we work closely with colleagues across Commercial and Institutional where there are obvious synergies. Institutional is the part of the bank that supports our biggest corporate customers, the largest division of its kind among our domestic peers.

Numerous Commercial and Institutional customers are also Private Bank clients. Many of them are so-called ‘family offices’ which look after the investments on behalf of the family members.

In many cases there’s decades of trust built up across multiple generations with the relationships with those families – they are looking for help as they transition and look to diversify away from their core business.

As well as banking services, we also offer these customers the investment advice they need.

Sometimes those families or individuals have sold businesses and are looking to invest those proceeds in a bid to ensure their financial future. It can involve leveraging those assets – be they property, listed securities or direct bonds.

As these family businesses evolve, their needs are becoming increasingly complex – and so we must adapt.

Searching for yield

We recently launched a direct bond portfolio managed by our Chief Investment Officer Lakshman Anantakrishnan. This is designed to take advantage of the higher interest rate environment after central banks began lifting rates.

Many of our clients hold a portfolio of direct bonds but not many have access to professional management and deep market experience.

We’ve seen strong demand already and we expect this to continue given the current yields and the relative security of this asset class — particularly as we eye a potential easing cycle later this year or next.

On the advisory side there’s a real strategy around the next generation – and sometimes the next generation can be anything from 30 to 70 years old. We work to educate them on their investments and the strategies required to deliver returns on those investments.

Because we manage across deposits, lending, and investments – we aren’t subject to the conflicts experienced that by some investment-only businesses.

We also have confidence around the longevity of our business. We can sit in front of a client and confidently say we're still going to be here in 20 years time. They want a partner for the long term, to help manage their money, someone local, with a strong balance sheet, that they know will be around for the long run.

Many Australian families will have to confront the issue of wealth transfer and succession in coming years. Doing their research, consulting trusted advisers, having plans in place and prioritising open communication will be key to ensuring a smooth transition.

James Dunlop is General Manager of Private Banking & Advice