Nirdev Desai, Head of Sales at PSG Wealth
Everyone wants to find that pot of gold at the end of the rainbow. It’s the stuff of childhood tales and countless rags to riches stories glamourised in tabloids. However, for most, wealth doesn’t fall out of the sky, or grow on trees. The only ignition for true wealth is from employment and entrepreneurship that produces earnings that can be deployed to a well thought-out and executable financial plan. This plan should be able to harness the parameters and opportunities of compounding capital into sustainable wealth for generations to come.
The real test of a good financial plan comes from translating an investor’s earning power and existing capital today into sustainable wealth that supports a desired lifestyle both now and in the future. However, the true financial value of an adviser will only be experienced over many decades of executing on a robust financial plan. If this is the case, how can clients know that they are receiving good value?
In Morningstar’s seminary paper, Value of Advice, they highlight that personalised financial planning and advice, including behavioural coaching, is one of the key value-adds. Rather than focusing primarily on what funds and returns are available, a client’s intended lifetime financial plan and legacy needs to be understood and well planned for. Major events, such as divorce (currently 40% of all marriages end in divorce before their 10th anniversary, according to Stats SA) or starting a business (with approximately 80% failing within the first three years) are often downplayed, yet many can deplete financial savings and decimate future financial outcomes. Great financial planners articulate value by helping their clients plan for such moments.
Understanding your and family’s life and financial journey
Broadly then, two strategies will be needed to leave a legacy. An earning or capital base to support a lifetime of income and capital requirements and, once these lifetime financial requirements are planned for, legacy assets can be planned for.
Further, other than self-afflicted trip-ups in the financial journey to leaving a legacy, reliance by extended family members and friends can wipe away savings abilities. Understanding and fostering better relationships with money for those around us is therefore key.
Relationships with money
Not everyone will be able to leave a legacy – most South Africans can’t afford to retire comfortably and independently, and by implication, will not have excess capital to leave a legacy. Leaving a financial legacy can only happen if all lifetime financial needs are taken care of. The troubling conversation many planners have with their clients is their desire to leave a legacy, but not the commitment to the provisions required in planning for the legacy.
Everyone knows the expression: charity begins at home. Ensure your holistic plan covers your lifetime financial needs first. Further, ensure that those around you that may enable financial burdens start having similar relationships as you do with their financial plans. Whether it is black tax, or the affliction of a sandwich generation, extended financial burdens are a global phenomenon, and need to be discussed, understood and addressed by extended family and friend circles with desired outcomes for leaving legacies.
While conversations with dependent older generations should also take place to manage financial burdens, it is crucial to engage early and build healthy relationships with money with future inheritors.
- Charity always begins at home: ensure that as far as possible, your children become financially independent from a reasonable age, and are building their own wealth journeys.
- Encourage conversations around their understanding of money, your values around money and what it means to you, and what you would like your legacy for them to be.
- To many, leaving a legacy means building intergenerational wealth. Ensure your beneficiaries understand that they are custodians of that legacy, and when the time comes, they should pass it on in the same or better situation than they received it.
- Understand that the world is changing at a rapid pace, that new innovative financial trends are accelerating, and that beneficiaries may be enticed by the potential of new ways of making money. For example, crypto-currencies have become increasingly popular over the last 10 years now, and the decade before that property syndications were very prevalent. Both of these examples hold notable risks for investors. Encourage your beneficiaries to engage in well-respected and established financial advice to understand boom and bust cycles are normal and with hindsight expose investment fads. For intergenerational wealth to be sustainable, investments should be founded on enduring, reliable strategies.
- Lastly, while leaving your legacy is important, you cannot control what will happen when you are no longer here. The best you can do is ensure you have a valid, unambiguous and concise will to maximise clarity on your legacy.