The vices and virtues of HNWs

Abraham Lincoln once stated that in his experience, “folks who have no vices have very few virtues.”

When asked what European wealth creators perceive as their worst qualities, laziness, greed and jealousy come up top.

However, they also acknowledge their foremost positive characteristics are their honesty, kindness, generosity, and their willingness to engage positively with the world around them. After a clear rise in HNWIs’ involvement in philanthropic activities post-economic crisis in 2008, providers need to start taking this aspect into consideration more seriously.

Why? Because the wealthy are increasingly willing to be the changing force in society. HNWs are interested in witnessing the ripple effect of their actions in tangible environmental, social and ethical ways. And perhaps, because they are thinking more about their futures, our research shows that millennials feel this responsibility much more strongly than the baby boomer generation.

PwC and UBS’s studies support this suggestion, additionally recommending that wealth advisors keep an open mind about investment decisions when servicing millennials. The advisors of the future will need to be able to further understand younger HNWs’ aspirations and anxieties related to giving, as well as develop an appreciation for the feelings of social responsibility this generation has placed upon itself.

Download our most recent thought leadership report ‘Essential Wealth: The Interplay between Self and Society’ to find out more!

Why is wealth a taboo subject?

Even at a young age, we are consistently told how inappropriate it is to ask adults how much money they make. And as we grow older, the social rules and norms quickly settle in and it becomes commonplace to shy away from any conversation regarding income, expenditures and wealth.

We became curious – why is it that there is so much taboo around the topic of wealth? What are the roots of these feelings of discomfort?

As a result, we decided to poll 600 HNWIs to find the answer.

Our findings indicated that very often, the avoidance of this topic stems from wealth creators’ perceptions of a change in attitude from those around them once wealth levels have been revealed.

Ultimately this leads to HNWs feeling vulnerable about people taking advantage of their socially-minded nature.

22% of our respondents stated that this was the most frequent reaction in discussing wealth with others. Interested in learning more about why wealth is a taboo subject?

Keep your eyes peeled for the release of our latest thought leadership report!

What it means to be wealthy

At what point in the wealth race do European wealth-creators start feeling like they have officially made it?

What wealth level is actually considered ‘wealthy’ for this group of individuals? Our upcoming paper ‘Essential Wealth: The interplay between self and society’ asked 600 European HNWIs from six different countries what it means to be wealthy. The majority (60%) agreed that it means not having to worry about money every day as well as being able to achieve financial security for their family.

What has become clear to us is that wealth has the contradictory ability to heighten an individual’s sense of freedom, whilst simultaneously increasing their sense of responsibility.

Watch this space for our upcoming report release!

Inheritance support across generations

Overall, European HNWIs favoured adding more support to the inheritance process structure.

In spite of this, very few investors would change the individual or institution they were working with to support this process. Just a quarter of millennials would change the institution that they work with, with this proportion increasing to just over one in three investors aged between 35 and 49.

But there is no need to rest on our laurels! While HNWIs may be happy to stay with existing advisors, they are calling for much more support for inheritors. In particular, millennials are calling for a much more engaged experience – with 77% of them demanding more guidance as part of the process.

Interested in learning more?

Click through to our SlideShare, below, for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

Investing in succession knowledge:

Feeling unadvised? When receiving an inheritance, just 22% of investors felt like they were guided through the process. Clearly, there is a need for advisors to offer more support as part of the wealth transfer process. This means getting involved in the conversations earlier, so that the emotional and mechanical components of succession can be fully explained before inheritance happens.

This is critical, given that just 36% of inheritors felt like the process was designed with their interests in mind, and just a third believed they had the right level of financial education to deal with the inheritance.

Without effective support, HNWIs are being left to navigate the difficult and often emotional process of succession independently.

07.11.2016 - Blog Post - OneLife - success in succession-Post_4

Interested in learning more?

Click through to our SlideShare, below, for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

Keep Calm and Plan Ahead:

While a wealth transfer strategy describes the mechanisms for passing on assets, a succession plan denotes the emotional dynamics of inheritance planning too. In short, wealth transfer is about the ‘what’ and ‘how’ of passing on assets and succession planning adds in the ‘who’ and ‘why’.

In this day and age, where variability in life’s occurrences is unprecedented, all generations of wealthy individuals find it equally necessary to be prepared. Around half of investors in each age bracket have a succession plan.

But worryingly, this means that roughly 50% of Europe’s HNWIs have not prepared the next generation about receiving wealth.

Interested in learning more?

Click through to our SlideShare for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

Building blocks for the future:

Take note, advisers! It would be easy to assume the older generations of ultra-wealthy are thinking more about wealth transfer but our research has found the opposite.

Millennial HNWs are more likely to have a strategy in place for wealth transfer than their older counterparts, 42% already have a comprehensive plan on paper, while only 27% of over 50s can claim the same.

This is surprising given the older generation recognise the importance of having a wealth transfer plan in place. Perhaps they simply haven’t got round to it, or… just maybe, they haven’t had the guidance they need to put an effective plan in place.

The industry is going to have a shake up with a younger cohort of investors who are engaged with the idea of long-term planning. So hold on to your hats, folks… well-prepared millennials are about to start the wealth transfer conversation.

Interested in learning more?

Click through to our SlideShare for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

Life is better unplanned, wealth not so much:

As well as the protection that life assurance offers, the solution is advantageous as a tool for succession planning on the UHNW/HNW level. Life assurance provides tax efficiency while safeguarding assets in a portfolio. This is of paramount importance to the ultra-wealthy who could have their legacy drastically impacted by inheritance tax.

The following infographic shows the three basic types of solutions on the far right and the central column lists the roles which life assurance typically play in each type of solution.

Interested in learning more?

Click through to our SlideShare for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

#Success in #Succession: Life assurance in the context of wealth transfer

The importance of life assurance is beyond question. The beauty of life lies in its unpredictability. But, to ensure it can be lived to the full, we must anticipate its requirements and protect the people that matter to us.

Or, in the words of Francis Norton Erith, “If a man assures his life to meet some impending danger… to himself, or… others, his realizations surpass his fears, and by present anticipation of the future evil, he rests in the sunshine of prudence, and sleeps in the quiet of confidence.”

So let us rest in the sunshine of prudence…

Life assurance offers many strategic benefits which can give investors peace of mind when using it as a wealth transfer tool.

Our latest insights indicate that Europe could be on the brink of a succession crisis. HNWIs need more support to understand the options available to them when planning for the long term. To learn more, watch out for our updates…

Interested in learning more?

Click through to our SlideShare for more information on the ways in which life assurance can be used as a wealth transfer mechanism.

Bank resolution bail-ins and policyholder protection

The European Union’s Bank Recovery and Resolution Directive, designed to prevent taxpayers from having to rescue failing banks as they did during the 2008-09 financial crisis, took effect in January 2015. However, a critical deadline fell at the start of this year: EU member states must create ‘bail-in’ provisions under which shareholders and creditors of insolvent financial institutions may be obliged to contribute to the cost of their recapitalisation or winding up.

PIC_2016.03.18_RelanceNewsletterFeb_homevisu

The directive does not specify which liabilities may be covered by the bail-in powers awarded to national regulators, instead indicating those excluded: certain deposits, covered bonds, holdings of client money or assets, fiduciary liabilities, short-term debts of non-affiliated EU institutions, as well as liabilities to employees, certain trade creditors and tax and social security authorities. The exclusions include investment fund assets. Once confirmed, detailed regulatory technical standards from the European Banking Authority should provide greater clarity.

In practice, this means that deposits greater than €100,000 in insolvent banks, as well as other kinds of unsecured liabilities, may be forcibly converted into equity to provide them with the capital needed to avoid a taxpayer bail-out. Shifting the risk of financial failures from member states and EU bail-out funds to customers of institutions throws a sharp spotlight on the guarantees enshrined in Luxembourg’s policyholder protection structure.

Luxembourg’s insurance law requires that insurers must deposit assets matching their liabilities with a custodian bank approved by the Commissariat aux Assurances, the industry regulator, which must then green-light the depositary agreement. This ‘Triangle of security’ ensures that client assets are legally separated from those of the insurance company’s shareholders and creditors, and thus off-limits as part of a bail-in, while the custodian bank must also segregate and protect life assurance clients’ assets. They also enjoy priority over other creditors if an insurance company becomes bankrupt.

More broadly, life assurance clients are also protected by the provisions of the EU’s Solvency II Directive, which took effect on January 1 and aims to ensure that insurance and reinsurance companies maintain the financial strength to survive turbulent economic conditions and financial markets. So companies must hold capital to match their risks, meet new standards of governance and risk management, and report in greater detail to customers and supervisory authorities.

Find more useful information and insights on key issues related to life assurance in our newsletter.