My guest on the podcast today is Nick Tucker, Head of UK Domestic at UBS Wealth Management.
Nick is the author of a new report called What’s it all for?; Wealth and the next generation.
The question of what wealth is fundamentally for has no single answer, and will be a deeply personal matter for most individuals.
UBS have created a report that brings together eight different case studies, highlighting some of the real challenges and dilemmas faced by different families when it comes to making plans for transferring wealth to the next generation.
Is wealth simply to be enjoyed by the people who have made it?
Those with children and grandchildren will usually feel a sense of responsibility to their descendants. Setting them up in life, though, without taking away their drive and incentives for success, is a complicated task.
No two situations are the same, but you may recognise elements of each in your own story.
Here’s my conversation with Nick Tucker, all about Wealth and the Next Generation, in episode 292 of Informed Choice Radio.
Martin: Welcome back to Informed Choice Radio. I’m delighted to welcome today Nick Tucker. Nick is from UBS, so perhaps Nick, you could start by introducing yourself, what’s your background, what is it you do?
Nick: Certainly, Martin, and thank you for inviting me. I’m responsible for UBS’s domestic wealth management business in the UK. UBS is one of the largest global wealth managers in the UK. We have seven offices headquartered in London but we have six regional offices, and the business I’m responsible for is our domestic business which looks after UK families, entrepreneurs and also charities that have wealth of between two million and 100 million.
Martin: And that term wealth management, I guess is a very broad term. It applies to all aspects of somebody’s financial life?
Nick: Yes. Yes. That’s exactly right, so we can cater for both the asset and the liability side of a client’s balance sheet, but really more and more what we spend our time doing is working with our clients who have typically or always actually, have already created their wealth and our job is really to work with them to help them understand exactly what it is their looking to achieve, review that on an ongoing basis and then put together strategies to help them achieve that.
Martin: And what prompted our conversation today was the new report you’ve written. What’s it all for, wealth and the next generation. So firstly, what prompted that report?
Nick: This report came from something we put in place about 18 months ago. For the last five or six years we’ve been doing annual client satisfaction surveys which have been able to give us some fairly clear road maps as to what we need to do to improve our level of client satisfaction which I’m glad to say has been increasing nicely from a relative low point in 2010, our MPS two years ago got up to about 30 and it has continued to going up but with the employed survey it was quite a blunt hammer to crack a nut and we wanted to, so we developed something called the client councils which are typically, we have about 65 clients who’ve agreed to participate with us and typically these are dinners that I host with eight or nine clients and we just get together and literally the concept was to really get their holistic feedback on what UBS were doing and what we can do better.
The first dinner we had, halfway through the dinner it was all talking about UBS and it was interesting but frankly not hugely engaging because every client had their own perceptions as to what UBS should or should not be doing. But halfway through the dinner, one of our clients stood up and said “Nick, do you just mind if I ask everyone a question?” I said “Please, go ahead.” And he turned round the table and he said “People, could you just answer me, what’s it all for?” And everyone kind of looked at him slightly blank and he said “No, no. You’re all wealthy. Ultimately what is your money for?” And from then, the next hour and a half, the dinner was only supposed to go on for another 45 minutes, but an hour and a half later, there was unbelievably engaged conversation to covering all aspects of the question what’s it all for, from is it for your children, is it for your grandchildren, is to legacy, is it for philanthropy, is the fact that you tell your offspring that they are going to create wealth will it make them less ambitious, will it stunt their growth, would these successful people have been so successful if they had known they were going to inherit a lump of capital further down the road.
All of these sort of questions going on to do you do prenups with your children, all these sorts of subjects and it literally, it went on for two hours, and what it taught us was number one, we’ve always known that this is the real nub of what we do, but also it taught me that the clients are very interested to discuss as a group. Typically wealth management’s been a very confidential world where it’s all one on one conversations and the feedback from that dinner was it’s great to talk to other like minded individuals who we don’t know in a safe environment where we can learn from their experiences.
Nick: So that’s where this report came from and it’s the first of three. This one is obviously around succession. The second one is going to be around businesses and business succession because the majority of our clients are entrepreneurs, and the third one is more going to be around the concept of legacy, philanthropy and around impact investing.
Martin: It’s a brilliant question, isn’t it? What’s it all for, but when you speak to clients about that topic, I’m guessing from what you just said it’s a wide range of responses. Did you spot any trends with clients maybe in particular groups? Did they prioritise spend during their lifetime or perhaps creating a legacy for the next generation? Is there any polarisation of response?
Nick: It really varies, and there is no, as we said in our report, there is no right answer. I think the, some people are absolutely adamant their children aren’t going to get one red cent. They will give them the basic minimum, education, university education, potentially a house, but that’s it. After that, they’re on their own and they tell their children that at a very early age because that’s what they feel would have helped them. Others absolutely see the primary purpose of their wealth as being for the next generation, and others, and I think this is where it’s interesting, others are saying actually we’re going to live an awful long time, so actually your children by the time you’re ready to pass on your wealth are probably already set, so actually what you should be focusing is more the grandchildren
Martin: Right, right. And what happens in a relationship if the husband and wife or civil partners don’t necessarily share the same goals for their wealth, so one member of a partnership wants to prioritise spending during their lifetime for example, the other wants to leave a legacy for the children? How do you sort of deal with that conflict and get people on the same track together?
Nick: Well, firstly delicately. Clearly we don’t want to get in the middle of a marital situation. I think I guess step one, and this has been one of the revelations of this approach we’ve now been following for just over a year and a half is historically when you look at our management information, about 80 percent of our primary interactions are with the male part of the family, and what we’ve discovered by asking this open ended question what’s it all for, suddenly it changes, and suddenly the husband says well, that’s a really good question. My wife’s got really strong views on this, and it allows us to connect on a level that is of far more interest to the other half. So I think that has been, which has been for us obviously is it helps us take the relationship from a purely investment led relationship to something significantly more emotional and more interesting.
I think typically we find that the husband and wife have had rudimentary discussions on these and typically are quite aligned but there is certainly one case study in the document where there was a husband and wife who had really very, very different aspirations for their wealth. The wife was firmly of the view that the money should not go to the children and should go to creating societal benefit and the children shouldn’t see any of it. The husband was of a different view that he did want to make sure that the children were well taken care of, and frankly all the client advisor at UBS had done is remained part of that dialogue and the conversation has now been going on for four or five years, and as the children grow older, what’s beginning to come about is a meeting in the middle where one of the, the oldest daughter I think is now in London with a job.
She’s in the medical profession and needs to buy a house, and obviously buying a house in London is horrendously expensive and so now the two are coming together and saying okay, so now let’s have a list of things that we will fund because those are things that will allow people to live the way they would like their children to live without having some of the negative impacts. So, we cannot, all we can do is facilitate the conversation.
Martin: And what about the rise of second and subsequent marriages and perhaps children from previous relationships? Do you think that complicates making these decisions, too?
Nick: It certainly does and again, it varies from couple to couple. That very first dinner, one of the people there was, one of their oldest was in the process of getting married and they were seriously contemplating a prenup that would need to be signed before they got married, and again, at the table there were very, very different views. Others said that’s ridiculous. You can’t have that conversation. That would be incredibly uncomfortable, so again, it very much varies from family to family and again, we just facilitate the conversation and often we will actually, part of our value added is to just give examples how other families have dealt with the issue.
Martin: Right. Right.
Nick: So we don’t give them the answer. It’s more just these, the case studies that we’re seeing through the breadth of clients that we interact with on these subjects.
Martin: And that’s incredibly helpful for people when making decisions because they can see there’s more options out there that people have gone down different routes. I guess it frees them up to make decisions.
Nick: That’s exactly right. Correct.
Martin: So do you think members of the next generation, children and grandchildren of the clients you deal with can still expect to receive a sizable inheritance. We’ve obviously got rise in life expectancy and at the end of life very expensive care provision quite often, so is it reasonable to still expect inheritance?
Nick: I think they will. I think one of the big challenges we face is working with our clients who have said right, we do want to give wealth to our children and they obviously would like to give their wealth to their children in as a tax efficient manner as is possible within the laws, and so the first question they say is okay, well how much do we need so that we’re taken care of so then we can identify the pot that is actually identified for the children, so that they can have a different and a longer time horizon in terms of the investment strategy that they follow, but also from a gifting and the seven year allowances, et cetera, et cetera, so what we typically have to do then is try and figure out okay, so you are currently aged 60, you’re expected life expectancy is say another 35 years. These are your expenses. These are the, so to model out and say okay, this lump of say four million or five million, this you need to put aside for you and for your life expectancy. There’s another six million that you can now take a longer time horizon about and potentially have a different investment strategy and consider gifting to your children in whichever way you wish to.
But I think you’re absolutely right. The life expectancy is a lot higher and certainly health care costs are getting more expensive as time goes on.
Martin: And something else we’re noticing, something amongst our clients is gifting to adult children during their lifetime. I guess, as a response to rising life expectancy, too, they don’t want to make the children wait til maybe their in their 60s to 70s before they receive an inheritance, so is that something that you’ve experienced, too?
Nick: Yes, and again, people vary on how they do it, but we have, there’s one family we work closely with who have actually created, I wouldn’t want to go so far as to call it a family charter, but it is a list of things that the parents have agreed that they will cover.
Nick: So that can go from getting each child onto the housing ladder, education, education for grandchildren and various other things so that then there is a sort of level playing field and a clarity as to what to expect.
Martin: How can wealthy individuals best involve their other family members into this planning process?
Nick: Again, it is very much personal choice. I don’t think there’s necessarily a right or wrong answer, but I think dialogue is the key and having that as early as possible probably makes sense, but again, it’s really what the family are comfortable with, but certainly in the case studies we’ve tried to show examples of positive outcomes, but we’ve also got a couple of the case studies in there which are not so positive outcomes. Typically where the not so positive outcomes is where there’s a lack of communication, and then everything has to be resolved after the death of a patriarch or a matriarch, and there’s a lack of clarity around wills and a lack of understanding of what the expectations were. So what we very much encourage is to have as much transparent dialogue as early as is practical.
Martin: And what about when siblings are unequal in terms of either personal wealth or maybe they’ve got a track record of making poor decisions in life, what can parents do then to act fairly for both or multiple siblings?
Nick: Well, again, that’s very much a judgement call, and we have plenty of examples of where one child may be super talented and where the first generation don’t worry remotely about that person’s ability to succeed and they’re happy to actually give that person less than others where they feel there is less capability but then they typically want to create greater controls around how that wealth is spent, but again it really varies from couple to couple and again, all we can do is facilitate and give examples of what the different options are.
Martin: And during this conversation you’ve mentioned that word legacy a few times. Do you think there’s a desire to balance charitable giving with providing for the next generation children and grandchildren?
Nick: Well, interesting, what we’ve seen particularly with our wealthier clients is actually the one of the ways they like to engage their children in the subject of wealth transfer is around philanthropy. So they get the children, so they say okay, so and so amount of money has been put aside in a donor advice fund for charitable giving and then they will work with the offspring to direct that money. So that is a way of very early on the proceedings making the offspring understand there is wealth there that will be there for the future, but ultimately the purpose of it is to do good. So it’s a very soft way of involving the next generation. What we’re certainly seeing is the next generation really take to that and I think as time goes on, the desire of our clients to be involved in philanthropy is rising but they also have a growing desire to see where the money goes, to see the impact it has rather than if you go back 10, 20, 30 years ago, one would give to one of the four or five main charities and just assume it got to the right spot.
Martin: Yeah, that’s a big shift, isn’t it? Nick, thank you so much for joining us on the podcast today. It’s a really important subject and it’s an excellent report. I do advise listeners to go out there and get hold of a copy, have a read, so on that note, how can our listeners access the report and how can they connect with you?
Nick: Best call us, firstly our website is www.ubs.com and then to get this specific report one does /uk/en/wealth and then the document will be there or otherwise just send me an email at firstname.lastname@example.org.
Martin: Fantastic. I’ll put links in the show notes to that page on the website but also to your email address so our listeners can get in touch if they’d like to.
Martin: Thank you for your time. That was brilliant.
Nick: My pleasure, Martin. Thank you.