New trends and current challenges in private wealth: the role of blended families
Article 4 minute read

New trends and current challenges in private wealth: the role of blended families

15 March 2022

Over the past 10 years, the private wealth sector registered significant changes. In particular, the evolution of the so-called traditional families into more fluid and less structured types, shows how complex and challenging the current situation is. As such, the private asset management business had to mirror these changes, demonstrating how one is dependent on the other.

The findings from a recent survey1, conducted in partnership with STEP, revealed that although it has long been difficult to navigate family politics, it has become even more challenging to advise the modern family as new generational perspectives continuously emerge.

The challenges that modern families are facing can be even more complicated due to different factors such as the multiple jurisdictions involved, same-sex marriages, mixed-ethnicities and so on. On the other hand, private wealth advisors also have to cope with non-biological children and, although a smaller number, transgender relationships.

These changes to families bring increased complexity and can often lead to conflicts: from generational ones within the family to others resulting from differences across jurisdictions. The direct consequence of a higher complexity of modern families are disagreements, breakdowns in family relationships and litigations.

Litigations are often caused by cross-border or tax conflicts resulting from differences across jurisdictions. However, there is an additional point to be highlighted: the passing of  time has an impact on the language, meaning that conflicts are also generated by out-of-date language used in wills, trusts and deeds. Alongside a number of other disputes arising from unclear or old-fashioned language, it is clear that a number of laws and legal definitions are out of touch with the current reality and need to be brought up to date.

Moreover, conflicts can be particularly damaging for family businesses: there is a greater trend towards generational conflict within the family and disagreement in relation to family business succession. Additionally, there is a trend towards next-gen philosophy, and these differing objectives from the younger generations are an important cause of tension.

The increase in complexities and the potential for conflict has given rise to the need to use advisors and their services. Tax advice tops the list of the services seeing higher demand – a key issue for multi-jurisdictional families resulting from differing tax rules and the increased focus on tax transparency and compliance. This is also evidenced by an increase in demand for global/cross jurisdictional services. Additionally, due to their flexibility, trusts are also  proving attractive as they provide the ability to respond to changing circumstances in light of a more complex family composition.

Multi-jurisdictional families may see their planning significantly impacted when exposed to different tax and legal landscapes. Practitioners increasingly need to be aware of and knowledgeable about the varying rules in relation to domicile and tax, and differing succession and matrimonial property regimes and how these interact with each other in order to effectively advise families.

The most important requirement from service providers considering this trend is the breadth and depth of service offering to meet both personal and business needs – showing the value placed on both the variety of services provided and the level of knowledge and expertise. The second priority is a service provider that manages third-party service relationships on the client’s behalf. Both of these indicate that clients place a premium on convenience and having everything in one place. The third most important requirement was multiple country/office location.

Another point to be taken into consideration are the cultural differences. In particular, cultural expectations, values and priorities can vary from country to country within the same continent, highlighting the different expectations of descendants, hierarchies within families and resistance to giving up control. Different cultures play a crucial role in relation to inheritance laws, the role of women, approach to business and religious law. All point to the importance of advisors having a strong understanding of culture and language in relation to their client base.

A way to prevent or better manage similar circumstances is communication – particularly within families, with early and open conversations about planning and succession. This emphasis on communication – and, significantly, early communication – is a clear movement away from the traditional, more paternalistic historic approach of keeping younger generations sheltered from too much knowledge for as long as possible. This approach is increasingly seen by advisors as archaic and being consigned to history.

What is clear is that there is no longer a ‘one size fits all’ approach to meeting the needs of modern families. Advisors are having to recalibrate their approach as both the families’ they serve, and the world around them, become more complex. This increase in complexity and wide range of family compositions  requires a bespoke approach and often includes collaboration with other professionals across multiple jurisdictions.

Modern family dynamics, coupled with cross border issues and a changing regulatory landscape, present complex challenges when managing wealth, developing succession plans and protecting assets.

Communication, simplicity in structuring and adviser collaboration will help families address the issues they face in planning for their futures with certainty and clarity.

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1 Read the findings of Meeting the needs of modern families.

This article was originally published in Financial Derivatives.

Written by

Aynsley Vaughan

Global Head of Private Wealth & Family Office

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