We talk to a large accounting and advisory firm in the US about how HNW families interact has changed as a result of technology, and not simply because of a workaround for the problems caused by the pandemic.

There’s understandable talk these days on how families are keen to reunite after the forced separations of lockdowns. Chatting over Zoom, Teams or some other platform isn’t the same. 

Where HNW families are concerned, there’s an obvious need for in-person contact when matters around wealth, plans for the future and disputes arise. The proposed Joe Biden tax hikes on capital gains and income give such a meet-up need a new edge. That said, one boon from tech has been how the more “businesslike” side of family dynamics can be handled efficiently – and be far less laborious – when done online. With so many family members living far apart, it also means that when people do meet up, they do so to have fun and relax, rather than spend time on finance, tax or the stock market. And in a way video meet-ups can be more inclusive for younger members.

Family Wealth Report chatted about some of the ways families will work out how they interact during a call with Kelly Igoe, senior manager in the private client and business management service groups at Anchin, the accounting and advisory firm.

“The pandemic has prompted newer adapters of video calling technology in some of our clients’ families. We think that video calls might replace traditional conference calls in many instances going forward, as there are undertones and other nuances of conversations that are harder to detect without a visual,” she said. “However, of course, you cannot replace in-person interactions and meetings which are all part of building relationships and trust. We predict from time to time, a virtual call might replace an in-person meeting, but not as a default.”

“Younger people will likely want to be involved in digital meetings,” she continued.

The COVID-19 pandemic and the strains it has imposed have also woken families up to the need to talk about succession planning. Igoe, like her peers in the industry, says recent months have witnessed a change in attitudes.

“Five years ago, it was hard to get clients to talk about estate and succession planning. There were certain subjects that people didn’t want to approach. Now it is a hot topic. It’s a regular agenda item,” she said. 

Although exact figures are hard to pin down, and made more difficult by the way stock markets have been buoyed by central bank money printing, it is often stated that tens of trillions of dollars are due to be transferred from Baby Boomers to the next generation in coming years. (Not all of that wealth will be in financial investments. It will include physical property and businesses too.)

A big concern across the North American population is financial literacy, or the lack thereof – and that’s a challenge for HNW inheritors. A 2014 study, Financial Literacy Around the World, by Standard & Poor's Ratings Services and McGraw Hill Financial, showed that worldwide only one in three adults could be considered financially literate. In the US and Canada, the situation was better, with 55-75 per cent of adults responding correctly to three topics out of four topics. (The UK, Scandinavian countries and Australia fared the same, as did Germany.) The report showed that risk diversification was the least understood concept.
 

Preparing the next generation
Part of Igoe's job is preparing the next generation well enough so that they can make decisions without always having to check with parents first. 

“We work to build up a relationship with the next generation so that they do not always need to go through their parents to ask questions. We recently advised young adults about any US tax consequence of purchasing an interest in a European sports franchise. Another topic can be about the impact of losses generated from investment real estate and how it impacted the child’s tax returns,” Igoe said. 

Igoe said that one trend she sees is of more younger adults coming for advice or raising questions than would have been the case a generation ago: “Most of the children have grown up with wealth and have some understanding of it.”

Part of Anchin’s job is to be a friendly guide and monitor for any early signs of a problem. For example, it can track how young people are using their inheritance and be alert for potential issues, such as heavy cash withdrawals.

“Due to how well we know the family and the relationship that has been developed, many times we can be a `sounding board’ for them in matters outside of accounting and tax.” 

“The firm and other such advisors can act as families’ chief financial officers,” she added.

One concern is how much or how little, parents should tell their children when it comes to wealth, also what is the right time to broach the subject?

“I would not say that we see much in the way of frustration. The key issue is around how much do parents want to tell their children about the wealth that they may inherit. There is no right answer as each family is different but we do try to make sure that the next generation is prepared for what may be coming their way. An example would be a family who was leaving a large portion of their estate to a private foundation. They had not considered who would manage this foundation upon their passing and this was a blind spot. They needed a contingency plan in the event that their children did not want to be involved or spend the right amount of time that would have been required,” she said.