The Real Value of your Family

Not all bad things come out of a decade of austerity. After some tough talking and a tough budget we have been suitably softened up by the new coalition government to expect some harsh times, and of course we are not alone as one by one other nations with equally poor financial disciplines slowly come forward to admit their sins and start their painful process of financial pruning and moving toward some eventual recovery. However it is one thing for countries to try and sort out their disastrous finances, but there are far more important issues for us individually to address much closer to home.

Like our previous governments, many citizens have over spent and over borrowed. In addition, just to compound this many of us also have not only given up saving but also given up on our pensions and other longer term investments.  Of course for some you can quite understand their cynicism and even anger when you look at the paltry returns that many have suffered from apparently professional investment advice.

What of course has been more scandalous has been the treatment meted out even to those that have tried to do the right thing and saved all their lives. They have now been penalised with rotten rates and, for investors, often rotten returns with higher risks. Not a very pretty picture for individuals trying to plan for their futures and for an even longer retirement than ever seen before.

The effect of all these issues for many has been anything from frustration and anger through to a fear of what one has to do to provide for one’s family into the future.

As we are all well aware, the demographics in the UK are changing and we are all going to be living for a longer period in retirement than ever before. Even though many of us will be extending our working lives, we are still quite likely to be spending more of our life retired than we may have actually been working. In effect then whatever we manage to save is going to have to spread over a far longer period than previously expected, and hence the troubles for many corporate pension schemes whose actuarial calculations were for a retirement period for many of less than ten years – not forty!

The trite answer thus often given by the banks and others is that we must just be saving more and therefore for us to handover even more our money to them. However given the track record of banks and investment houses over the past few years, a level of significant reluctance is quite understandable.

Perhaps therefore we could suggest another way. For many years we have had to suffer the tiresome mantra form the banks and financial institutions that “we treat you as an individual and a special customer”. One bank even had a campaign for a “customer of one” which is what they might end up with if they carry on in the current manner.

For years the banks have relied upon us buying individual products and services from them, in the desperate hope that if we collect enough of them, we might just have enough to see us through. The problem has not just been that these have been separate products, but quite often they have not even been fit for purpose to fulfil their basic requirements – just look at the scandal around the long term endowment policies and other investment schemes.

In reality of course, very few of us are a “customer of one” as we belong to some strange shape of family or other. However even here things are not so straightforward. Again the normal view of the family in the UK is that of the “nuclear family” of two parents and a rather unlikely 2.4 children. Here again the reality is often far from the given and accepted normal perception. In fact in these days of “partnerships”, both same sex and not, family life has become a lot more complicated. So instead of the Nuclear Family, perhaps we should introduce another alternative; the great British Dysfunctional Family?

This family now takes account of what has now been regarded as being if not usual, then in some parts quite commonplace. Second marriages and subsequent partnerships are not unusual  within a greater family, leading to various combinations of step parents as well as a plethora of progeny consisting of multiple levels of siblings and half, as well as step, brothers and sisters.

However it has not just been the changing nature of our society and its usual family ties, but also the impact of better healthcare and welfare that has meant that the average lifespan has and is continuing to extend significantly further every year.

Thus the shape of our extended family has now changed really quite radically, not just horizontally through extended partnerships, but also vertically and quite regularly now includes four and sometimes even five generations.

Whilst at one level this may appear somewhat daunting, it also offers up some interesting opportunities.

Families themselves cannot and do not act in Western society in a very co-ordinated manner any more. In fact keeping them in one place for more than three days at Christmas is a major social challenge and a triumph of diplomacy over normal family dissent.

However leaving internal family frictional behaviour aside, the ability to harness the financial strength of the family is potentially a very valuable opportunity. After all, it is the older members of the family that have the wealth and those lower down the tree with the greatest need for their support. If therefore you could look upon the family as a more valuable unit, you could even produce a family balance sheet and it would come as a great surprise to the family to find out just how much they as a greater whole are really worth.

Now no family member is going to reveal their finances to another necessarily, and nor should they, but that is no reason to ignore the duplication of risks and costs that the family is running by keeping all their financial affairs in separate silos.

Here then we have seen the rise of the family financial planner. This is an independent professional adviser to the family with the sole task of co-ordinating both the assets and liabilities across the generations. These can include the possibility of negotiating mortgages with the strength of the family behind you, through to cutting out the duplication of investment costs and any unnecessary waste through poor and inefficient tax structures.

Of course no one member of the family would be trusted by all the others, but a trusted independent arbiter probably could be. This would allow the individual members to still have their own finances but their structure could be within the greater whole of the family and benefit from the financial muscle of the greater scale rather than just being picked off as before as a “customer of one”.

This financial family planning can thus ensure that families start to plan on a multi generational manner covering everything from education through to health and old age care. Given that we are now in an environment of a retreating state being unable to afford the provision of such facilities that many had come to expect, then we all must be making our own preparations – unless you trust that the state will be able to proved you with the effective pension, health and age acre that we are all striving for.

At a time when “family values” are regarded as something from another era, then we should take note of the changes in all our families and perhaps turn it around so that we start to appreciate the “Value of Families” are being more important to many.

The key benefit for all of us here is that such an innovation is in effect free as the co-ordination of a family is down to our own will. Once we have considered that, then the services of a professional planner would be necessary, but even after this decision, there are many circumstances when such innovation should reduce costs to the family overall, as well as potentially increasing the quality of investment and discipline of their portfolios. One key area will be that of the reduction of risk by avoiding the duplication of investments often found across a family.

Taxation is a crucial subject for all families and often fractured families penalise themselves through their own inabilities; proper co-ordination however can often quite significantly minimise tax liability for all involved.

So in an era of austerity there can also come an era of opportunity for families to make the most of their assets and return to another world of, if not family harmony, then at least of valuing their family for the benefit of them all.

Justin Urquhart Stewart
Seven Investment Management
125 Old Broad Street