In Focus: Intergenerational Wealth  

Six steps to helping younger clients manage money

Six steps to helping younger clients manage money
Magda Ehlers via Pexels

Creating financial plans that can help the older generation of clients provide for their children and grandchildren is no easy task.

But according to Dominic Close, wealth planner at Kingswood, there are six simple steps that clients and their advisers can take to build a financial plan for the next generation.

Close said while "building a financial plan for your children and grandchildren may seem like an overwhelming task", it did not have to be "as daunting as it appears".

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Indeed, he suggested while the pandemic has been a reminder of how unpredictable life can be, it has also served to help people realise the importance of becoming "financially prepared for the unexpected".

The adviser has therefore provided six simple steps to help clients set up a financial plan for the next generation.

1. Get your house in order

The first step is to assess your own finances: how much can you afford to set aside each month without it impinging on your lifestyle or affecting your ability to service regular monthly commitments?

Equally, you need to determine the level of capital you need, or want to retain, for your own needs and objectives as well as for emergencies.

What is considered a surplus and how much are you happy to lose access to in the short, medium or long run?

2. Formulate your investment plan

When formulating your plan, you need to look at three factors: objectives, timescale and budget.

  • Determine what your objectives and priorities are for your children/grandchildren.
  • Define the period of time you are creating this plan for.
  • Set your budget.

Close comments: "Are you targeting a predetermined level of capital at a specific age, or simply providing funds to help them buy their first car, pay for higher education or their wedding?

"Are you looking to move assets from your estate for IHT purposes? When will the money in your plan need to be available to your children and grandchildren?"

He says these are the sort of questions that will need to be asked and, once the client's objectives, timescale and budget have been established, they can start to consider investment options and the level of risk, if any, they wish to take.

3.  Manage investment risk

Different types of assets tend to perform well in different market conditions. By broadening your plan’s exposure across a range of asset classes, the fluctuations caused by common economic events can be smoothed out. 

From an investment perspective, should your plan cover a short time horizon, it is best to only take a small level of risk in order to reduce exposure to potential losses.

Conversely, should your plan cover a medium to longer-time horizon, taking on more risk could drive up growth potential.

4. Apply tax efficiency

Applying tax efficiency to your plan may also help to drive up returns and a sensible starting point would be to consider Isas, such as the Junior Isa, with its generous allowance of £9,000 per child.