How to get clients to refer you to their parents

These were the words of Nick Bird, executive business development manager for Octopus, at the Chartered Institute for Securities and Investments' Paraplanner Conference 2020.

During a breakout session he spoke of the need for intergenerational planning, calling it “perhaps the most bespoke piece of financial planning you will do”, and underlined the importance of the advice process which, he said, was even more important than the investment portfolio.

But when it comes to intergenerational planning, he said, it often depends on the client bank. Some firms, for example, may have more Generation X clients rather than people in their 70s who want to discuss estate planning. 

“There is a big opportunity here”, he said. “Is there a lack of family referrals? If you have a client in their mid 40s or 50s, who you have are beneficiaries - those who will be affected by IHT. The parents aren’t worried about the tax - it won’t affect them. But it might affect your clients, so think about upward referrals to their parents.”

He advised delegates to “always” ask if the client can make an upward referral to parents. Indeed, he said as part of the fact-find, why not ask the client to draw their family tree? This could open up intergenerational referrals and help clients to understand how their financial plans can help the whole family, he suggested.

This was because of the wider work around tax planning and helping the client make the most of their hard-earned money so they could give it to the “people they love”.

He said: “People don’t buy numbers; they buy emotions. So this money is about helping them to provide security for their family members, or giving grandchildren the gift of fun or education.

“An inheritance that might come to them will give the inheritor the opportunity to be secure or to have fun. Take the conversation away from money and turn it into emotion: clients should feel happy they are doing this planning and making these decisions.”

Don’t forget - you are allowed to pay the tax bill. -- Nick Bird

The first consideration, however, is to ask the clients how they want to “spend it”. It’s their money - are they going to use it to enjoy their own lives? However, if they are not going to spend it on themselves, consider how they might give it away, whether to charity or to someone dear to them, he told delegates. 

Mr Bird discussed pensions - and how people do not necessarily have to start spending their pension as soon as they retire. What is the whole financial planning journey? Are they putting life cover in place to cover less liquid assets? 

Are they creating trusts for the people they don’t trust? “And don’t forget - you are allowed to pay the tax bill”, he says, “but do not forget this is going to have a big impact. IHT is a voluntary tax”, he reminded the room.

So how can advisers help clients make their financial plans while being tax efficient? He said while the bulk of planning would look at the usual pots - pensions and Isas, there were also other investments that could be built into a portfolio that would both generate a return and be tax efficient. 

Recent research conducted by Octopus among advisers found 76 per cent of them said they were prepared to use alternative investments to help clients who are doing later-life and intergenerational planning, because estate planning's increasing complexity was demanding more flexible solutions. 

According to Mr Bird, one of those flexible solutions is business property relief, which is increasingly being used as part of intergenerational planning.

He said BPR can not only help provide the tax-efficiency clients need in that it can mitigate IHT, but also provide a good long-term investment for the client and for the beneficiary.

According to HM Treasury, you can get 100 per cent BPR on a business or interest in a business, or shares in an unlisted company. 

Clients can also get 50 per cent BPR on:

• shares controlling more than 50 per cent of the voting rights in a listed company; 
• buildings or machinery owned by the deceased and used in a business they were a partner in or controlled land:
• buildings or machinery used in the business and held in a trust that it has the right to benefit from. 

You can only get relief if the deceased owned the business or asset for at least two years before they died, but the high tax efficiency of these shares means the potential IHT bill can be offset.

When it comes to advising on shares that qualify for BPR, however, he said “don’t compromise” on things such as strength, experience. “It needs to be a good investment in a good tax environment, he said. The tax advantage should not excuse the investment.” Therefore, advisers and paraplanners should always make a good investment decision, because this is someone’s life savings, he stressed.

This is also to be considered as “balance” within a portfolio, not to be 100 per cent of a client’s investment portfolio, he said. But given that shares can be traded - with varying degrees of liquidity - it is possible to sell these if the client needs to raise funds for something such as an immediate needs annuity.

Mr Bird added: “This gives balance and flexibility so that if a client’s situation changes, the portfolio can change with them.”

simoney.kyriakou@ft.com