This week, we hosted a panel discussion on succession planning for New Zealand families, in collaboration with MinterEllisonRuddWatts. The panel covered a range of topics including best practice for succession planning, how to educate and equip the next generation with the responsibility that comes with wealth, good governance and how best to prepare for the next disruption. Panellists included Rob Campbell, professional director and investor, Kendall Flutey, CEO of Banqer, Andrew Ryan, Partner at MinterEllisonRuddWatts, and Donna Nicolof, CEO and Founder of Pāua Wealth Management. The evening was an opportunity to hear from and ask questions of our experienced panel.
Some of the key themes on the minds of successful New Zealand families include:
- Inter-generational succession planning – both in terms how best to prepare future generations for the transfer of wealth, but how family values are passed on and maintained throughout the process and how the family can be held together through generations.
- Key to maintaining healthy family relations is good communication and trust, make the time to get together, separate from the business.
- The need to align values and agree purpose, which helps keep a family and their wealth together through successive generations. It is important that families discuss and agree what they are trying to achieve.
- Their legacy. Increasingly, families are looking to use their investments for either positive social impact or philanthropic endeavours. Aligning investments with their values is key and this is often a journey.
- To fulfil a family’s purpose in the most impactful way, it is important for families to set out what they want to achieve with their legacy and then determine how this can be aligned to support either direct or indirect charitable causes. This is a process that is very personal and specific to each family.
The role of governance in a family office
- The importance of good governance of family wealth and how to best achieve this continues to be an area of focus.
- For many in New Zealand, governance of family wealth or charitable foundations can be improved. In particular, understanding your fiduciary responsibilities and obligations, conflicts of interest and knowing the right questions to ask.
- The core of what holds families together over generations is trust, and family offices are now seeking out people who can play a role as trusted advisers with the different generations. It is important to find someone who takes a responsible “trustee” attitude to managing both the wealth and key specialist relationships.
- While bringing outsiders in can provide independence and valuable expertise, long-term commitment is naturally engendered with members of the family, hence preparing them for the role is key.
How do we equip the next generation?
- Ultimately one of the key questions for families is how to equip the next generation for the responsibility of safeguarding and being good custodians of family wealth.
- Unless they get intentional financial education, most New Zealanders learn about money through trial and error – an inefficient way to learn that can result in carrying those financial consequences for decades. For example, the impact of taking on overdrafts and credit card debt.
- We are living through the largest wealth transfer we have seen and research shows there is no correlation between the transfer of wealth and financial capability. So, we can’t assume knowledge.
- The advice to parents is to have conversations about money with kids early and often, in a way that is age appropriate. Research shows that financial behaviours start forming at age seven and rapidly set in thereafter. Early engagement is therefore critical, although never too late. Financial literacy skills learned from a young age are retained for life.
- For family members expecting to receive wealth, start discussing it early and get them used to the idea of future inheritance. Part of the importance of these discussions is to help them feel in control of their destiny and give them an opportunity to ask questions and learn. Involve them in the family business if there’s a desire to do so and encourage learning opportunities as early as possible.
- Involving a family’s financial adviser as part of these discussions can also be useful, as they can help breakdown more complex financial concepts. Pāua Wealth run “Ask Me Anything” (AMA) sessions with families (often multi-generational), where we provide an opportunity to discuss money matters and ask questions in a safe environment.
- As investment markets and financial technology are constantly evolving, continuous learning and staying abreast of new developments and being able to respond to these is critical.
What structures are best used to pass wealth to the next generation?
- Recent changes to legislation have increased obligations on trustees, including the disclosure requirements to beneficiaries. This has resulted in trustees reviewing their trust deeds to ensure they remain appropriate.
- Many trustees are also now having conversations with beneficiaries around the assets held in trust for them and expectations of their future financial responsibilities.
- Given the increase in obligations on trustees, it can be more difficult to find independent trustees, as they are less willing to be involved.
- Some families have decided to wind up trusts, given they now no longer serve the desired function, so instead deal with assets and inheritance through their wills.
- Regarding wills, it is important to ensure these are up to date and include your wishes.
- For families with assets overseas, it is important to have a will in the country in which their assets are located. When you die, in order to get distributions from those countries, a local will is often required and subject to probate.
- It’s also important for families to have enduring powers of attorney, to establish who one’s personal care and welfare power of attorney is, who is best placed to act as a property power of attorney, and who will look after parents in the event of illness.
- Family constitutions are also being used more frequently. Unlike trust deeds, they are not legal documents. Instead, they set out a family’s core values, strategy and governance, including how wealth is managed, transitioned and any charitable activities.
It was an informative evening and provided a great opportunity for those who attended to ask questions and have further discussions with our expert panel. If you would like any further information, please do get in touch with us.
Rob is currently the Chair of Te Whatu Ora – Health New Zealand, Ara Ake, Environmental Protection Authority, New Zealand Rural Land Company and Chancellor of Auckland University of Technology. Rob has over 30 years’ experience in capital markets and is a director of, or advisor to, a range of investment fund and private equity groups in New Zealand, Australia, Hong Kong and the United States of America.
Kendall is the CEO of Banqer, an online interactive financial education platform, named 2018 NZ Hi-Tech Start-up Company of the Year, which teaches primary and intermediate students about concepts like debt, saving, taxation, investment and insurance.
Donna is the Chief Executive Officer and Founder of Pāua Wealth. She has almost 30 years’ experience in financial services, predominantly gained in Australia and abroad in the US and Hong Kong. Donna works with families assisting them with succession planning, generational matters, wealth management and investment. She is a passionate advocate for financial literacy, particularly educating the next generation.
Andrew, a Partner at MinterEllisonRuddWatts, is a leading tax lawyer and chartered accountant, who is renowned for his tax advice and his representation of clients in contentious matters. In addition to his corporate tax practice, Andrew enjoys assisting private clients with their tax affairs.
Chris is the Co-Founder of Pāua Wealth and a seasoned investment professional with over 20 years’ experience in investment markets locally and globally, and trusted adviser to a number of successful NZ families.