My husband sold his marketing company a few years ago and I am a solicitor. We have three teenage children aged 13, 16 and 19. There will be a significant amount of wealth passed down to them. How should we approach our children about money? Should we tell them how much they are set to inherit or keep the whole thing secret? How do we keep them grounded?
Nick Ritchie, senior director of wealth planning at RBC Wealth Management, says these concerns are common among first generation wealth creators. You may be having nightmares of curbed ambitions the moment the children grasp their fortunate circumstances. However, rather than keep it a secret (spoiler alert: the large house and regular holidays are a giveaway), an open dialogue and education on money matters tend to be the best starting place.
Every family is unique. To help establish the best approach for yours, it can be helpful to consider three steps: discuss, educate and review. Before speaking with the children, you need to understand your values and concerns, define what the wealth means to you, and be clear on how much you want your children to benefit, when and for what purpose. A trusted adviser can offer an objective opinion at this stage and document the outputs.
You can then speak to the children with purpose and clarity. This discussion need not involve a line-by-line review of the family balance sheet. It should focus on education and learning the value of money — how to earn it, how to save it and how to spend it wisely.
One useful exercise is to help your children establish their own financial goal and plan to achieve it. This might be saving up for a games console for the 13-year-old or a car for the 19-year-old. Combined with means to save and budget (such as pocket money or a part-time job), this will reinforce that not everything can be bought on demand and that a bit of planning may be required at times.
Another way to educate them is to involve the children in decisions over larger sums of money to which they don’t have immediate access, like a Junior Isa or a pension. Your children can participate in annual reviews with your advisers, exposing them to different methods of saving, possible associated risks and the application of longer-term investment strategies.
As your children age and their circumstances change, it is important to review your approach. You may find that your fears of a spendthrift beneficiary frittering away their inheritance subsides in time. You may also reach milestones at which you are happy to provide financial assistance.
In the meantime, a well written will can ensure your wishes are followed in the event of your passing. You can also consider establishing a family trust or family company, which can be useful dynastical vehicles to protect the wealth for future generations.
I am a retired engineer and sold my business a few years ago. I have invested in the UK tech and finance sector through a mixture of stocks, peer-to-peer landing and angel investing. Part of my portfolio also resides in the US, adding cross-jurisdictional exposure into the mix. Volatility has exacerbated issues for one of the fintech start-ups I am heavily invested in, with insolvency surely on the horizon. My retirement funds are on the line and friends are suggesting I should be taking legal action. What remedies would I have if contagion causes my holdings to plummet?
Michael Jacobs, partner at Boies Schiller Flexner, says litigation can be an effective tool to recover losses arising from investments that have lost value. However, the circumstances in which it is viable, let alone successful, turn on the precise details of any given case. Even then, legal action should not be the first step; you should exhaust any complaints process including via the Financial Ombudsman Service (FOS), if applicable.
As a starting point, the fact that an investment has lost value will not, in itself, give rise to a claim for redress. Virtually all investments go up and down over time, most with acute downwards movements in times of economic turbulence, such as we are currently experiencing. It is not uncommon for companies to fail through no fault of their own in these financial conditions, wiping out shareholders and unsecured creditors in the process.
Angel investing in start-ups, as you have done, is often carried out with the expectation that some ventures may never get off the ground at all. While the upside can be considerable if you happen to back the next Uber or Spotify, the value may also plummet to zero. For litigation to be viable, you really need to identify some form of wrongdoing as the basis of your claim and it may be that there is none.
Although you have a broad range of investments, it is questionable how suitable they are for someone in your position; that is, a retiree who might wish to avoid putting capital at risk and generate a reliable income, rather than chase high returns through high-risk opportunities.
It is unclear whether you made these investments into companies directly, with your own due diligence efforts, or via an intermediary on an advisory basis, such as a wealth manager or investment professional. If the latter, then it may be open to you to explore what duties they owed to you, whether under Financial Conduct Authority regulations or any contract setting out the basis on which they agreed to help you invest your money and whether such duties have been breached.
Claims may also lie against the company, its management and relevant third parties (such as auditors) if your investment was made (or you continued to hold it) based on inaccurate information that they provided. Likewise, a failure to provide relevant information. If you believe there are grounds that justify further investigation as to whether a claim might exist, there may be value in engaging a lawyer to assist, depending on the size of your investment.
But be prepared: the biggest barrier to litigation is the cost — which can include liability for the other side’s cost if you lose, not to mention the time and emotional energy that it can take up.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to yourquestions@ft.com.
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