Last year, Ingenious ran an educational webinar when we revealed the ‘Six Golden Rules‘ which, in our view, one could apply when selecting the most appropriate unlisted Business Relief (BR) services for clients looking to conduct some proactive estate planning.

Since then, we have fielded many questions as to the priority in which one should apply those rules. Now we deliberately didn’t seek to prioritise them, as when applied properly they all could reveal a factor or issue about any service that might mean they are assessed as more, or less, suitable for a client.

However, one should remember that if the goal of estate planning is to pass on the maximum of a client’s wealth to their chosen beneficiaries when they die, anything one can do to ensure that a client is able to protect their estate, grow their wealth and mitigate the potential effects of IHT are what counts towards this goal.

However, in the same vein it is also possible to identify ‘Six Potential Oversights‘ anyone could make which might pose a risk to their advice, their clients’ outcomes, the beneficiaries’ wishes and ultimately retaining their business.

Not giving adequate consideration to “estate planning” efficiency

At a recent webinar, we were told by the audience that the primary motive to undertake estate planning is to eliminate, or reduce, the potential IHT burden clients’ estates will be subject to on their death*. However, this could be missed if one focuses on solely the investment risk present in any potential solution, as the IHT efficacy may actually play a much larger role in the success or failure of the proposed financial planning strategy. For example, should a client be invested in a lower risk investment within a solution which is only IHT effective after seven years and then the client dies after two, the advice has palpably failed the client. Bearing in mind the impact of IHT can mean a loss of 40% of the estate value, the result of not doing everything possible to eliminate IHT risk could be far greater that the assumed extra investment risk in doing so.

Being reliant on opinions, rather than facts

We all have a duty to understand the investments we recommend to our clients. As a result, many choose to utilise independent due-diligence to give them an easy snap-shot across the whole market to assist them in comparing rival managers’ services. However, this broad picture cannot be relied on in isolation and to provide the most robust process advisers should overlay their own judgement, having accessed all the relevant facts on these services. See our Six Golden Rules.

Unfamiliarity with all the costs, fees and charges of a service

It is noticeable that the fee models for a lot of unlisted investment services can be confusing and hard to assess and compare. However, it is vital to fully understand not just the magnitude of any investment costs, but how this may impact the performance of the service and what it may imply about the level of risk the manager is taking.

Many managers make a big issue of the fact they may only charge a modest annual management charge (AMC) if a set “hurdle” target is achieved over the life of the investment. What appears even better, is that they also suggest they will defer the taking of this annual charge until that exit point. In these cases it is highly likely the manager is also charging another annual fixed “service” fee which typically is greater than the other quoted AMC, and it is not contingent on any performance target and will be taken annually rather than deferred.

Lastly, understanding the full cost burden of any service can be a good indicator as to the level of risk being taken by the manager. Basically, to make a net positive return a manager must take greater risk for every percentage of fees they take to earn those fees back.

Misreading the way the investment service is valued

Not all unlisted BR services are valued the same way. Many services are valued and audited in order to calculate their Net Asset Value (NAV) but some then declare a separate, and floating, share price which may not match the audited NAV. If this is the case, and the share price is higher than the NAV, any incoming clients are buying shares at more than their “break-up” value which exposes them to the risk that should the trading company cease trading or needs to be broken up, they may only get back less than they invested and indeed thought that they owned.

Sacrificing investment performance for liquidity

Many investors value the concept of instant or fast liquidity in an unlisted investment. Many believe a service that offer redemptions in 10 days is superior to one that offers redemptions in 30 or even 60 days. Some managers also tell them this. But what if maintaining that liquidity impacted the level of funds actually deployed on trading activity? What if that faster liquidity actually meant holding significant capital back to meet those requests, which inevitably has a negative impact on investment returns? Why would the beneficiaries care if it took 20 days more when probate is typically taking more than twelve months anyway? Surely, they would want to have selected the service with the best estate planning effect so they get the best value and absolute maximum of growth?

Confusing size for quality

There can be a natural assumption that the biggest must be the best. But one should consider the impact AUM actually plays in the goal of effective estate planning. Does a larger office or more staff actually benefit investors? It’s our view that the previous metrics above are probably a far more accurate predictor of which managers and services offer the chance of achieving a better outcome to clients. So, deciding which metrics are the most relevant to the outcome clients are seeking is key to selection criteria.

As mentioned above these have been the key areas that seem to cause the most uncertainty and we believe we offer some answers but if have any more issues where you would like some clarity please contact us at

*Ingenious/PFS Webinar – Six Golden Rules – Oct 2021

Over the last few decades a lot has changed in financial services, but one thing has remained the same: the difficulty experienced by many advisers in getting their clients to commit to estate planning.

There have been many articles detailing the continued rise in inheritance tax receipts, and as the continued freeze of nil rate bands drags more and more people into the IHT net, public awareness of IHT has never been greater. It is supposedly the one tax that nobody likes paying, so why do clients often shy away from doing something about estate planning?

Whilst every individual is different, and they all have their own reasons,  these challenges often fall into three areas.

  1. Starting the discussion – the challenge of discussing money and death with families
  2. Engagement and actions – connecting with hearts and minds
  3. Finding the right solution – balancing control, certainty and performance

Starting the discussion – the challenge of discussing money and death with families

Whilst the pandemic has made people more aware of their mortality, acknowledging this and then being able to discuss it with their nearest and dearest is often difficult for many people. And that’s before the discussion turns to how their wealth may be distributed amongst beneficiaries.  As a result discussions are often postponed for another day, but sometimes that can be too late.

As an independent expert in estate planning matters, a financial adviser is perfectly positioned to help families navigate these difficult discussions together in an objective, supportive and practical way.  Whilst helping families find a way through intergenerational matters can be challenging, clients will frequently say that a weight has been lifted from their shoulders once they begin this process with a trusted adviser.  It is extremely rewarding to see the impact that these discussions can have on clients and their families.  Playing such a role can also help advisers develop broader relationships within the family which may ultimately assist them with the question of intergenerational transfers and retaining an advisory relationship with the next generation.

Engagement and actions – connecting with hearts and minds

Whilst obtaining client agreement to start the discussion is the beginning, being able to engage with different family members in a positive and supportive way requires a certain deftness of touch, without which good client intentions remain just that. 

This is where the full range of an adviser’s skillset comes into its own.  Advisers will generally feel very comfortable playing that independent and objective role in these discussions and advancing the logical outcomes of alternative outcomes.  In addition, emotions surrounding the discussion will inevitably need to be managed so that family members all feel listened to and common ground can be established for without this last part, the family may not ultimately take any action or decisions may be delayed as consensus has not been reached.  These can be difficult discussions for us all to have, especially if we put ourselves in the position of the people being advised but advisers can nevertheless play this role very successfully.

Finding the right solution – balancing control, certainty and performance

Fundamental to the successful outcome above is the answer to the question advisers will inevitably be asked:  what do you suggest we do?  Sometimes, clients simply don’t buy the recommended solution as it isn’t compelling enough and decisions are put off for another day.  But without the right products and solutions, the financial plan may not fully deliver the outcome the client really needs, particularly if it involves an unacceptable compromise.

The objective of estate planning for most people is to provide the best possible legacy for their beneficiaries whilst allowing for their own life needs. At a high level this is simple. Plans must:

As we know, it is not easy to achieve that combination as some aspects conflict.  Many people find gifting and trust planning unpalatable due to the lack of access to capital. More flexible trusts have been popular in the past, but many are put off by the length of time they take to be fully IHT effective. They have also become expensive as the chargeable lifetime transfer, periodic and exit charges may erode the intended benefit.

As a result, many advisers have turned increasingly towards the use of Business Relief-qualifying investments to meet their objectives as the risk of planning failure due to mortality is reduced to two years. This only reduces the risk of failure – it doesn’t remove it. Insurance solutions can be added to actually remove mortality risk and ensure the effects of IHT are mitigated whenever a client dies, as long as the premiums are paid. The challenge with that approach is that premiums can be significant, and may erode the value of the inheritance over time. Costs remain too high for many to contemplate going down this route.

Advisers therefore also need help from product providers in the form of innovation, to furnish them with more compelling solutions which encourage clients to take action.

It’s not hard to see why estate planning falls down the priority list when talking to clients.  It’s not fun to talk about.  For anyone.  However, having the conversations about the emotional impacts for both them and their loved ones can really help ease clients’ fears, and move them toward a solid plan.  And with new services on the market every day, advisers can start building plans that are more likely to achieve their clients’ goals.

Last July I wrote an article considering the potential impact of rising inflation on clients in later life (Later-life and estate planning in an inflationary environment – At the time RPI was increasing at a rate of 1.7% per annum (1), with the OBR predicting a medium-term average of 3% pa. Well, as at 18 May it is now 11.1% per annum (1), and the highest it has been since January 1982 (12%) (1).

In my original article I referred to the 1970s and the last period of sustained high inflation, and how those that were starting out in adult life now find themselves in later life. I looked at the parallels and considered how those clients and their advisers might work together to address the effects of inflation on their later life and estate planning.

However, this new period of high inflation in which we now find ourselves is markedly different from the last, it is worse in many ways and in particular for those in later life. A perfect storm of rising costs and poor returns is hitting middle England, a group that is already being squeezed due to changes in age and gender related demographics and lifestyle. Before considering how advisers may be able to help them, let’s firstly consider the pressures they are under.

The Real Return Crisis

Whilst inflation has yet to hit the peaks of the 1970s and early ‘80s, as I have mentioned it is at its highest point in more than 30 years. That’s where the similarities end though. In May 1982 bank base rate was 13.13% (2), so savers were still seeing a real rate of return of 1.13% per annum. Contrast that with May 2022 where we have a bank base rate of 1.0% (2) and a real terms loss of 10.1% per annum. A swing in annual real rate of return of c.11.23% is huge

Savings and income are being eroded at an unprecedented rate at a time when most tax allowances and thresholds have been frozen, adding to the squeeze. But prices of goods and services increase at differing rates, the rise in the costs of essentials is disproportionately great and therefore is hitting those hardest who can least afford it.

1. RPI All Items: Percentage change over 12 months: Jan 1987=100 – Office for National Statistics (

2. Bank Rate history and data | Bank of England Database

The Care Crisis

The cost of care provision is already eye-wateringly high, and will remain so despite the forthcoming care cap. However, it’s almost impossible to see how this won’t get worse still when you consider that the core costs of care provision are human resource, food and energy (heat) all of which will likely be at the higher end of the inflation basket.

Rising costs, paired with eroding savings mean that care provision could become even less affordable for many, and this will inevitably mean that many middle-aged workers will be forced to provide care for their elderly relatives whilst still working, and likely still providing a home for their children who are unable to get on the housing ladder.

This is already becoming a significant problem as 22.3% (3) of workers aged 50-59 are also providing care to others. This rises to 23.9% (3) for workers aged 60-69. If, as seems likely, this is happening because the costs of care are skyrocketing, then these numbers will only increase as costs continue to rise and inflation takes further hold.

Medical advancements mean that people are living longer (5), which we all hoped would be a good thing. Unfortunately, this is just adding fuel to the fire. Longer lives are not necessarily healthier ones. Recent statistics from the ONS show that, on average, males will spend 16.2yrs (6) of their lives in poor health, and females even longer at 19.4 years (6). Increased life expectancy simply increases the need for care provision, putting even more pressure on the care system, those working as well as caring and it becomes a vicious circle, people will increasingly need support whether that be financial or guidance.

3. Care homes and estimating the self-funding population, England – Office for National Statistics (

4. Life expectancy in care homes, England and Wales – Office for National Statistics (

5. Living longer – Office for National Statistics (

6. Health state life expectancies, UK – Office for National Statistics (

Perfect storm for the squeezed middle

The wealthy can frequently escape these crises relatively unscathed as they have sufficient resources and access to professional support and guidance. Those with little in savings or assets are also not likely to feel the full effects of these challenges as they are often supported by the state.

It is those in the middle who are most likely to feel the pain, and who will have to adapt the most by making changes and re-plan their finances. Those that had planned to leave their savings to their children may now find that they need to repurpose those funds to meet their own needs – not to mention possibly funding care for their own parents.  This may lead to dipping into savings to meet costs which previously would have been covered by income.

Given all the challenges they face, there has never been a time when middle England has had a greater need for advice, and yet only the minority actually seek it, as evidenced by the UK Advice Gap Report by Open Money (7). Without advice, this group could be making mistakes that put them even further behind in meeting their financial goals.

7. UK Advice Gap Report 2021 | OpenMoney (

What can the financial services industry do to help?

All stakeholders need to help increase the visibility of and access to advice. It is also incumbent upon all parties to be proactive and not to freeze in the face of this financial pandemic.  There are some very specific things the financial industry can do to help clients achieve the best possible outcomes for themselves and their loved ones.


Product providers / investment managers

At Ingenious we are committed to helping advisers through education and support but also by developing innovative solutions which aim to deliver greater certainty and peace of mind for advisers and their clients

Never has there been a time when clients have needed their advisers more.  Advisers have a vital role to play by making sure they understand the pressures their clients are facing, how those might change and what solutions are available to help them by staying on top of developments and working proactively with product providers to fully understand how they can support them now and into the future.


Ingenious is a specialist investment manager focused on the media, real estate, infrastructure and education sectors. To find out more about Ingenious and their flagship estate planning service IEP Apex visit

According to a survey conducted by Ingenious last year* the single most important factor that motivates financial planners and wealth managers to recommend a Business Relief (BR) qualifying service to clients is the speed of IHT efficacy. BR investments should be fully IHT-exempt after just 2 years, rather than the 7 years of a Potentially Exempt Transfer (PET).

This feature makes BR-based investments attractive to clients looking for proactive estate planning solutions that allow them to retain both access and control of those assets, and even more so for those clients who may be concerned about their longevity. As clients frequently make estate planning decisions in later life, it is also likely that more clients will live for two years following an investment decision than for seven.

These drivers have led BR-based investment services to such popularity that now well over £1.5Bn per annum is invested into these solutions**.  As a result, a wide variety of fund managers’ services have proliferated to support demand.

However, independent research into these solutions has so far understandably tended to focus on just one of the two major elements of a BR-based service: the underlying investment service and how that may impact a client’s outcome. Due to the common assumption that all BR-based services will produce full IHT efficacy after the same 2-year holding period, the other element, the actual estate planning impact of these services, has been largely ignored.

However, even if a “2-year plan” does have a better chance of success than a “7-year plan”, the 2-year wait may itself still be taking a significant risk with your clients’ outcomes. And should the clients die inside that two-year window, their desired outcomes simply aren’t being achieved when their beneficiaries are being hit with a significant IHT bill after their death.  And much as we don’t want to face it, we all run the risk of dying within the next two years, regardless of our age or current health status.

So, what can be done to mitigate this clear risk and ensure we deliver on the client’s outcomes as intended?

For the last five years or more there have been some BR-based services that set up a 2-year life insurance policy alongside the investment service to cover the specific risk of the client dying within those first 2 years. If an investor dies, the life policy will typically pay out 40% of the amount invested into the service, neatly covering the IHT liability and making the investment IHT-effective from day one. However, with these services the client must pay extra fees to cover the costs of the insurance. So, whilst this helps negate the financial impact of mortality within the first 2 years, it will compromise the investment return and therefore the final value that will be passed on to the chosen beneficiaries.

This poses a dilemma to advisers and their clients. If they decide to protect themselves from the impact of IHT if they die within 2 years, they will likely compromise the return they can pass to the beneficiaries; but if they don’t pay for the life cover, they run the risk of IHT fundamentally impacting their loved ones. As a result, many decide to take the gamble and not purchase the cover.

By contrast, a BR-based service that includes life insurance as standard at no extra cost to the investor could deliver this immediate IHT efficacy without compromising on cost or investment performance – an obvious choice for investors and advisers alike.

This kind of service has never before been available on the market – until now. IEP Apex, launched in March, combines Ingenious’ proven investment strategies with life insurance at no extra cost to eligible investors. IEP Apex will ensure that in those cases where investors die within the first 2 years and therefore fail to make Business Relief status, their investment will have grown in line with the performance of the Ingenious IEP services and it will settle the IHT liability via the insurance cover, thus preserving the ultimate value of the investment. Equally, those investors who see out the initial 2-year period will be no worse off as they won’t have paid for insurance thereby protecting their investment returns.

For investors and advisers alike, IEP Apex offers a unique and reassuring way of meeting their estate planning goals immediately in one simple service via accelerated day one IHT cover (post share allotment) without having to incur expensive insurance that hits investment returns.

*Based on a webinar with 340 attendees

** TER – June 2021

Business Relief (BR) qualifying investments are very popular with advisers and investors as the investments are free of Inheritance Tax (IHT) liability after two years, much quicker than other estate planning solutions.  Whilst this is appealing, an investor still has a two year wait for the investment to become BR-qualifying.

To address this problem, insurance cover has been available in the market for several years as an optional extra to protect against IHT liability during the two year qualifying period.  A relatively small proportion of investors take up the option of paying for this protection, but many do not as the cost of the insurance significantly erodes investment returns. These investors prefer to wait the two years out and avoid the cost of insurance cover.

This is an understandable and typical reaction to a discretionary insurance purchase which we often make in our day to day lives if we feel the cost outweighs the risk.  However, when the consequences of the event being insured can be significant, and life changing, we tend to think differently and happily put cover in place, such as home insurance.  A BR investment is no different.  Whilst an investor may not believe they are likely to die in the two year qualifying period, it might happen. Nothing is certain after all, other than death and taxes, the two things under the spotlight here!  And, if the investor were to die in this two year qualifying period, the consequences for their beneficiaries would indeed be significant with 40% of their estate reduced via IHT, something which most people would want to avoid happening to their beneficiaries.

That’s why we developed IEP Apex,  the only BR-qualifying investment with complimentary insurance cover as standard. IEP Apex gives investors and their beneficiaries peace of mind immediately following share allotment that any IHT arising in the first two years will be settled by the insurance policy, for no extra cost to the investor.  No hard decisions, no trade-offs, just peace of mind from day one following share allotment.

Given the potential consequences, why would your clients wait two years for their investment to become BR-qualifying when they don’t have to? 

How does it work?

The insurance policy is designed to settle the IHT liability arising in the two years post share allotment if the investor dies within this time.  In year three, the investment should qualify for Business Relief as normal so it becomes IHT-exempt.  It’s really that simple.

Why should you recommend it to your clients?

IEP Apex is a new type of BR-qualifying service.  It is unique in that, to the best of our knowledge, no other BR-qualifying service provides complimentary insurance cover as standard to pay for the IHT liability arising if the investor dies in the first two years post investment.  The insurance cover is integrated as part of the investment service.  It’s simple and straightforward – there are no examinations or complicated forms, no need to assess by how much the cost of adding insurance will erode performance.  Just a simple health declaration as part of the easy application process, and investors’ IHT liabilities are covered in case the worst happens in the first two years post investment.

But that’s not all IEP Apex provides. Beyond peace of mind, IEP Apex offers investors:

The IEP Apex peace of mind

At any stage of life, IEP Apex protects investors and their beneficiaries from the consequences of their estates being reduced by 40% in the two year BR-qualifying period.  Why should investors wait two years for their investments to qualify for BR when they can be covered immediately following share allotment? 

IEP Apex has your clients covered, just in case.

Ingenious today announces the launch of IEP Apex, a simple and cost-effective solution for any financial advisers and their clients looking to maximise the wealth they pass onto their beneficiaries.  IEP Apex is designed to take a holistic approach to estate planning by providing a unique set of benefits as standard, including: 

We’ve been working with financial advisers to understand what they and their clients want from an estate planning service: capital protection, steady returns, immediate IHT effectiveness and low costs are their priorities. IEP Apex has been created as a new type of estate planning service to meet their needs, building on one of the top-performing and lowest-cost services in the sector to deliver what we believe is exceptional value for money.

Neil Forster

CEO at Ingenious

IEP Apex focuses on protecting capital via a lending strategy secured against high-quality assets with a low correlation to public markets. This strategy can reduce volatility in investment returns and aims to benefit from long-term growth ahead of inflation. 

IEP Apex makes things simple for financial advisers and their clients by providing complimentary insurance cover from day one to settle any IHT liability arising during the two-year business relief qualifying period as well as providing access to a complimentary care advisory service. 

While investment managers have historically always charged investors for insurance cover and peace of mind, Ingenious is proud to make both insurance cover and access to the care service available as standard, creating a new type of estate planning service.

About IEP Apex

IEP Apex will become the fifth service in the Ingenious Estate Planning family. All IEP services offer investors flexible access to their investment, subject to the terms of the investment agreement, as well as the benefits of the complimentary IEP Care Service. In June 2021, for the second year running, the services were ranked second most competitive in the market for cost over a five-year period, while the Private Real Estate strategy was also ranked number one for the second year running for overall return over a five-year period1.

Protecting the value of clients’ investments

IEP Apex operates an asset-backed lending strategy to reduce risk and protect investors’ capital while seeking to carefully deliver predictable long-term returns.  An investment in IEP Apex can be expected to have a low correlation to public markets, an important consideration for diversification of an investment portfolio.

Insuring against any liability to IHT

IEP Apex keeps things simple.  Investors achieve immediate peace of mind by no longer having to wait two years for their investment to qualify for business relief, or longer with other strategies. If an investor were to die during the two-year qualifying period, their liability to IHT is settled via the insurance cover, providing peace of mind from day one – why should an investor take the risk of waiting two years for business relief when they can achieve the same effect immediately, on day one?

From year three onwards, the investment should qualify automatically for business relief, meaning that the investor should face no charge to IHT at any point post investment.

Providing access to care planning

Investors automatically receive access to the complimentary IEP Care Service, an advisory service that enables them to plan both practically and financially for potential care needs before they become a reality. This feature also comes as standard as part of this new type of service.

Keeping costs low

Historically, investment managers have charged investors more money for additional services such as insurance cover and access to care advice.  With the new IEP Apex service, financial advisers and their clients no longer need to decide between tax effectiveness or cost as IEP Apex provides complimentary insurance cover and access to complimentary care advice as part of the service.

Confirming compliance with business relief regulations

Ingenious has many years’ experience establishing and monitoring business relief qualifying investments and to date every single investor has benefited from the business relief expected.  In addition to Ingenious’ ongoing monitoring, all of our IEP services further benefit from an independent annual review to provide comfort that the service remains business relief compliant.  Just another example of our unique service.

1Tax Efficient Review, June 2021.  IEP Private Real Estate has been ranked number 1 for two years running for total returns over a five-year period.

2Tax Efficient Review, June 2021.  The IEP services have been ranked number 2 for two years running for total cost over a five-year period.

Life was good in 1967 Britain; the first colour television broadcast was made on BBC2, Sandie Shaw won the Eurovision Song Contest and Beatlemania was in full flow. August 1967 was particularly sunny and warm and annual price inflation (RPI) sat at just 1.4%1.

Within 12 months, RPI reached 5.7%, subsequently remaining above 5% for THIRTEEN years, including five years above 10%, and peaking at an eyewatering 26.9% in August 1975. From 1967 to 1983, inflation averaged 11.1% per annum, and the price of goods increased by 540%, having a devastating impact on the standard of living.

Those who were starting out in life in 1967, looking to buy a home and raise young families, are now in their 70s and 80s with very different aspirations and concerns. But if inflation makes a comeback, as is expected, what does this mean for them now that they are retired and for their later life and estate planning considerations?

Most people in later life have two overriding objectives; leave the best possible legacy for their family and ensure they have enough money to meet their own life needs. The two are not mutually exclusive as their accumulated wealth may need to be used for either purpose depending on how life pans out. Advisers therefore need to help them plan for all possible eventualities.

Inflation and capital taxes

Let’s consider the impact of inflation on legacy aspirations. In March 2021, the Chancellor froze all Inheritance Tax thresholds until 2025/6. In an inflationary environment where asset prices, particularly property values are increasing, more estates will be dragged into paying Inheritance Tax. Those who are not actively looking to sell their properties may be blissfully unaware that their assets have crept above the nil rate band and the prospect of IHT being levied on their estates may come as a surprise to them. For those with assets above £2m, again likely to be a growing number, Residential Nil Rate Band taper will accelerate as the value of their estate grows and so they may not enjoy the same level of relief they had been expecting.  Gifting of IHT exempt assets, such as Business Relief (BR)-qualifying assets may be considered as a way of mitigating this.

Similarly, more clients could be dragged into the Capital Gains Tax net if they wish to crystalise gains made on other assets. Keeping track of rising asset values relative to tax exemptions and thresholds could make a real difference to the legacies clients are able to leave to their beneficiaries, or to the amount of money available for clients to pay for their own life needs. Proactive management will become an increasingly important aspect of the adviser role in an inflationary environment.

The ‘Real’ value of money

Many clients looking to maximise their legacies whilst maintaining access and control consider BR-qualifying investments, of which there are now a variety on offer from a number of investment managers. Many of these have a “capital preservation” focus and target modest returns, some as low as 1.5% p.a. and numerous around 3% p.a. Inflation has been low since the market for these products was developed, allowing investors to maintain the real value of their investments, but with little room to manoeuvre for any bumps in the road. Indeed, in recent times some services have struggled to meet these targets due to volatility in energy related assets.

Whilst the Office for Budget Responsibility (OBR) medium-term forecasts for RPI are around 3%2, Deutsche Bank has warned of a global inflation time bomb, with inflation re-emerging in 2023 at a level which “could resemble the 1970s’ experience”. It has to be said that this is not a widely held position but not many people expected to see double-digit inflation figures when they were enjoying the summer of 1967!

Even if the OBR are correct, some BR-qualifying portfolios would be struggling to preserve capital in real terms. It is vital therefore that advisers look towards services which can offer greater returns, and low costs, so that legacy aspirations can remain intact.

Rising costs of raw materials and energy lead to higher prices for consumers and a poorer standard of living if incomes cannot keep pace with expenditures. This is at its most acute for those in retirement, who often rely on savings to supplement their income, and where pensions maybe index-linked but ‘real inflation’ is growing at a faster rate than the index. In this situation, a planned legacy may now need to be repurposed to meet life’s needs.

Accessibility & liquidity

Strong performance and minimising tax deductions on withdrawals can make money go further, but accessibility is a pre-requisite in this scenario. Whilst BR portfolios are favoured by many as they are, in principle, more accessible than most trust-based estate planning strategies, liquidity within the underlying companies and investments varies significantly. In challenging times, physical assets can prove difficult to sell in a timely manner and at a favourable price, even those shares listed on AIM may not be as readily realisable as they appear. Holding cash for liquidity purposes would become too much of a drag on returns in an inflationary period. This could explain why there is a trend developing towards secured lending-based investments where no trade or asset sale is required as there is natural liquidity within lending books.

Care provision

We all know that more and more people will need care of some description in later life. We know that it is expensive and can wipe out a lifetime of saving in next to no-time. Care provision is, by definition, a very personal service, delivered by caring individuals, who have bills to pay and who will face rising costs themselves. Ignoring for one moment any cost of goods, the inflationary surge in labour costs in the care sector alone will lead to significant increases in care fees. Obtaining professional guidance to navigate the care system, securing great care at the best possible cost will become increasingly important for families who want the best for their loved ones.

The value of advice

Only 5% of the UK population are over the age of 75 and will remember what it was like having to deal with inflation back in the 1970s’, most financial advisers were still at school and many not even born, the experience of the client coupled with the expertise of the adviser makes for a good partnership but meeting the challenge of inflation requires product providers to support them with solutions which can provide sufficient growth, income, accessibility, tax efficiency and access to professional services in specialist areas such as care.

1Office for National Statistics, June 2021

2Office for Budget Responsibility, May 2021

At Ingenious, we consider estate planning to be just one part of a comprehensive later life plan. Business Relief (BR) solutions should be approached as an investment service in their own right and not solely considered as a tax solution. Advisers should remember not to let the, “tax tail wag the investment dog.”

When it comes to undertaking BR due diligence, we have six golden rules advisers can use to position their clients for the best possible outcomes for both estate planning and later life.

1. Strong Performance is crucial

Estate planning is about leaving the most to our chosen loved ones as a legacy. Individuals should therefore plan to maximise the wealth they will have to ultimately pass on to their beneficiaries, whilst considering any potential needs, such as home improvements or travel, as well as the possibility of needing to pay for care one day. As well as helping to meet any needs, strong growth is also a key weapon to counter the negative forces of inflation, so seeking a steady, long term, meaningful return is always crucial.

2. Keep costs to a minimum

Costs are another guaranteed negative force on investment returns and so should be minimised. Lower costs can also reduce risk. A manager with lower fees doesn’t need to chase extra risk to cover these costs before delivering on their specified or target return, which is calculated once fees have been deducted. In addition, high costs can indicate the investment is not delivering best value to the investor, but that instead the manager is taking the significant benefit.

3. Understand all factors affecting the trading activity

BR investments are investments into underlying portfolio companies, which can carry out a wide variety of BR trading activities. These companies and the markets in which they operate should be clearly understood by the adviser. BR companies tend to either own and operate assets or carry out a lending trade. Some do both. Broadly speaking, those with a higher proportion of their portfolio in physical assets will see their fortunes depend on the performance of those assets and will fluctuate on the fundamentals of the sector. Those more focused on lending should see more steady returns as they will have lent money at normally fixed rates and any market fluctuations should have less impact. The associated risks of both routes, including their sector, liquidity and valuation risks, vary widely between strategies. This should all be considered in the context of the investor. Is the trading strategy and associated risk appropriate for their profile?

4. Know what it’s worth

When making any investment, it is crucial to purchase the asset at the correct price, taking into consideration the potential future sale value. For BR, there are two main considerations.

The first is being aware of the methodology undertaken by the manager when calculating the Net Asset Value (NAV) of the service. Owned assets tend to be more complex to value, are reliant or many variable assumptions and have more potential for subjectivity. Valuations that appear not in line with current market fundamentals or with similar services, should be assessed carefully. Lending services tend to be more transparent and less subjective to value.

The second consideration is whether the share price for incoming investors is trading at a premium to the audited NAV. If so, this should be reviewed, as it means the investor is taking on extra ‘valuation risk.’

5. Ensure tax-efficient access

Investors in later life do not normally wish to give up control and flexibility of their wealth to achieve estate planning or investment objectives. It can be an uncertain time and being able to adapt is key. But any access to this capital should be managed in a tax-efficient way, considering Capital Gains Tax (CGT). One way to do this is through investing with a Manager that only offers newly issued shares, rather than using matched bargains. Such shares, after a three-year holding period, should qualify for Investors’ Relief, capping CGT on any disposal at 10%, rather than the potentially higher 20%.

6. Seek maximum utility

One in three people aged 85+ require some form of care1. As well as making the most of any investment, later life planning should seek to provide further utility, for instance, in the preparation for potential care needs. By considering the potential cost of care and practically pre-planning to meet any care needs, the investor will be equipped to make the right choices should this issue arise.

If advisers want their clients to get the most from any BR service they recommend, the use of these rules should help ensure the optimal outcomes.

1AgeUK Briefing: Health and Care of Older People in England, 2019
First published on Professional Adviser 

First published: FT Adviser

Article by Matt Dickens, Senior Business Development Director

Later life planning has become more topical than ever over the past year as our whole industry has worked hard to absorb the changes brought about by the pandemic, progressing financial planning to meet the “new normal”. This article explores three of the greatest challenges later life planners currently have to consider and prepare for, tax changes, market volatility and the cost of care, and shows how a comprehensive later life plan, delivering more than just estate planning for inheritance, is increasingly important.

1. The threat of tax rises

In 2019, the new Conservative Government, facing the challenge of delivering an orderly Brexit, but not yet dealing with the impact of a global pandemic, promised there would be no changes to Income Tax, National Insurance or VAT. Eighteen months on, they find themselves in an unprecedented economic scenario, with a deficit of £394 billion1 (19% of GDP), its highest level since 1945. While commentators remain focused on the ongoing pandemic and its impact on both lives and livelihoods and when it might come to an end, they also have one eye on the issue of paying for the extreme lengths the Treasury has gone to, to keep the country financially afloat. Likewise, investors are equally mindful of this issue – if the Government needs to balance the books through fiscal policy, how will any decision made now fare in a post-pandemic financial future?

For advisers, there are two clear ways to approach this planning dilemma.

Firstly, one could attempt to foresee the future and plan for the measures that might be implemented in the coming months and years. The problem with this approach is that one would need a crystal ball.

Secondly, one could accept that there is no way to predict the measures that will come into effect and wait until there is some form of clarity. But herein lies the problem of delay in the face of continued uncertainty. For almost a year now, many have held off on vital long-term plans due to the fear of the unknown, yet they need to accept that another year or more of inaction due to the potential of further uncertainty comes with its own real risk. And the longer it goes on, the more risk they are taking.

The simple answer to this conundrum is to embrace a strategy which remains flexible to any possible changes, but in the meantime delivers on the key outcomes the client requires. Any financial planning strategy needs to stack up in line with the wider objectives of the investor, such as achieving investment growth, rather than focusing purely on the tax advantages of a particular strategy, as these could change or even disappear. This is why I believe advisers should be developing a wider later life planning proposition, and not just narrowly focussing on estate planning.

Here is an example of a desired outcome of someone planning for later life;

To invest capital in a way that maintains flexibility throughout later life to pay for any unplanned needs, but also consider any potential care needs that might be needed, knowing that their wealth has been successfully grown up to the point of death, so maximising the legacy that will be passed onto the chosen beneficiaries.

Breaking it down into individual objectives:

  1. Maximise wealth through continued investment growth
  2. Maintain flexibility and access to the investment, so they can make regular or lump sum withdrawals
  3. Provide both financial and logistical support to the delivery of care needs if ever needed
  4. Reduce the potential for Inheritance Tax (IHT)

Note the desire to reduce any IHT payable is deliberately last on the list of desired outcomes. The danger of focussing on the estate planning part of these objectives is twofold. Firstly, the threat of impending tax changes, or tax relief changes, causes uncertainty as to the efficacy of any purely tax-focussed strategy. And this remains the case whether one feels they can predict the future or not!

Secondly, the danger of ignoring the other higher priority objectives, as many tax-focused strategies are a one trick pony and restrict the potential for wider benefits. In this case, the investor may have to forgo any long-term investment growth, or the flexibility to easily and predictably access the investment to pay for care, for instance.

So, when considering the threat of tax changes to later life planning, the approach should always be to allow the investment rationale and wider utility of the service you recommend to lead the planning decisions, rather than just narrowly focusing on the tax benefits.

2. Ongoing volatility

Another challenge that is particularly unwelcome in later life and particularly visible in the current environment is the potential for continuing investment volatility. In this phase of their lives, investors are unlikely to have the flexibility to “time the market” when they want access to their wealth. For instance, making a withdrawal to help family members in need, pay for care requirements or ultimately passing the investment onto beneficiaries upon death. These are not predictable events. Reflecting upon the volatility of markets in 2020 and the uncertainty of 2021 and beyond, investors may well be minded to forgo any potential upside of an investment, perceiving them as too risky.

However, an alternative, as many asset managers have been doing over the last decade, is to look to private investments that are not exposed to market sentiment in the same way as listed investments are. While on the face of it this sounds riskier, certain investment strategies can provide investors with an appealing level of security and predictable returns. One way to do this is via private companies that engage in secured lending. By their nature, loans carry lower risk than equity investments as they do not fluctuate in value over time. Senior, asset-backed loans provide the investor with additional protection against any loss in value. Executed within sectors that are demonstrating strong resilience to the pandemic and any ongoing Brexit effects, these loans can provide an attractive return with low volatility. Such companies are common investments for Business Relief qualifying services where services should be valued on their “fundamentals” not reliant on positive investor sentiment.

3. The ever-increasing demand for care services

In the same way that the increasingly maturing cohort called the baby-boomers have recently come under detailed discussion by advisers with respect to their intergenerational planning needs, the same level of consideration should also be given to their increasing need for long-term care. During the pandemic, the importance of and reliance upon the UK’s care system has become very clear, yet there is an insufficient level of planning taking place to ensure that people are prepared. Research shows that the majority of family members who have experience of a loved one being in care were not satisfied with their experience. One of the factors that can surely make this unfortunate outcome more comfortable is being prepared, both financially and through being armed with knowledge or advice on this complex sector.

This is why it is more important than ever to flexibly have access to one’s wealth in later life. It is impossible to predict what any one person’s needs are going to be in the future and so separating money to prepare for care and to prepare for estate planning is futile. At the same time, perhaps the need will not arise and so the money could be contributing to the investor’s other objectives rather than being held back from an investment. So, undoubtedly a flexible posture to later life planning is key and if the investment can gain value over time to contribute to paying for life’s needs then all the better. The final benefit that could assist with this challenge is a specialist care advice service, which is included for all Ingenious Estate Planning (IEP) investors. As well as advising clients and their families on the vagaries of the UK’s complex care system, the IEP Care Service helps investors to make decisions in a time of need and stress. Specialist, independent advisers give individuals and their families invaluable support, liaising between the NHS and care providers to achieve the best possible care outcomes.

2020 brought several challenges faced by later life planners into sharp focus. The pandemic made us far more aware of our mortality and the importance of planning ahead. The next 12 months should herald an opportunity for wealth managers to scrutinise the later life services they offer to see if they really deliver on the outcomes and needs that their clients are after in the light of the future issues they may face. If there was ever a reason to adapt to changes in the external environment it would be now, before risking losing touch with those who do. 2021 should be seen as a great opportunity. Only by considering any changes to the legislative landscape, delivering consistent and attractive risk-adjusted returns and considering any future needs and costs of our clients, can we deliver a truly robust and value-adding financial later life plan for investors who need it.

1Office for Budget Responsibility, Economic & Fiscal Outlook, November 2020