The term ‘shoehorning’ will ring bells with followers of regulation, who will recall the FCA’s keen focus on it in the Retail Distribution Review (RDR) of 2012.

Back then, the concern was that as advice and investment firms developed centralised investment propositions (CIPs), there would be issues around client suitability and poor outcomes.

There were concerns that firms could ‘churn’ clients, moving them from their existing investments into CIPs, and that additional costs could be incurred by clients being put into these new investments.

Now, with barely a month going by without at least one wealth manager or advice firm being snapped up by an aggregator or consolidator, there’s a real likelihood that the regulator could turn its spotlight onto these expanding firms.

Renewed focus

Under Consumer Duty rules, shoehorning will now be viewed with even more disdain than in the past by a regulator looking to make sure it’s on the front foot.

Back in February, St James’s Place – probably the largest vertically integrated advice firm in the UK – stated that ahead of Consumer Duty coming into force, there would be “aspects of the way we operate which will need to change in order to meet regulatory expectations”.

The firm added that the FCA was “expecting action, and where we identify this is required, we will respond to improve [the] client experience and reduce any risk of poor client outcomes”.

In recent days, SJP has announced a fundamental overhaul of pricing, and is now looking to increase the role of passives in its proposition.

Even the biggest firms will need to ensure that they can demonstrate that they have not shoehorned any clients.

Evidencing this is the case becomes much more difficult in a vertically integrated organisation growing rapidly via M&A.

Acquisition frenzy

Recent data from research firm NextWealth found that acquisitions of advice firms almost doubled in 2022.

Last year saw 101 deals, nearly twice the 54 inked in 2021. Interestingly, the deals in 2022 accounted for £48bn in assets under management (AUM), up by 85% from the £26bn the prior year.

Perspective Financial Group and Fairstone Group made the most acquisitions, with 20 and 13 purchases, respectively, followed by Kingswood (9), Atomos (formerly Sanlam) (8), and Progeny (7).

With this kind of growth within some firms, it will be vital that these businesses ensure clients are not shoehorned into products amid the frenzy of expansion.

And where owners or majority shareholders are private equity firms, businesses need to ensure that their owners’ laser-like focus on profit doesn’t detract from client suitability efforts.

Strategic decisions

Among the many factors and processes that may need to be addressed to help reduce the risk of shoehorning, wealth managers may want to consider cost.

Outsourcing a centralized investment proposition benefits from economies of scale, particularly when the ‘agent as client’ approach, which is covered in the FCA Handbook (COBS), is used.

Such an approach means that a firm doesn’t have to fund expensive back-office functions, like custody and trading desks. At the same time it facilitates a genuine whole-of-market approach.

The more competitive a firm’s overall fees are, the less chance it can be viewed as not offering its clients value for money.

This doesn’t mean there has to be a race to the bottom – the prevailing rhetoric is keen to emphasise value over price – but ensuring that its proposition is keenly priced could act as a robust part of a firm’s defences when it comes to demonstrating its approach.

Attractive pricing and operational independence aren’t necessarily a panacea, though; the regulator will be looking for comprehensive evidence that shoehorning isn’t occurring, not some quick fixes that only pay lip service .

This article was written for International Adviser by David Ogden, head of compliance at Sparrows Capital.

There has even been growing interest in comic books and collectible cards with world renowned US rapper Post Malone paying $2m (£1.6m, €1.9m) for a rare one-of-a-kind card for the fantasy game ‘Magic: The Gathering’.

More notably in the UK, rising interest rates and market fluctuations are affecting many traditional asset classes which is paving the way for more people to seek out alternative assets to reach their investment goals.

Alternative assets can provide many positives to the investor such as advantageous tax positions and portfolio diversification but they also provides investors with something that traditional assets don’t – fun!

They can provide excitement and enjoyment to investors that comes with owning a tangible asset they can see and use.

However, these types of assets, as like any others, comes with its own risks which must be assessed before investors incorporate them into their financial plans.

Hedging against market volatility

Richard Bacon, head of business development at Shard Capital, said that passion assets are undergoing a transformation.

He said: “In the last two years there has been a tangible increase in how accessible and democratized these assets have become. They are becoming mainstream we haven’t seen before. The more we understand the headwinds we are facing in traditional asset classes given the current economic backdrop, the more important it is that we broaden our investment universe and look for alternative assets.”

As markets become more volatile, clients are turning to passion assets to safeguard their wealth.

Naomi Wharam-Adatia, private client director at GSB Private, commented: “These unconventional holdings provide a hedge against market volatility and inflation; typically maintaining value during economic downturns unlike traditional assets such as stocks and bonds.”

They can also provide investors with much higher returns outside of their traditional portfolios.

Wharam-Adatia provides the example of the price increase for Hermes bags which can fetch investors returns of up to 30% or more.

Rob Harrison, head of research at Progeny Asset Management, added: “These assets can deliver strong returns for the less risk averse investor and can be uncorrelated to what is gong on in stock markets and the wider economy so can be useful diversifiers for this reason.”

Advantageous tax position

Passion assets also have the added attraction of having an advantageous tax position.

HM Revenue & Customs (HMRC) views many of these assets as ‘chattels’ which is property that is tangible and moveable and gives investors a £6,000 ($7,500, €7,000) tax free exemption.

Henry Lowe, partner in the private client team at Mercer & Hole, said: “HMRC is alive to the fact that the value of some collections is in their entirety rather than individual elements. If being sold from one person to another, HMRC may consider them a set and value them as one asset accordingly.

“For example, a case of wine, of the same vintage or from the same producer, would be considered a set and valued as a case rather than by the bottle.”

Some passion assets are also viewed by HMRC as ‘wasting assets’ which have a life of less than 50 years.

“Wasting assets, irrespective of their value when sold, are free from capital gains tax, except where the asset has been used in your business,” added Lowe.

Risk

Scott Atkinson, managing director at PFM Financial Planners, part of the Loyal North Group, highlighted that while there is nothing wrong with an investor indulging in their passions, these assets still carry a risk.

He said: “Using these types of assets as a basis of investment and financial planning is highly risky and completely unpredictable.”

There are certain obstacles that come with investing in alternative assets such as issues of liquidity and a lack of a centralised market.

Ed Read-Cutting, director at The Fry Group Belgium, said: “A significant challenge with passion assets lies in a potentially illiquid secondary market. Unlike more conventional investments, selling passion assets can be intricate and uncertain.

“Their value is often influenced by sentiment and demand, leading to potential price volatility and unpredictability when the time comes to sell.”

Lee Anderson, wealth planning director at the Atomos Preston office, also pointed out that the cons of passion asset investment can also include “high transaction costs, storage and maintenance expenses and the need for expertise to navigate the market effectively”.

Therefore, while investing in alternative assets can have many pros, it is important that investors are aware of the cons before investing.

This comes down to advisers and wealth managers to present the full picture to their clients and provide their professional opinion to help investors get the most out of their money as well as enjoying the process of investing in something they have a passion for.

GSB’s Wharam-Adatia added: “The intricacies of valuing, acquiring and maintaining such assets requires specialist knowledge and investors would be prudent to collaborate with trusted advisors who understand the market and can perform strict due diligence on their behalf, helping them to make informed decisions.”

Emotive experience

While there are valid arguments that passion asset investments should not be the foundation of an investors portfolio sitting alongside conventional investments, it can allow investors to have an emotive experience.

Jennifer Toon-Davenport, membership and acquisition director of Lawsons Networks, said: “If someone really is interested in something, be it wine or watches or luxury fashion, then that surely is the best way to become an expert investor in whatever it is. And the more expert they are, the more money they are likely to make.”

Passion assets don’t only produce a financial return but also an emotional return that investors may not be able to get from traditional assets such as stocks and bonds.

They allow investors to put a personal touch on their investment portfolios and diversify it with things they have an interest in and value.

Charles Gillespie, wealth planner at Kingswood Group, uses himself as a case in point.

He said: “Personally, along with a small collection of art in recent years, I have invested in a portfolio of high grade first edition vintage comics as not only are they lovely to own and something of interest to me but also I believe that the long-term growth potential is excellent.”

Time will tell how popular investing in passion invests will become as markets continue to react to rising interest rates, and how that will impact various markets, but Gillespie points out that assets which are scarce will always be in demand.

Passion assets are gaining traction in the investment landscape and are a point of debate within the industry.

However, what is important is for those working in the industry to do their due diligence and help clients to not only receive financial gain from investments but also to gain emotional fulfilment which can be achieved by investing in passion assets, making sure they slot into a traditional portfolio while also safeguarding their clients financial future.

Advisers seeking more time with clients are outsourcing elements of their services such as investments to firms like DFMs and wealth managers.

Outsourcing is also now becoming a topic of discussion for advisers in regions like the UAE.

But the discussion is currently still about whether advisers want to give up “control” – and if it is beneficial to them.

International Adviser spoke with consultancy business Maplesden Griffin and Partners, Canaccord Genuity Wealth Management, Kingswood and Titan Wealth to discuss the role of outsourcing in the UAE advice market.

Benefits

Nick Griffin and Mark Maplesden, co-owners of Maplesden Griffin and Partners, said: “The investment aspect of the advice process is so complicated and time critical, delegating the execution of an agreed overall investment strategy to a DFM with the right investment skills, knowledge and qualifications, helps to make an adviser’s job easier and increase the confidence of their clients.

“Whilst the absolute results and return will always be important, in an age where clients have so much access to data and information, the detailed investment analysis a specialist supplies can help advisers to perform much more efficiently and strengthen a client’s conviction in the advice process as a whole.

“Discretionary fund managers bring a wealth of experience and specialised knowledge to the table. They possess a deep understanding of global markets, economic trends, and investment strategies, making them well-equipped to navigate complex investment landscapes. By leveraging their expertise, you can provide your expat clients with access to a broader range of investment opportunities and potentially enhance their risk-adjusted returns.”

Another area of discussion for the benefits of outsourcing is giving advisers the ability to keep up with ever changing regulation.

Richard Burden, head of international sales at Canaccord Genuity Wealth International, said: “Regulation continues to evolve in the Middle East and outsourcing investments is going to become mandatory, we have seen this direction of ‘traffic’ in other countries so it makes sense to start the transition now.”

Paul Surguy, head of investment management at Kingswood, added: “Regulation is driving the roles of advisors and investment managers further and further apart. In truth, this can only be good for the end client. Wealth Planning and Investment Management encompass some of the same skills, but both need their own dedicated professionals 100% focused on their role for the client.”

Value

For many years, some advisers have failed to show their value to clients.

Outsourcing can help play its part in allowing advisers do what they do best – financial planning.

Burden said: “I like to use a healthcare analogy: IFAs, intermediaries and wealth managers are the GPs, excellent practitioners in what they do but not experts in every area. We are the specialists they can call on when they need specific investment solutions and oversight.

“Advisers may be highly skilled and experts in financial planning, but they may not have all the answers, so it is important for them to have the backing of professional partners and this is where we can add significant value.

“Ultimately we, and they, are focused on delivering the best service possible to the client. The IFA, intermediary or wealth manager, can concentrate on what they do best and, as client needs become more complex over time, they can call on us to help them find the most effective and targeted solutions.”

Surguy added: “By building relationships with a select group of trusted Investment Management Groups advisors will be able to agree market leading rates which can be passed onto their clients whilst also accessing well diversified portfolios that are constantly monitored and adjusted – which is becoming ever more important in today’s fast-moving environment.”

Mark Livesey, head of sales at Titan Wealth, said: “Both off-the-shelf and advisory solutions are, in our opinion becoming outdated. By outsourcing, businesses that value each individual client’s investment strategy can develop and integrate bespoke solutions specifically tailored to their client’s desired outcomes.

“For example, long-term sustainable investment portfolios allow clients to generate capital whilst supporting humanitarian causes, delivering financial returns but also fulfilling ethical or social objectives.”

Outdated

The average expat clients’ financial affairs are becoming more complex, and regulation continues to take its toll.

Advisers doing investments for their clients is just another task among a large list for IFAs.

So, is the concept of advisers doing investments becoming an outdated nature of the job?

Livesey said: “Recent years have shown that markets are more volatile than ever. Outsourcing to a DFM allows experienced investment teams to act proactively rather than reactively, taking advantage of quick movements in the market. Partnering with a DFM to build a bespoke solution designed for a retail client’s requirements, risk rating and individual objectives allows advisers to focus on their advice and client relationships.

“When working with international clients, investment performance almost becomes irrelevant if the tax planning isn’t done correctly. Allowing advisers to focus on planning, whilst staying informed by an investment partner drives a better outcome for clients.”

Griffin and Maplesden said: “There are so many aspects to the financial advice process – the area of choosing investments is one part of this.

“So, whilst clients will of course expect to receive advice on this, those advisers that are partnering with DFMs can explain to their expat clients the advantages that such a relationship with DFMs can have to enhance portfolio performance and client satisfaction. By leveraging the expertise and specialized knowledge of DFMs, you can provide tailored investment strategies that align with your clients’ goals and risk profiles.

“The diversification and risk management offered by DFMs help protect against market volatility and maximize potential returns. Moreover, the active portfolio monitoring and adjustments performed by DFMs reduce investor stress and time commitment. By utilising DFMs, you can offer your expat clients a comprehensive investment solution that combines professional expertise, personalised strategies, and peace of mind.”

Future of outsourcing in Middle East

There are a handful of advisers utilising outsourcing to its full effects – and this will continue to rise.

The future of outsourcing in the UAE and the Middle East should carry on its trajectory similar to the UK advice market.

Canaccord’s Burden said: “The regulatory and operational landscape is going to change significantly over the next few years and reputation management, best practice and maintaining a competitive edge are going to become even more important than they are now.

“To de-risk their business and enhance their role in the market, IFAs, intermediaries and wealth managers will need to work with trusted partners who are first rate, transparent and equipped to help them achieve better client outcomes. I think it is important to reiterate that our role is about the end client and helping them realise their financial goals. Working in partnership with their financial adviser we can do that.”

Titan’s Livesey said: “The region undoubtedly has huge opportunity. That paired with the strengthening regulatory framework makes it increasingly more attractive to large asset managers such as Titan.

“The strongest advice firms are already ahead of the curve in relation to regulatory requirements and expectations, charges and proposition are coming under pressure, therefore service, investment performance and sound advice have become more important, and so working with strategic partners to achieve this outcome will just continue to grow.

Griffin and Maplesden added: “The UAE financial sector is developing and evolving at a rapid pace – as witnessed by the recent influx of firms that are now based here. With this comes a greater spotlight on the industry as a whole, and that is why the sector has continued to evolve to meet the new emerging trends of increased regulation to ensure there is a strong ‘culture of confidence’ amongst customers.

“Firms that embrace these investment protocols will not see it restrict business, but instead be an impetus for its future expansion and help to ensure faith and trust in the industry as a whole. The signs are certainly very encouraging and I think we would expect to see in the coming months, and years, many more advisory firms adopting an outsourcing approach alongside a panel of DFMs.”

But recently, former pensions minister Steve Webb said that he believes that inheritance plays a large part in people’s retirement planning.

There are many questions that can be sparked from this comment:

• Does this mean Brits are too dependent on using an inheritance on retirement?
• Should they depend on inheritance to fund retirement and if so, will this be enough?
• Will there be too many Brits with not enough money to fund retirement if they rely solely on inheritance rather than on private pensions?
• Should Brits find ways to diversify their pension pots?

International Adviser spoke with Arbuthnot Latham, Atomos, Close Brothers Asset Management, First Sentinel Wealth, The Fry Group, GPFM Chartered Financial Planners, GSB Capital, Howard Kennedy, HSBC Private Banking UK, Kingswood Group, The Openwork Partnership, Progeny, Royal London, St James’s Place and Y TREE to find out some answers.

Two obvious flaws

Sarah Corney, financial planner at Close Brothers Asset Management, firmly disagrees that Brits should be dependent on an inheritance for their retirement planning.

She said: “An inheritance should undoubtedly be viewed as an unexpected windfall or a welcome boost to a retirement plan, but relying on a sum which is subject to so many uncertainties is not prudent financial planning.

“Two obvious flaws are the timing of a payment and the value of the eventual estate. Long-term care costs are expensive and without any changes in government policy on the horizon, elderly individuals are largely responsible for funding their own care for an undetermined time frame.

“The lack of control when considering either of these factors is not going to provide peace of mind when planning your retirement. Also, the beneficiaries of the will might not include you. Investing tax efficiently over the long term is key in establishing a prudent financial plan for retirement, thereby benefiting from gross roll up and making your investments work harder for you.

“Regularly reassessing the level of risk being applied to investments is a good idea when considering long-term savings; taking a higher level of risk when you are younger gives your savings the potential for long-term capital growth.”

‘No guarantee’

Jeremy Franks, head of wealth planning at HSBC Private Banking UK, also says there are more sensible ways to approach retirement planning than relying on inheritances.

He said: “Depending on a potential inheritance to fund retirement can be a risky strategy. Research shows that life expectancy has risen significantly, and people are often living well into their 90s. You may receive your inheritance later than you imagined – possibly when you have retired. Furthermore, increasing costs of later-life care means that there is no guarantee you will receive an inheritance. Even if you do, it might not be nearly enough to retire on.

“A sensible approach is to plan for your retirement without inheritance. Focus on creating a strategy that you can control such as contributing the maximum annual allowance to your pension.

“It is important to start saving as early as possible and review regularly to make sure the plan is on course to meet your needs in retirement. Carry forward could also boost your pension pot by using unused allowances from the previous three tax years.”

‘Build your own retirement fund’

Amanda Blakely, wealth planner at Arbuthnot Latham, also highlights the possibility of receiving no inheritance.

She said: “The over-reliance on a potential inheritance to fund your retirement is a potentially risky strategy. People are living for longer which means that you could be well into retirement before you receive any form of inheritance, and the rising costs of care could easily exhaust any prospects of receiving an inheritance.

“Instead, the focus should be on building your own retirement fund. The introduction of auto- enrolment has encouraged people to start saving into pensions, but many are failing to maximise their full allowances available.

“Plus, auto-enrolment schemes were initially focused on keeping costs low, but as these pots grow and with the current challenging investment market conditions, the focus should shift to delivering strong investment returns.

As this can have a massive impact on the eventual value of your savings come retirement, and in turn quality of life, I would therefore strongly encourage people to sit down with a pension specialist to review their overall retirement strategy.”

Dangerous strategy

Nicole Aubin-Parvu, legal director at Howard Kennedy, and Liz Palmer, partner at Howard Kennedy, emphasise the importance of increasing pension savings.

“While the hope of a future inheritance has always been a factor in people’s financial planning, the increase in house prices over the last half century has also increased the perceived significance of inheritance as a contribution to retirement,” they said. “As a result, people are becoming more critical of inheritance tax (IHT) and rising social-care costs, and how both may erode the value of what they ultimately receive as heirs.

“However, over-reliance on inheritance is a dangerous strategy. Ignoring social-care costs, as life expectancy increases, more of a parent’s income and capital is likely to be used up supporting themselves during their retirement. The IHT nil-rate band, the sum which an individual can leave to their heirs free of IHT, has remained at its current level of £325,000 ($414,000, €380,000) since April 2009, and is accordingly reducing in real terms, especially at current rates of inflation.

“There are also non-financial risks to consider. Children may fall out with their parents and be cut out of their wills. Second marriages and families are becoming more common, and potential disputes between first and second families, or even with siblings or other family members, after a parent’s death, have been occurring more frequently in recent years. When such disputes arise, they tend to erode the value of a deceased’s estate significantly in legal and other costs.

“For all these reasons, people should be trying, where possible, to increase their own pension savings to provide themselves with a degree of certainty for the future. If they can, parents might be better off making lifetime gifts to their children, perhaps taking advantage of available tax reliefs and exemptions, to help them build up such savings, rather than waiting to pass everything to them on death.”

The importance of reassurance

Jane Martin, chartered financial planner at Atomos, says that people waiting for an inheritance to fund retirement may be overlooking a key factor.

She said: “One of the added-value aspects of seeking advice in retirement is reassurance. Fixating on an inheritance to support retirement simply does not provide that reassurance. There is no certainty of date, amount or even if there will be any inheritance paid.

“In many cases, those who plan for their retirement without taking inheritance into account will often find that it then becomes surplus to their needs and will look to use a deed of variation and pass it down to their children and or grandchildren.

“Parents and grandparents can pass their pensions on to their beneficiaries and make third-party contributions of £3,600 gross (£2,808 net) each year which they may do as a capital gift or out of normal income rules.”

‘Anything but guaranteed’

Toby Band, managing director of First Sentinel Wealth, said: “Broadly speaking, Brits are too fixated on inheritance to fund retirement and they should not depend on inheritance to fund retirement.

“With 74% of over 65s owning their own home outright and the average UK property worth just under £300,000, it’s understandable that clients think a healthy inheritance will arrive at some point. Yet, with the average care home costing £40,000 per year and up to £100,000 for specialist care homes, a healthy inheritance is anything but guaranteed.”

He also says that many people don’t earmark their inheritance for pension savings.

“When advising our clients, we always model the future assuming no inheritance,” Band added. “The reality is, we don’t know when it will arrive, we don’t know how much will arrive and we also see many recipients use the funds to pay off a mortgage or fund holiday-home purchases. Rarely, does the inheritance go towards retirement.

“Even if the average inheritance of £334,000 does arrive in full, ignoring private-pension saving for retirement is a big mistake. The average couple needs £34,000 per annum to live moderately and £49,700 to live comfortably. The inheritance would soon run out after accounting for the necessary withdrawals and inflation.”

‘Start early, contribute consistently and diversify investments’

Max Sullivan, wealth planner at Kingswood Group, says there are key actions people can take to boost their pensions instead of waiting to inherit.

“Relying solely on a supposed inheritance to fund retirement is not advisable, as it is not guaranteed and may not be sufficient,” he said. “Instead, individuals should actively contribute to private pensions and other retirement-savings vehicles to take control of their financial future.

“Starting early, contributing consistently and diversifying investments can help boost pension pots. Individuals should also take advantage of employer contributions, keep track of pensions, seek professional advice where needed and consider additional income streams for financial security and longevity throughout retirement.”

View it as a bonus

Scott Atkinson, managing director of GPFM Chartered Financial Planners, part of Loyal North Group, says inheritance should be totally excluded from retirement planning.

He said: “Although it is predicted that over £5trn of generational wealth will be transferred in the next 30 years, it is always risky from a financial-planning perspective to rely on and factor in receipt of inherited funds when producing a financial plan.

“Family fall outs, changes in circumstances and care costs can quickly impact inheritances. It is our standard practice to completely exclude inheritance where ensuring clients can achieve their retirement objectives.

“Any inheritance should really be viewed as a ‘bonus’ when undertaking financial planning.”

Elsewhere, David Owen, wealth proposition director at The Openwork Partnership, says that relying on inheritance can lead to negative outcomes.

“The shocking fact is that many of us will get to retirement with an underlying health problem that will, over time, result in care and nursing,” Owen said. “This means that for many, the probable inheritance will be used on care fees. There is therefore a real danger that terrible financial decisions will be made while waiting for the ‘big, solve-everything’ inheritance. Instead, we ought to save well and spend with caution now as inheritance is an unlikely event.”

‘A gift, not a given’

Clare Moffat, pensions expert at Royal London, reminds that inheritance is not always as much as children might expect.

“Inheritance is a gift, not a given and can depend on a number of things, including the amount of money available; how many beneficiaries and any tax implications there are; how investments are looked after; and whether long-term care comes into the equation,” Moffat said. “There is a growing trend for parents to release funds to help their adult children financially, and it’s often forgotten that an inheritance will normally go to a spouse first. So, while it could be a nice ‘top-up’, it’s not the best idea to depend on an inheritance to fund retirement.

“We recently carried out some research where we asked how retirement would be funded. Unsurprisingly, the most common answer was a workplace pension (39%) and the state pension (39%). However, 13% responded that family inheritance would fund their retirement, so a significant number are depending on it.

“While auto enrolment is helping to fund retirement, it isn’t giving us the guaranteed income of defined-benefit pensions of old or the accompanying spouses’ pensions. Meanwhile, paying anything extra into a pension is currently competing with increasing mortgage costs and the general increase in the cost of living. The challenge is to ensure employers offer the best schemes possible to support their employees and for employees to make the most of them.”

‘Crucial to take responsibility’

Dean Kemble, chief commercial officer at GSB Capital Ltd, also emphasises that children should not depend on inheritance from their parents.

He said: “Many countries, including the UK, are facing the problem of insufficient retirement savings. Depending on inheritance as a plan is not a practical option, as most family assets are often linked to property and may be subject to inheritance or capital-gains taxes.

“There might be an assumption or expectation that individuals will receive a substantial inheritance from their parents or other relatives. In the event that this assumption does not come to fruition or falls short of expectations, what would be the alternative plan(s)?

“It is crucial for individuals to take responsibility and proactive measures towards securing a stable financial future for retirement instead of solely depending on inheritance. This requires addressing financial planning and savings habits and enhancing one’s financial literacy. Additionally, promoting pension options and investment strategies can significantly contribute to achieving this objective. An inheritance should be seen as a bonus to the retirement plan.

“Some people may have difficulty saving enough for their retirement because of gaps in their pension contributions. This could be due to inconsistent employment, being self-employed or experiencing periods of low income. Furthermore, as people are living longer, they require more funds to support themselves during retirement.

“Longer lifespans place added stress on retirement savings as well as state pension schemes. As a result, concerns about the adequacy of the state pension may lead some individuals to rely more heavily on potential inheritances. There is therefore even more reason to plan than rely on an inheritance.

“Finally, collaboration between government and private institutions should be front and centre for long-term planning. For many years in the UK, this area of government has not had the focus it deserves, with ministers changing on a regular basis.”

‘Never rely on any single source to fund retirement’

Richard Gillham, a financial planner at Progeny, says it is important not to make assumptions.

He said: “Many people may rely too heavily on a future inheritance to fund their retirement, but this presents numerous risks.

“Based on increasing life-expectancy figures, older generations are likely to live well into their retirement years and/or could incur significant long-term care costs, which can quickly deplete any assets for inheritance. It can also mean that people often don’t receive an inheritance until they themselves are in their 70s or 80s, by which time it may be too late to make a significant difference to their life in retirement.

“It’s worth noting that under English law, there is no forced heirship provision which mandates next-of-kin entitlement, in contrast to the law in Germany or France. Therefore, people have the ability and freedom to leave their assets to whoever they wish. Disinheritance is also a risk factor that should not be ruled out by the next generation.

“Other potential pitfalls include a property held as joint tenants passing to someone outside the family, such as a co-owner, and it’s important not to forget about the prospect of HM Revenue and Customs (HMRC) taking its 40% share via inheritance tax, if an estate is large enough.

“Essentially, it’s good practice to never rely on any single source to fund retirement, because it lacks any diversification, which is a bedrock of sound financial planning.”

‘Unintended consequence’

Eliana Sydes, head of financial life strategy at Y TREE, said: “Properties have long been thought of as profit-making centres and a means of preserving wealth for future generations in the UK. With people struggling more and more with pension savings, this cultural mindset has an unintended consequence: some individuals may become complacent about retirement if they anticipate receiving their parents’ properties as an inheritance, assuming it will sufficiently supplement their pension shortfall.

“We have observed a contrary trend when life planning for clients. Most of our clients in the UK do not express reliance on inheriting their parents’ assets, nor do they aspire to be dependent on such inheritances. Most people feel uncomfortable about ‘profiting’ from their parents’ deaths.

“Relying on inheritance to finance retirement can be deeply concerning, as there are factors beyond one’s control. The uncertainty surrounding a parent’s lifespan and health-care needs makes it risky to rely solely on inherited assets.

“Unlike certain countries where inheritance is safeguarded, the UK does not guarantee automatic inheritance rights to children, allowing individuals to allocate their assets as they wish. This raises two critical considerations for those depending on inheritance: ensuring sufficient value remains in the estate by the time you need it and confirming the parent’s intention to pass it on.

“Ultimately, depending solely on an inheritance assumes either having wealthy parents who will not need the assets themselves, or embracing significant financial risk.”

Cash-flow planning

Claire Trott, divisional director – retirement and holistic planning at St. James’s Place, stresses the importance of cash-flow planning for retirement rather than relying on an inheritance.

“Inheritances are rarely guaranteed, especially with regards to timing,” she said. “It isn’t something that you can influence either. This is where using inheritance for retirement planning is flawed. In current circumstances, parents may well still be healthy and active individuals when their children would ideally want to retire.

“It is difficult for the parents to gauge how much money they will need in their lifetime, so gifting is a difficult decision to make. It then all leads to needing to plan for your own retirement, dismissing the possibility of inheritance, at least in the early years of retirement.

“Cash-flow planning is a really good way to establish if you will have sufficient funds to retire at your chosen time. Things can change but it will give you a goal to work towards that can be incrementally adjusted as and when you review the plan.

“Plans should always be reviewed on a regular basis and stress tested against your goals. This will give a good indication and hopefully the right encouragement to save sufficiently. If there are some guaranteed funds in the future, these can of course be built in, but they must be guaranteed or will give false outcomes.”

Stumbling blocks

George Howard, chartered financial planner at The Fry Group, added: “I think a lot of Brits anticipate receiving an inheritance in the future and are relying on that to fund their future life, for example by repaying mortgages or providing an income in retirement.

“One of the biggest stumbling blocks in this way of thinking is that inheritance is not guaranteed. What happens if the parent(s) exhaust their assets during their lifetime(s), or the inheritance doesn’t come to fruition for whatever reason − what will they have to live on or support their lifestyles then?

“Another factor often ignored is the timing of inheritance – you may wish to retire at a certain age, so what happens if you have not received your inheritance by then? You may have to adjust your financial plans, especially with people today living longer.”

“While it depends on the circumstances, it is never usually advisable for someone to rely on an inheritance for any reason. There are a number of factors that could affect this, such as family disagreements and disinheritance; the donor spending all their money instead; the donor leaving it to someone else or to a charity instead; the timing of receipt of the inheritance misaligning with your planned uses of it; or even losing money through divorce or blended families.

“We would usually advise that individuals build up their own provision for retirement through a diversified portfolio more capable of providing an income sustained throughout retirement. It is commonly considered that individuals need capital of 25 times the income requirement per annum at retirement (if invested in a diversified portfolio) to provide for a 30-year retirement, also known as the 4% withdrawal rule. Any inheritance should be seen as a bonus on top of a safe and secure future that individuals build for themselves.”

The firm, which is part of the Kingswood Group, said ‘successful negotiations’ with multiple fund houses have resulted in reduced pricing on a range of the underlying funds.

The firm said several of the funds in questions are also held across its OEIC range.

Full details are yet to be confirmed, but IBOSS provided pricing for its Core MPS range as an example. It said the OCF on these will be as low as 0.34% in its low-risk portfolio, and its high-risk portfolio has dropped from 0.65% to 0.58%.

IBOSS expects costs to be reduced further in the fourth quarter once the full impact of the newly agreed terms is reflected.

Chris Metcalfe, chief investment officer at IBOSS, said: “In the world we are all currently living in, the cost of almost everything seems to be going up. We are therefore delighted to be able to offer advisers and their clients lower charges, and some of the very best in terms of competitive pricing across the DFM MPS marketplace.”

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