This article was originally published in Paperjam. Read here (in French).  

Over the next 30 years, an unprecedented level of wealth, $ 16 trillion, will transfer within the wealthiest families to the next generations. Life insurance solutions can meet many of the needs linked to this trend. Luca Bertacchi, Head of Central & Southern Europe at Lombard International Assurance, brings us closer to the sector's major trends.

Planning an optimised wealth transfer is complex. This should be done as soon as possible to ensure that the transfer goes through according to the wishes of the policyholder. Every family situation is unique: transferring to the right person at the right time, with or without control, can be much easier and smoother if you start organising yourself early enough.

In reality, 82% of the world's wealth is held by persons over the age of 50 and the average age of a high net worth individual holding over $40 million of wealth is 58 years. It is therefore time to act. 

A life insurance solution produces its optimum effects if it is regularly synchronised with tax and regulatory developments. In a majority of countries life insurance enjoys a preferred tax treatment towards direct portfolio holdings. It also benefits from the political support of many governments interested in stimulating public saving.

Discussions with first-generation entrepreneurs often differ from exchanges with families who have built their wealth over several generations. The priority of the latter will generally be to perpetuate the family business with its often intangible family heritage, whilst ensuring the lifestyle of the different members of the family. On the other hand, first generation entrepreneurs often have a more emotional relationship to companies they own. The good news is that the tailor-made nature of life insurance solutions usually allows to adapt to many client situations.

In a global world, it is essential to consider the exposure and multi-jurisdictional interests of wealthy families. The international character of wealthy families is a reality: 20% of the most wealthy people have lived in at least 3 countries.

Lifestyle, personal security and security of capital are the 3 factors that influence the decisions of relocation of wealthy families.
32% of the wealthiest families plan to acquire real estate located outside of their country of residence within the next 2 years.
- The wealthiest people spend more than $2.4 billion annually to acquire new nationalities.

"Don’t put all of your eggs in the same basket" is the fundamental piece of advice. To protect against the hazards of financial markets, it is necessary to diversify one’s investments between several asset managers, asset classes, industries, currencies and also countries. The Luxembourg triangle of security protects the policyholder further against the bankruptcy of custodian banks and life insurers far beyond the Luxembourg deposit guarantee scheme.

Confronted with the current low yield environment, many families took refuge in equities to seek additional performance. While the wealthiest families have traditionally been invested in unlisted companies, this trend is now strengthening. Investment in non-traditional assets is indeed widespread and the offering is large: Between 2000 and 2016 the volume of venture capital investment increased, for example, from $600 billion to almost $2500 billion. In return, PwC estimates that the volume of alternative investments will reach some $13 trillion in 2020.

It is essential to work with life insurance companies that master the onboarding, valuation and maintenance of non-traditional assets on the basis of processes that are well documented and audited by the respective regulator.

Wealthy families often have built up a plethora of structures such as trusts, foundations, holding structures or investment funds over generations. Independent experts should be mandated to analyse the sustainability of these expenses when setting up a life insurance contract.

It is also important that the client avoids limiting his perception of costs to the financial & administrative fees of the contract, but to assess them under the light of the tax benefits generated by the life insurance solution. In this context, many life insurers offer simulations to their clients.

We have seen that a life insurance policy can prepare an effective succession planning: in most cases, it also allows permanent and flexible access to the underlying portfolio in the event that the subscriber is confronted with liquidity needs.

Digitalization usually allows access to one’s policy 24/7 from wherever you are located. It also allows you to customize and download consolidated multi-bank portfolio statements, tax certificates adapted to the country of residence of the subscriber and to automate partial policy buyback processes in the interest of an enhanced customer experience & satisfaction.

Unit-linked life insurance is certainly not a magic solution for everyone, but it has many benefits and offers flexibility. To be efficient, it needs to be planned in advance and needs to be discussed with a life insurer that understands and will be able to evaluate different scenarios. For optimal efficiency, it is important that wealthy families collaborate openly with their bankers, advisors and life insurers. In the end it is all about teamwork!

Written by Luca Bertacchi, Regional Sales Director, Central & Southern Europe