How to Preserve Generational Wealth with Holistic Financial Planning – Overberg’s Claire Moorhouse

Traditional financial planning focuses on investments, pensions, tax or insurance and aims to optimise the individual components to achieve financial goals. In contrast, holistic financial planning takes a more comprehensive and strategic approach. In this interview with Biznews, Claire Moorhouse, a wealth Manager at Overberg Asset Management, outlines the benefits of holistic financial planning and how a personal long-term financial roadmap could be created incorporating wealth creation, wealth protection and estate planning. Moorhouse says traditionally, intergenerational financial planning has been seen as making preparations for when you die. However, a more modern approach is to act while they’re still here to protect their families and their legacy. She says it is important to be aware of your tax residence status and that of your beneficiaries. As many South Africans have externalised their funds, a situs tax could be imposed in the US and the UK on assets in their jurisdiction. Moorhouse highlights the possibility that you could be over-insured and reveals that the younger income earners in South Africa are overwhelmingly open about financial planning. – Linda van Tilburg

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Edited excerpts from the Interview

What is holistic financial planning?

Holistic financial planning looks at all aspects of a family’s or an individual’s personal and financial life before creating a plan about what you want to do with your money and where you want to go. So, it creates a personal long-term financial plan or a roadmap. The roadmap or the plan is something that is constantly reviewed, at least on an annual basis, but also as circumstances change. It’s not just about putting in place an investment or structure and then walking away. It’s very much about the ongoing management of your plan. The plan includes various aspects.

Steps for holistic financial planning

The first thing that I do is gather as much information as possible. What investments do you have? Are you single? Do you have a family? Do you have beneficiaries? I look at your whole picture. Do you have life insurance in place? Do you have assets offshore or onshore? It starts with information gathering. From there, I get to build out this plan or roadmap that can be changed, altered, and reviewed, but it is very much taking the journey with a client over the years.

To do that, I break it up into three specific categories. The first is wealth creation. This is what everybody likes to talk about. It’s the exciting side of things, investing, you know, what returns am I going to get? Where’s my best investment going to be? This is always the easiest conversation to have. But it’s essentially about investing your money and growing your balance sheet.

Then we assess your needs. What are your short, medium and long-term goals? If you’re a younger individual, are you saving for a deposit on a house? Are you planning to have children? Have you thought about saving for their education? Or, and it seems like a very far way off for some people, but how do you want to retire? When do you want to retire?

With other clients, they’re closer to that part of the journey. So, I look at, bringing all that information together and we also look at your split. How are you invested in South Africa offshore? Do you have any exposure offshore? Do you want everything to be in South Africa? So that’s the wealth creation part of things.

From wealth creation to wealth protection, the less exciting topic

Wealth protection is a less exciting topic, but it’s integral in building a long-term financial roadmap. When you’re young, your most valuable asset is your ability to earn an income and then save for these future goals. Suppose you are in an accident or somehow lose the ability to earn an income. In that case, we must look at income protection, disability cover, and life cover if you have a young family. You wouldn’t be able to continue creating wealth if you could not earn an income. So, it is a very important side of it. Also, what is very important to note is that as you go along your journey in life, these needs change and they cross over.

As a wealth manager and a financial planner, I need to be looking at when you’re getting close to retirement. Yes, it’s great to have a high level of income protection. It’s great to have disability cover and life cover in place. But at some stage, if you have been investing correctly and saving correctly, these cross over. You could then be potentially putting more money towards your savings or investments.

You could be over insured

I think that is what a lot of financial planners don’t look at. You just let a policy roll and roll and roll and then somebody has paid those premiums for so many years and then you realise, well, I’ve got savings behind me now. I don’t need to protect my income at such a high level.

I don’t need to be paying these escalating premiums. So, while it is absolutely essential for financial planning and holistic financial planning, somebody must be also looking at this and taking it into account. And I’m quite passionate about not being over-insured. A lot of time, people don’t understand all of the insurance they have and they just pay these premiums.

But there’s a point where you could be over insured and I see it all the time because somebody has written a policy and not followed up on it. I had a friend just recently who had a heart condition and I asked if she had a severe illness or dread disease cover and she said yes, but medical aid paid for everything. However, there are many other expenses going to come to her other than just the operation and she said, ‘I really don’t know how this all works.’

I said, ‘Let me sit down with you and explain to you, you’ve been paying these premiums for a long time, you’ve now had a heart condition and an operation, you are potentially entitled to a long-term payout that is going to help you with the rest of your medical bills.’ So it’s taking into account things like that. She wouldn’t have even looked at it if I hadn’t brought it up.

Wherever you are on your journey, we have to look at, of course, wealth creation, retirement planning, but then also wealth protection. How do you protect your ability to generate wealth and how do you protect yourself from being over-insured as time goes on?

Be aware of the tax implications of your will

Okay, great, I’ve set up your investing, I’ve set up your insurance cover, but does it tie together with a will? And do your wishes align with the liquidity in your estate and the bequests you have made?’ Many people have a will in place, but when we look at the full picture, it doesn’t all meet up. It is going to play out very differently from what you had expected. This is left to your spouse, family members, and beneficiaries to sort out over time. Are you aware of the tax implications or obligations to SARS?

Are you structured so that you could give a lot of your estate to SARS because somebody hasn’t looked at the whole picture. I’m not saying we don’t have to, death and taxes are something we can’t get away with, but we can be efficient. We can show you your picture, do the estate planning and we’re not tax specialists, but we understand the taxes attached in various countries that are attached to various investments.

If we’re doing holistic financial planning, we do work a lot with your tax practitioner. So, I think that’s integral. It should always be separate. Whoever’s doing your taxes and they can do the will as well, but we can assist by just saying, ‘This is our understanding and it ties up or there’s a big gap that hasn’t been thought about.

The importance of bringing the next generation into financial planning

It’s often left to an individual to do their planning, but they don’t bring in the family or the next generation and situs tax is something that not many people are aware of. But situs is the Latin word for site, and it’s about how you will be taxed based on where your assets are located.

Many South Africans externalise their funds and invest offshore and have children living abroad without intending to return to South Africa. But they are unaware that, particularly in the UK and the US, the tax regime is different and you could potentially be taxed.

You could pay inheritance tax in the UK up to 40% and then in South Africa up to 30 to 40%, and your estate is eroded. So, there are many ways to skin a cat. There’s not one answer, but we can put various structures and vehicles in place to minimise paying double taxation. Nobody wants to pay double tax. So, that’s really where situs comes in and again, working with a financial planner from one generation to the next generation is hugely beneficial to the beneficiaries, to a family, and just being aware of what you could be liable for.

Common mistakes people make in financial planning

I think a lot of people just want to look at one section. They’re investing, they’re building wealth and not necessarily knowing that there are people and companies out there that want to take a journey with you. It’s not just, ‘Here’s X amount of money, invest it, get your best return.

We’re not saying we need to manage all the assets. But what we are saying is, ‘Show us your whole picture,’and then we can inform you of how things currently are, and give you options that you can decide on. The most important thing is the continuity of that. You need to have somebody looking at your full picture and reviewing it.

We always ask clients: If you have a life-changing event, getting married, having a child, the loss of a loved one, or a change of employment, please let me know. So, don’t wait for the annual review, let me know and I can say, okay, this changes, and I would advise we go in this direction or that direction.’ Everyone’s situation is unique, so we will never give you one option, but we will give you the full picture and then assist you with making the decision that can benefit you and your family most. It’s not only about planning for families, it’s about planning for individuals as well.

Younger income earners are overwhelmingly open to financial planning

In general, I have found my younger clients to be far more aware. The internet offers so much information and that’s also why they are open to working with a financial planner because there’s all this information out there so that they know hundreds of investment options. But if somebody can help them to start, they find that to be comforting. I’ve worked in finance for 21 years and particularly in individual financial planning and wealth management for 12 years and I’m definitely finding the younger generation far more open to having a plan. Those who are medical professionals or a person who is working in FinTech, they have specialised in these areas and they respect and understand that we are specialised in our areas. So, they don’t have the time to go and do this all by themselves. So I find there is overwhelmingly an openness from the younger income earners.