Failing to prepare the heirs and poor communication causing wealth transfer failures, Mutual Trust warns

Family disputes threaten to squander the national benefits of a $4 trillion wealth transfer between older and younger Australians due to take place over the next two decades, a financial services group has warned. Families in Australia with the financial means to do so are taking a more active role in investing and distributing their wealth, in a shift Mutual Trust chief executive Phil Harkness says signals the days of offering good returns on investment is not enough in the financial services game. The 103-year old firm has carved a niche in bringing these families together to hash out how their dollars should be carved up and spent while everyone is around to do so, instead of waiting until the reading of the will. Big retirement balances have become a hot-button issue of late as the Federal Government readies to tax those with superannuation balances above $3 million at 30 per cent. “I was talking to our head of the superannuation team, they’re busy,” Mr Harkness said. “They’re fielding plenty of inquiries, but there’s no general piece of advice because it’s unique.” Mr Harkness said Australia had a dire track record of making sure family money was preserved and transferred from one generation to the next. “The wealth management industry is mature. It’s sophisticated, and it’s working. . . That’s not what the problem is. The problem is the family dynamics,” he told The West Australian. “The number you hear cited is about 70 per cent will fail by generation three. And our experience . . . that’s what we’ve seen for families that are left to their own devices.” Research compiled by Mutual Trust with the University of Adelaide named breakdowns in trust and communication between family members as the reason why a wealth transfer is unsuccessful in 60 per cent of cases. “Insufficient preparation of heirs” was listed as the second most common cause. “What’s causing the breakdown in trust and communication? What can we do to train and educate the inheritance of the wealth to manage the wealth? What can we do in order to get the family to have an agreeing purpose,” were some of the discussions the firm has with its clients, Mr Harkness said. The group is making the case that it’s in Australia’s best interests that money is transferred effectively or kept within family enterprise. Their research claims wealthy families and their businesses make up about 7 per cent of investments made in private equity and venture capital in Australia. It also estimates about 350 of the top wealthiest families in Australia manage somewhere between $515 billion and $695b outside of their operating business, which then has flow-on effects to employment and topping up government coffers through taxes. Investing and effectively transferring the trillions tied up in Australia’s massive superannuation industry has become big business, with local and national players are keen to service the mining, agricultural and entrepreneurial wealth generated in WA in recent decades.