Investing with family financial goals in mind 

By sharing in the wealth creation and preservation journey, families create natural accountability levels, diversification, and encouragement to keep to their financial plan that is set up to grow and maintain generational wealth. 

In essence, deciding on the appropriate product suite for a family starts in the same way as it does for an individual – that is, by identifying the reason and the goal for investing. Over and above this, however, family financial plans need to be structured to deal with the added complexity of individuals being in different life phases and potentially also having different risk appetites. 

Product selection 

In South Africa, we are fortunate to have a range of investment products available for starting a family investment plan. In line with the trend to give more consideration to the family as a whole when providing advice, products and fee structures have evolved to support and benefit family units. 

The most common of these structures involves product providers aggregating all family assets when calculating fees, resulting in lower fees for the family unit as a whole. For example, some providers have a tiered or sliding scale fee structure where fees decrease as the overall value of assets increases. When these fees are calculated on the total value of the assets of the family as a whole, the result is lower fees for each individual family member. This benefit can become even more pronounced over time as the family accumulates more assets. 

Careful selection from the available suite of products and investment options, both local and offshore, should be made with guidance from a trusted financial adviser. The main factors a family should consider include: 

• Access to the product: Are there age, value or other limitations (for example, minimum contribution levels or maximum age limits)? 
• Access to the investment: Is access to the funds restricted for a specified period or will they be freely accessible as financial needs arise or change? 
• Tax efficiencies: Does the product offer any tax efficiencies and, if so, when will these apply? 
• Beneficiary nominations: Can beneficiaries be nominated and, if so, do nominations apply to the proceeds from the product or ownership of the policy? 
• Ownership: Is the product transferable (for example, through cession)? 
• Protection: Is the product protected from creditors? 
• Product complexity and level of financial literacy: Is the product structure understandable to everyone in the family and do all family members understand the benefits and risks involved in the investment or product structure? 
• Product administration and investment manager fees: Are there benefits when aggregating family assets (for example, reduced family group fees)? 
• Is there clear and transparent reporting available? 

Getting started 

This is often the biggest hurdle. Products such as tax-free investment plans, voluntary investment products or equity holdings provide easy access to investment markets. They can be started even with small monthly investment amounts, and are easy to understand and access. Where a family’s risk appetite allows for more risk, branching into different investment markets offshore can easily be facilitated through offshore investment platforms. 

Voluntary investment products (VIPs) provide a flexible way to start saving and accessing investment markets. Offering flexibility on the size and frequency of investments, VIP products are accessible to all to save over the short, medium or long term. Furthermore, they offer the convenience of access to savings and adjustment of underlying investment funds at any time. Investors are also able to transfer from a VIP product into other investment products. 

A similar investment product is a tax-free savings account (TFSA). Benefits of this product structure include that there is no age limit and no tax is levied on returns or capital growth. However, the overall contributions that can be made into this investment structure is limited to R46 000 per year and R500 000 over an investor’s lifetime. This is a great product to start with, even for children, as it teaches them the discipline of savings and comes with low fees and simple processes to open a product and start saving. The benefit of this product, compared to a standard savings account, is that there is no tax levied on any returns and, by law, no performance fees may be levied on the underlying investments, keeping costs low and transparent. 

Both VIPs and TFSAs could be used to fund large expenditure items such as education or a deposit for a first car or home, thereby avoiding costly borrowing costs. 

Adding to your product set 

As your understanding of financial products increases, and as your needs change, further tax-efficient products such as retirement annuities or endowments may be added. These products will allow the family to benefit from preferential tax on investment returns and capital growth. These products often have accessibility restrictions that need to be factored into the family’s financial needs analysis. 

As a family and their financial plan mature, preserving retirement savings through preservation plans or even living annuities becomes a natural transition. If overlaid with guided estate planning and an understanding of how these products can also provide for a family – even after death – a holistic plan can be drawn up to ensure a family’s needs are addressed while simultaneously growing their wealth. 

Making adjustments as needs change 

The only constant is change, and the financial plan for a family needs to be reviewed when significant life events occur, to reassess the chosen product set. A regular review of contribution levels, risk profiling of underlying investments, exposure to offshore markets and accessibility to investments to cover cash flow needs should also be done. 

Concluding thoughts 

Crafting a financial plan that caters for an entire family’s needs is an achievable goal, but it is not without its complexities. A qualified financial adviser can guide you on your path to creating a secure financial future for your family and for generations to come.