This means they may underestimate their wealth and the complexity of their personal finances (and those of their families), leading them to rely on mainstream, ‘high street’ financial products that may not be optimal for their needs.
But what is ‘mass affluent’? In the UK, it is often defined as individuals with £50,000-£5m in investable assets, excluding their prime residence property. Many of these higher-rate taxpayers typically own property, hold investment ISAs and a mix of cash savings accounts, and have accrued various workplace pensions, with perhaps a handful of other business interests or an income-generating ‘side-hustle’.
If this is you, below are some key ways the mass affluent should consider to protect and preserve their wealth:
Pensions
With sizable company contributions as part of employment packages, and now auto-enrolment, it is worthwhile tracing lost and forgotten pension plans from past employers – see the Government’s Pension Tracing Service – as people can easily accumulate 5-6 pensions they’ve lost track of as they change jobs and move home.
By consolidating these into one pension pot, you benefit from compounding and lower fees. A large number of people end up on pension plans effectively frozen in time, unsuitable for their risk appetite and life stage now, and often in ‘lifestyle funds’ designed to buy an annuity, when a cheaper, index-tracking passive fund may be more suitable. Pensions are also inheritance tax (IHT)-free and easy to pass on in death, so should form part of inheritance planning too.
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Savings and investments
Many mass affluent people will regularly top up investment and cash ISA limits, as well as holding various savings accounts and even premium bonds. As citizens of the world, the mass affluent may have amassed pensions and savings accounts in different countries, meaning they could benefit from specialist cross-border financial advice to ensure they don’t trigger inadvertent tax burdens or lose out on optimal financial products.
Inheritance
Legacy planning is crucial for the mass affluent and far broader than many consider. For example, you can transfer stocks and shares investment ownership without divesting (though capital gains tax (CGT) may be applied). Gifts made by older mass affluent people to grandchildren, for example, can be made using segments of an offshore bond that attract no tax until cashed in; if that is done by beneficiaries in their 20s at the start of their careers, their income tax threshold will be at its lowest.
Some business interests – such as company director shares – can be kept outside of an IHT estate if transferred to beneficiaries via business tax relief.
Without legacy planning, directorship positions can create a tax liability for beneficiaries, destabilise the business in event of death, and jeopardise asset preservation across generations. For example, without a pre-agreed rate of fair market value passing to inheritance beneficiaries, any attempts to sell on the business stake may be treated as a ‘fire sale’ at discounted valuations.
Lending and financial advice
Over a quarter of that 13.1 million mass affluent group are currently non-advised but are open to receiving financial advice, according to Royal London. Instead of relying on high street financial products, the mass affluent could access more bespoke solutions – such as accessing loans that considers their wealth or whole asset portfolio rather than pure salary multiples, or considers cross-border and diverse income streams otherwise ignored by traditional lenders.
This is where gaining financial advice, especially with an adviser who can act long term as a CFO of your wealth by liaising with tax experts in relevant tax jurisdictions or with its own corporate finance department, can pay dividends to the mass affluent.
Stuart Ritchie is the managing partner of GSB Wealth