I was a panellist at a recent Sydney conference on planning issues relating to the deployment of the family home in retirement planning. Specifically we focused on the financial needs of older Australians of middle wealth. I would be surprised if several of the issues raised were not of concern in the UK. The key question raised was “Are financial advisers the natural providers of this service?”
Wealthier clients may have sufficient assets to fund a long retirement but those with lesser resources need to think about options to take value from their home much earlier because:
• Clients with 50% of assets in the home at age 60, may have 80% or more of their assets in their home at age 80 and still have a 10 year plus life expectancy.
• The home itself will be 20 years older and the building itself probably in need of modernisation to improve sale value.
• The client will also be 20 years older and less likely to be competent to make good financial decisions.
• As the client ages, their family will likely be increasingly engaged in what happens to the home or more accurately the proceeds of sale.
There are a number of possible transactional options during the post retirement period to realise investable funds or to be spent immediately including:
• Sale and downsize to a smaller home,
• Sale and move in with relatives or into aged care facility,
• Borrowing against the home, and
• Part sale.
All carry initial and ongoing transactional costs, taxes and possibly social welfare issues, intergenerational wealth transfer consequences and are capable of creating a myriad of psychological anxieties. All are open to easy accusation of bias unless managed with great care.
Once the family home is included in the planning process a number of specific questions need to be resolved:
• Does recognition of the family home as an investment asset result in any change to asset allocation from traditional models?
• When and how should other members of the family be engaged in the planning process?
• What are the different legal and reputational risks for advisers who include or exclude the home in their planning process?
• How should the adviser be rewarded for this additional service!
So who is more competent than a financial adviser to take on this important role? The answer of course is that financial advisers, with their well developed negotiation skills, understanding of financial, tax and legal issues are the natural providers of this service because they are better suited to it than lawyers, real estate agents, mortgage brokers and accountants.
The experience in Oz is that most advisers prefer to ignore both the opportunity and the problem because it seems too complicated. Will there be any difference in the UK?