Boomers Linking Inheritance to Child-Performance Benchmarks
It’s official: Boomers arrange things so that their favourite children inherit more.
And financial planners are helping them do it with child-performance indicators.
Sara Rubati, from Judicious Estate, was one of the pioneers of child-performance benchmarks. She explains that the idea is to both empower Boomers and incentivise their children to be more. ‘A lot of our customers chafe at the presumption that all of their children have an equal claim on their assets once they die.’ Her firm has addressed that grievance.
Rubati credits one specific Boomer client with giving her the inspiration. ‘We were planning the distribution of the housing portfolio when Bob* said to me, “I don’t want my second daughter to get a house. She hasn’t earned it. I didn’t become the best carpet salesman from Wagga Wagga to Wodonga so that a part-time librarian could run an essential oils business from my garage. That’s for the Mazda! But I want to give her a chance to change my mind before I die. Could we do that?”’. Rubati claims that it was a lightbulb moment.
“She then asked Bob to choose a selection of indicators that he felt captured what was most important to him, against which he would score his underwhelming daughter.”
Rubati created 20 different indicators of child performance that covered the range of complaints she was accustomed to hearing from clients. These included appearance, income, behaviour at family events, mood, frugality, relationship status, and political views. She then asked Bob to choose a selection of indicators that he felt captured what was most important to him, against which he would score his underwhelming daughter.
Bob chose 5 indicators that focused on what he called ‘G & D’ – G for gratitude and D for determination. Rubati explains that what Bob wanted to see was that ‘his daughter was aware that she had enjoyed an easier life than he had’. He also wanted to see that ‘she was prepared to work hard enough to retrospectively justify those benefits’. Rubati’s firm began offering the ‘G & D’ package as a pre-selected bundle that has been popular because it expresses Boomer values.
After this early success, the firm began devoting resources to performance benchmarks. Enter Mike Comptable, the firm’s quant, who developed a reporting framework with dynamic feedback loops. ‘My first framework basically treated the whole issue as an optimisation problem – how to get Boomer children operating at their best.’
But the firm’s senior management insisted that its business philosophy of putting Boomer choice first overrode the elegance of Comptable’s system. The result was a choice for Boomers between quarterly, six-monthly, and annual reporting.
The next issue was to determine if the inheritance amount that each child received would change with every reporting period, or if it would be linked to the child’s average behaviour over their life. Comptable explained that this was a delicate matter. ‘On the one hand, you want to reward positive change from children. On the other hand, you don’t want children simply lifting their game as their parents get close to death.’
The final technical issue was the most daunting, according to Comptable, because it could affect the relationship between the Boomer and their children. ‘Whether to make the results available to the children immediately or with a delay of 6 months or a year is a tough one because you don’t want the organic relationship to be distorted by the reporting mechanism.’ Rubati admits that this sometimes requires tinkering, with some clients preferring their children not to know their scores. For those who did, the annual report could come with an easy-to-use PowerPoint that Boomers could present at Christmas lunch to show their children how they had scored over the year. (For an extra charge, a company tech would come around and run the slideshow.)
DID YOU KNOW?
100% of Boomers surveyed believe that ‘Today any favouritism will be earned through merit, just like the wealth that is being passed down’
Rubati is philosophical about the personal complications that could arise. ‘It’s not perfect, no. But we are now free from the notion of equality regardless of performance. My own position is that this gets us back to an older understanding of inheritance – it all used to go to one child, like Mr Darcy from Pride and Prejudice. Now that we have the technology, we can again favour a child, but not for the totally arbitrary reason that they are the first son.’ Today any favouritism will be earned through merit, just like the wealth that is being passed down.
* Not his real name.
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