The changing face of HNWIs
The changing face of HNWIs
As ‘The Great Wealth Transfer’ begins to take shape, Richard Prosser, Group Director and Trusts Service Line Lead reflects on our roundtable discussion with a group of wealth professionals from the fields of law, trusts, accounting and investment management to highlight how this new generation of clients differs from the last, and what their arrival will mean for the industry.
The next generation of high-net-worth individuals, who stand to inherit trillions of dollars from their parents over the coming decades, will be very different from the one that went before. Dubbed ‘The Great Wealth Transfer’, the wealth created over the last three or four decades is beginning to be handed down to the next generation of beneficiaries. This generation looks entirely different from the last, with different priorities and passions, and with access to far more information via technology than their parents had.
Changing family dynamics
Sometimes it is not very clear who the next generation is – and in many families there can be more than one ‘next generation’. In a conventional family you have grandchildren who are two layers removed; it requires some agile thinking from advisers to arrive at technical structures to support them. Where you have more complex families, the legal structures may really fall behind, and that’s where advisers need to step up and use their knowledge, experience, and skills to support these individuals in the best possible way.
Beneficiaries are far more likely than their parents to have complex family arrangements, perhaps including same sex relationships, experience of pre-nuptial agreements, divorce, multiple marriages, long-term unmarried relationships and children with more than one partner.
Many clients are also resident in multiple jurisdictions. Rupert Phelps, Partner at Smith & Williamson, who attended the roundtable observed “There are families who are almost supranational, whereby through a combination of parents or grandparents from different countries or continents, operating companies, investments, residences or just inclination, they are really internationally complex. They just do not think in a sovereign nation way. International structuring is incredibly relevant for them.”
He shared an anecdote about two adult beneficiaries who – when Phelps asked them what nationality they considered themselves to be, struggled to answer, before saying ‘Jewish’. Phelps reflected, “That of course is fascinating: that was the nearest they could get to what many people would think of as nationality.”
Today’s beneficiaries are likely to be more international and ‘disparate’ than ever before, and with their expectation about what they want from the relationship with their wealth manager radically different from that of the founder generation.
Approach to wealth
Depending on how and when the wealth was created, and often depending upon how long it is has been in the family, founders and beneficiaries may have very different approaches towards managing their wealth.
Some beneficiaries may be kept in the dark by their parents. There are many examples of wealth creators who choose, for whatever reason, to keep their children secluded from the scale of their inheritance or set up succession plans without informing other members of the family about the details.
Phelps said “In families where the money was made contemporaneously with the family’s growth, the second generation are often in a position to remember before the family had substantial assets or a certain lifestyle. In such scenarios, the third generation have no experience or certainly no interest in that. These are big generalisations, but most entrepreneurs did not go to excellent exclusive schools. However, their children and grandchildren, if they have them, tend to do the exact opposite, which is of course where the danger of entitlement can arise.”
Contributing to society
All those on our panel observed a trend towards prioritising environmental, social and governance considerations when making investment decisions, with the next generation more focused than their parents on making a difference to society. Still more are focused on establishing philanthropic structures to manage their giving; according to research commissioned by the Royal Bank of Canada, some 79% of millennials now say they believe societal causes are more important than wealth accumulation in defining their legacy.
Philanthropy is something that is coming up much more now than ever it used to. Clients are looking to us for help deciding how they to spend their money when they have so much that they do not need it for day-to-day living.
Appetite for risk
Jim Barrett, Executive Director at Julius Baer observed that the next generation often have a very different outlook on risk. “They are far more risk averse,” he said. “Clients in their sixties and seventies have often been in a position where they have ridden equity markets and they are comfortable with that. When you are sitting down with individuals who are inheriting a lot, they get very nervous when there are market corrections that the founder generation would most often had just ignored.”
Those who have generated the wealth feel they can afford to take risks. Those who are receiving the wealth have a certain responsibility and want to be able to pass some of what they inherit on to their own children in due course.
The next generation of wealthy individuals simply seeks to operate in a different way.
Professionals present at the roundtable observed how the medium through which you engage with the next generation is important. As assets pass from one generation to the next, so the preference for stacks of paper and detailed reviews of portfolios may be replaced by a simple request for performance data delivered via an app. That app may even offer up greater detail, but in any event it is likely that the next generation will seek to engage with the data differently, and be motivated by different priorities for the performance of their assets.
“What is consistent in the information age is the level of access to information for those who want to be informed,” commented Michelle Tring, Client Director at Ocorian. “All beneficiaries have much greater access to information online about wealth-holding structures and options than their parents’ generation did. That is not to say that everyone now comes along well-informed, with a sophisticated insight into how they want to manage their wealth, but there are many who do.”
Some commentators at the roundtable spoke of signs of a shift towards a more transactional relationship with trustees, compared to the close personal relationships developed by the parents’ generation, with others feeling that this was more a feature of the longevity of the relationship to date.
What was abundantly clear is that generational change is creating a whole new set of clients demanding different services and different service levels. Advisers will need to adapt if they are to win over the next generation in the same way that they did the first.
Our team of dedicated private wealth professionals work with you to create a bespoke solution to meet your specific needs, utilising over 50 years' experience in private wealth planning. To find out more about how we could help you, contact me using my profile below or to read more about our private client services, click here.