Trillions of dollars will pass to the children of the world’s richest families in the coming decades in what is being dubbed as The Great Wealth Transfer, heralding an era of change for the wealth management industry. But what will this change mean for succession planning advisers from across the private wealth sector?
The Great Wealth Transfer
Over the next 30 years, more than $30 trillion is expected to transfer to the next generation of high-net-worth individuals in the US alone and children around the world stand to benefit from the massive wealth generation that has taken place globally over the past few decades. The onus is on advisers to be responsive to change, in view of the fact that the beneficiaries of this wealth may wish to do things very differently to the previous generation.
We recently hosted a roundtable and gathered a group of senior trust, law, family office and wealth management professionals to find out about the great wealth transfer.
Amongst the twelve industry experts at our roundtable event, there were representatives from Harbottle and Lewis; Jersey Finance; Julius Baer; Rothschild & Co Wealth Mangement; Stephenson Harwood; Smith & Williamson and Wedlake Bell. We were represented by Richard Prosser, Group Director, alongside Director Ella Pinnock and Michelle Tring, Trust Director.
Those present shared their views not only on the challenges created by the handover of wealth, but also the new and evolving demands of younger HNWIs, and what the transition means for advisers and the services they offer.
Education and communication
The transfer of wealth that is taking shape immediately places new demands on advisers to support families through succession, encourage the financial education of younger generations, and prepare to advise new clients with different objectives.
“We often hear that the older generation think they have imparted 70% of their knowledge,” said Richard Prosser, Group Director at Ocorian “but the next generation only think 10% has been imparted. That brings home that education and communication are two of the things that we really need to try and concentrate on in terms of making sure we know what the providers of wealth are expecting from the next generation, and vice versa.”
Succession planning is a process
Advisers play a critical role in preparing beneficiaries to deal with the assets that may come their way, which may include family businesses as well as financial inheritance. Many private banks and trust companies offer younger family members training courses on everything from portfolio management to philanthropic giving. Trustees can also help by explaining trust structures to beneficiaries, setting up multi-generational meetings, and using a forward-thinking approach to look at trust structures and what families are seeking to achieve with their wealth.
But all these efforts require the patriarch or matriarch to put the ball in motion, initiating a conversation about succession planning and education. Whilst many families are very open and transparent about their money, that is not always the case, with some parents actively keeping children in the dark about their inheritance – perhaps to prevent a sense of entitlement.
Many families, even in an era where effective governance is highly valued, still do little to address good succession planning until somebody dies.
One of the participants emphasised the point that succession planning is a process and that tensions for families in business or with financial assets are in large part predictable. One can prepare through early education and planning rather than waiting for the death of a family member to start the process of settling an estate.
Evolving priorities of a new generation
However the transfer process is managed, what is abundantly clear is that the next generation of wealthy individuals will have different objectives and priorities to those who have gone before.
Another participant pointed out that a recent shift has been the widespread importance of being able to demonstrate the environmental, social, and governance aspects of a portfolio. The next generation as a whole are assessing their advisers on their ability to address these criteria, in addition to financial returns.
As a result of the current era of tax transparency, including FATCA and CRS, the motivations for setting up offshore structures have changed from being focused around mitigating tax to being driven by succession planning, wealth preservation and philanthropy.
The next generation are also likely to be more sophisticated and international, having lived or been educated in more than one jurisdiction. Several at the roundtable commented on the fact that younger HNWIs are more likely to conduct their own research thanks to much more access to information, and have a greater focus on philanthropy and charitable giving.
Asking the difficult questions
For advisers who may enjoy long-established relationships with the wealth generators, it can be a challenge to stay close to the next generation, who do not necessarily want to continue doing things in the same way.
Navigating the tricky dynamics of wealth transfer will require softer skills, Prosser said: “Communication will be the key skill for the advisers of the future – they will need to make sure they devote sufficient time to client relationships to be able to ask the difficult questions and really understand their clients’ thoughts and needs.”
He added: “Technical expertise will increasingly become a given so the advisers of the future need to be able to help their clients plan early and communicate their vision and wishes. This will require soft skills, empathy, tact and the ability to have balanced conversations. You need to match the adviser to the client: you need people who will talk their same language.”
An exciting new era for advisers
Advisers need to ensure that beneficiaries appreciate their role in the transfer of wealth and understand the part they play in a wider structure. Our team of trust professionals is well-placed to service the next generation thanks to its flexible approach, experience with bespoke structures, and ability to think outside the box.
As the next generation assumes control of great wealth and embarks on a fresh approach, it heralds an exciting new era for advisers around the world. The industry will need to step up to deliver alternative structures that meet a whole new set of objectives, delivered with a creative perspective.
More to follow
The forthcoming articles in this series will look at the potential challenges for wealth transfer; the role of the adviser and the skills they need; the family business dynamic, and the increasing importance of ESG criteria to the next gen.
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