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06 Jan 2023

Legacy landscape: shifting horizons are reshaping the wealth management industry

The next 25 years will see a huge transfer of private wealth to new generations. The highest available estimate is that this ‘great wealth transfer’ could total up to $68 trillion.

It is a significant figure, and one that is all the more striking because we know that alongside this immense generational shift, the priorities of families in the Ultra High Net Worth (UHNW) and High Net Worth (HNW) brackets are evolving.

Philanthropy, entrepreneurship, pandemic disease, conflict and climate change all feed into wealth transfer conversations that a succeeding generation may view differently to the last. Successful individuals and families need to plan for wealth transfer in a complex environment, which means keeping the structures and policies that govern their affairs under review, ensuring they are fit for any altered purpose.

As part of our recently published guide ‘Lessons in Legacy’, we undertook research amongst our network of advisers active in the private wealth space  which found, firstly, that it is no longer uncommon for wealthy families to consider not passing on the majority of their wealth to the next generation – 44% of advisers reported that their clients had considered not passing most of their wealth onto their children. This is a trend that mirrors worldwide philanthropic movements like The Giving Pledge, and announcements by high profile individuals including Jeff Bezos, indicating they plan to give away most of what they own during their lifetime.  Ultimately, wealth preservation is no longer the sole focus of wealthy families, and they want the Wealth Management Industry to be able to advise more effectively on wealth distribution strategies. This change in attitude and behaviour requires a different mindset and approach by wealth management professionals.

With a move towards greater wealth distribution, 68% of advisers reported that their clients had increased their gifting to charities and philanthropic ventures over the last 12 months. The data confirms that philanthropy and giving is increasingly a key concern for families. Whether due to a desire, as identified by Warren Buffet, to give the next generation a genuine range of options, as part of legacy building, or a personal connection to a particular cause, responses to our survey point to a significant increase in interest in philanthropy this year.  Beginning the philanthropic journey can help many clients begin to unlock and create a clearer sense of purpose in connection with the wealth. The key is beginning, even if it’s starting small, and more efforts are needed to help encourage philanthropists to give.

As part of the growing desire to create a better future, two thirds of respondents specified that around a third of their clients were concerned with ESG when it comes to future planning. Given the wider societal conversation around ESG, it is perhaps not surprising that respondents confirmed that the issue is also firmly on the agenda for many UHNW and HNW individuals and their families.

The survey results clearly show that more clients want to critically assess whether the ways in which they invest their money is truly contributing towards a greater and more sustainable future. It is increasingly recognised that ESG can contribute to long-term financial performance, whilst mitigating against broader societal risks, and every business needs to assess their success against ESG metrics. However, knowing where to begin, who to trust and how to measure true impact from an ESG perspective remains challenging. Cynicism and scepticism still prevent many from embarking on meaningful change. What is clear is that ESG is becoming increasingly embedded within wealth transfer and in turn reshaping what clients need from the wealth management industry.

This article was first published in Professional Wealth Management (PWM) in January 2023.