Ensuring generational wealth transfer plans are fit for purpose

Philanthropy and ESG are increasingly important to wealthy families and need to be firmly embedded in plans to transfer wealth to the next generation, writes Clare Stirzaker from Boodle Hatfield

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 $68tn. It is a significant figure, 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.

The great give away

Our recent research of advisers active in the private wealth space drew us towards some striking conclusions. Firstly, it appears that increasing numbers of matriarchs and patriarchs of wealthy families are considering bypassing the next generation when it comes to leaving their assets to deserving recipients after their death. In fact, 44 per cent 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 such as The Giving Pledge, and announcements by high profile individuals including Amazon founder 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.

New mindset

This change represents both a huge challenge and opportunity for the wealth management industry, to be able to advise more effectively on wealth distribution strategies. However, this change in attitude and behaviour requires a different mindset and approach from wealth management professionals.

With a move towards greater wealth distribution, 68 per cent of advisers reported that their clients had increased their gifting to charities and philanthropic ventures over the past 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, beginning the philanthropic journey can help clients begin to unlock and create a clearer sense of purpose for their wealth.

ESG embedded

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 environmental, social and governance (ESG) criteria when it comes to future investment and wealth 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.

It is increasingly recognised that ESG can contribute to long-term financial performance, while 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.

Most importantly of all, the research has convinced us that increasing numbers of clients want to critically assess whether the way in which they invest their money is truly contributing towards a brighter, better and more sustainable future.

Clare Stirzaker is a private wealth partner at Boodle Hatfield