Family wealth’s new seven year itch – report

Family wealth is changing as issues of succession planning and legacy mean ‘significant shifts’ happen every seven years thanks to an era of ‘extraordinary rate of change’, writes Arun Kakar 

Wealth manager Stonehenge Fleming has reported an ‘extraordinary rate of change’ in the way UHNW families are approaching wealth, according to an authoritative survey of 150 multi-generational members of different families and their trusted advisers.

With technological, social and political change ‘probably greater today that it has been for any generation in living memory’, the firm found that the ‘gulf in perceptions and values’ between generations is much greater than in the past, which is set to impact on the long term planning objectives within the family.

The evolution between family generations historically took place every 25 years, it reported, but today ‘significant shifts’ are now taking place every seven years. It also noted that relationships between different family cohorts was often less hierarchical than before, which enables issues to be discussed and facilitated.

Succession planning, the report claims, has overtaken capital preservation as a main concern of HNW families and their long term plans. The top five risks posing issues to families related to factors outside of purely financial concerns, with family disputes/break-up the top concern, followed by lack of planning, failure to engage the next generation, lack of future family leadership/direction and lack of appropriate training for the next generation. Despite a marked increase in attention compared to the 2015 report, political and taxation risks did not feature in the top five.

The report authors adds: ‘Many are acutely aware of the apparent contradiction of investing a great deal of resource into the professional management of financial risking their businesses, investment portfolios and other assets, while adopting a less methodical approach to the management of family risks.’

In order to align the essential purpose and use of family wealth, more communication and transparency is required, the report claimed. Wealth, it argued, can only be created and preserved through generations if it is used to make a positive contribution to the community as well as providing for financial needs.

‘Most’ of the families surveyed said that they have contributed ‘substantially’ to their communities through a range of activities that include the use of their own wealth; while ‘some’ families believe that any contribution to society should be the ‘natural outcome’ of their activities and thus cannot be quantified.

There is, however, ‘a growing recognition’ that the subject needed ‘more thought and in some cases requires a clear strategy, objectives and a process for measuring outcomes’.

Having gathered information from a series of surveys, interviews and workshops conducted over the course of last year, Stonehenge’s report revisits themes from its 2015 study, The Four Pillars of Capital, which explored the elements  of family legacy, identifying the following four tenants in family wealth sustainability.

Financial capital, in tangible assets, business, properties, investments and intellectual property; cultural capital, which the firm define as ‘that which brings a family together by identifying shared perspectives and themes in the way its members conduct their lives’, drawing together approaches to business, treatment of others and contributions to society; intellectual capital, measured in terms of the individual and collective knowledge and experience a family can apply to its wealth management; and social capital, described as the way in which a family relates to and operates within its respective community.

But the latest report cautioned that the ‘gulf in perceptions and values’ between generations is much greater than before – with a lasting impact on the way families set their objectives.

More than half (51 per cent) of respondents said they undertake investments in keeping with their values, with 25 per cent of this contingent employing a socially responsible investment strategy. Despite new investment trends such as this, real estate remains the favoured asset class among respondents, with private equity still ‘popular’. There has been a ‘significant increase’ in those prepared to look at alternative investments, it said, and with a ‘notably limited’ interest in cyrptocurrency.

The firm found evidence that some families have a preference for ‘informal and traditional’ approaches to succession planning, but with methods of succession planning being challenged,  it is‘likely’ that more sophisticated methods of governance and communications will become the standard practice in wealth management.

‘Most families today are much more focused on developing a structured approach to the non-financial aspects of their legacy,’ the reports authors claim. ‘The more proactive have already implemented processes which seem to be delivering results. It is likely others will follow.’

Arun Kakar writes for Spear’s 

Image credit: Wikimedia Commons



 

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