Trillions of dollars will pass to the children of the world's wealthiest families over the coming decades, and many have different ideas on how to put that money to work. Richard Prosser, Group Director and Trusts Service Line Lead, looks at a greener future for wealth management
At our roundtable event in London in September, we brought together senior professionals from the worlds of trusts, law, family office and wealth management to discuss the next generation and The Great Wealth Transfer, as it has been dubbed.
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. As the next generation around the world prepare to inherit this wealth generated by their parents over the past few decades, we can see a shift in attitudes and priorities when it comes to the way this money will be invested and put to work.
In Deloitte's 2015 edition of Insights, the aggregate net worth of global millennials (born in the 1980s and 1990s) was predicted to more than double by 2020 compared to 2015. And Bank of America Merrill Lynch predicts that over the next two to three decades, millennials could put between $15 trillion and $20 trillion in US-domiciled ESG investments alone, roughly doubling the size of the entire US equity market.
ESG becomes a priority
While there are many challenges created by the vast handover of wealth, what became abundantly clear during our conversation was the way the landscape is changing as a result of the new and evolving demands of younger HNWIs, who often have wholly different priorities and objectives to their parents.
Nowhere is this shift more obvious than in the emerging requirement for all of us in this industry to demonstrate a commitment to environmental, social and governance (ESG) best practice.
Nick Barran, Managing Director of Rothschild & Co Wealth Management, was present at the roundtable and said: "A really seismic shift has been the requirement to demonstrate environmental, social and governance issues for this generation."
Some of the ESG factors that are now being closely scrutinised by the next generation include environmental concerns like climate change, resource depletion, pollution and deforestation; social issues like working conditions, impact on local communities and diversity; and governance themes, like executive pay, bribery and corruption and tax strategy.
It is noticeable that the next generation is more motivated by principles and social conscience than their parents might have been.
Michelle Tring, Trust Director at Ocorian says it is clear that younger members of wealthy families are focused on managing their wealth for more than simply returns. She says "The younger generation think differently and may have grown up with a feeling of responsibility, knowing that they were wealthy and hoping to be able to make a difference. While their parents may have been focused on generating and preserving wealth, we increasingly see the beneficiaries are more interested in philanthropy and having a positive impact on the world, and they want to work with advisers that can help them do that."
We have already responded to this trend and, at Ocorian, we place an emphasis on ESG-aligned policies to take care of our clients and make meaningful contributions to the communities in which we operate.
We recognise the business benefits of being good corporate citizens and have set ourselves targets including: managing down our energy usage, increasing our recycling, investing in education initiatives for children and being a genuinely diverse and inclusive organisation.
Our approach to ESG helps us align our daily practices with the principles that motivate the next generation of private wealth clients. Our strong social conscience, coupled with our technical expertise helps us empathise with the environmental, social and community concerns of our clients.
The inter-generational transfer of wealth places an onus on advisers to educate and guide the next generation as they assume control of assets from their parents. Where those inheriting wealth feel a responsibility to manage it in line with ESG priorities, advisers will need to step up to the mark and assist.
Plan for succession with a trusted partner
In order to ensure the smooth transfer of your financial estate, you need dedicated succession planning services to help you protect your assets while preserving financial confidentiality. Our private client service is built on long-term personal relationships that are founded on a deep understanding of what matters to you both now and in the future. This understanding is replicated in our client base, where we deal with the second and third generations of many of our client families.
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