Worry about next-gen pressure burdens wealthy families, new Sanlam UK report finds

23/10/2018 News Team

 A new report looking at succession and wealth transfer in high net worth families shows that the older generation can fixate on not “burdening” their children with the pressures associated with inheriting.

The qualitative report Family Futures was produced by wealth and investment manager Sanlam UK and Global Partnership Family Offices (GPFO), and it is based on both firms’ expertise, as well as 15 in-depth interviews with “very wealthy” families, who are anonymously quoted throughout.

In it, older generations expressed their desire for children to be able to form healthy relationships “without worrying people are always looking for something from them”.

One family said that it is introducing the next generation (aged 19 to 26 in their case) gradually to their assets in terms of content rather than value. Using this approach, they’re able to gauge which children are most able to handle the information responsibly.

One individual interviewed worried that the next generation may become complacent.

“It can be challenging to stay motivated and find a valuable and relevant way to occupy your time. The idea of going to work and building a career to earn only a fraction of what you are set to inherit can feel futile,” the family member explained.

As a consequence, the family is focused on encouraging the next generation to fill their time with something they feel passionate about. They argue that giving their children the freedom to invest their time for enjoyment, rather than just for money, is where the next generation’s privilege truly lies.

The report also explores the extent to which the next generation are involved in family investment decisions, and whether impact and/or socially responsible investing are of interest.

The researchers said that while “many” families want their children to invest responsibly, they raised a number of concerns about the rise of impact investing, with one arguing that all investments have impact in some form, and highlighting this is just a way for asset managers to sell products.

One family commented: “You can either spend your money or use it philanthropically, but to buy investments for impact, I think there’s a huge conflict.”

All the families spoken to have a family office which carries out executive functions on their behalf, and many turned to their family office employees for guidance when seeking external advice.

Many said they were wary of external advice firms as they tended to offer the same solutions to every family, though appreciated their external advisers for the gaps they filled in the family office and their own knowledge – most notably around tax.

“The best thing all advisers can do is be aware of what is out there and present opportunities to get everyone in the family involved,” the researchers said.

The report builds on previous research from Sanlam, The Generation Game, which explores the changing attitudes to inheritance and the implications for the financial industry.

It found 34 percent of under-45s are counting on the windfall of their expected inheritance to help them later in life. It also revealed that one in three under-45s have used fintech services in the past year – a clear indication of a shift in consumer behaviour within the industry.

Penny Lovell, chief executive of Sanlam UK’s private office, said the new report provided a “personal and in-depth” look at the trends and issues faced by family offices.

“The views expressed reflect the changing nature of the industry, especially when it comes to the transfer of wealth and how the next generation want their money to be invested,” she said.

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