The pandemic and its unfolding aftermath are forcing nations, institutions and individuals to look again at their plans and priorities. The same is true of wealthy families, where the questions that were always present have now become more urgent.
For the families we work with, those questions focus increasingly on the purpose of their wealth and the responsibilities that come with it. That includes responsibilities within their own family, now and in the future – as well as broader responsibilities to society.
This article provides a snapshot of what currently concerns families of wealth. It highlights concerns that relate to internal family dynamics, such as leadership, governance, family business management, relationships and plans for succession. It also highlights external concerns, which include investment returns, taxation, the political climate, and the family’s ambitions to engage with social or environmental causes through philanthropic projects.
This is the first time Cazenove Capital* has undertaken research of this kind. Our business is unique in the sphere of family office services. Like several firms, we have a centuries-long history of looking after multi-generational family wealth. Unlike others, however, we are part of a global, publicly-quoted investment business – with all the resource and security that offers – and yet a business which itself remains largely owned by the family that founded it two hundred years ago. Planning beyond the horizon of a single generation is part of our culture.
Why we’ve canvassed the views of our family clients
The pace of change in today’s world means the gaps between generations can seem wider. Finding shared experiences and shared values can seem harder. Against this backdrop our families tell us that establishing a clear purpose for their wealth is increasingly important. Our work with many families – all different, but in many cases facing similar dilemmas – brings about the benefit of shared experience. We find that what proves successful for one family often, in some form, proves helpful to others.
So one purpose of this document is to reflect to our family clients and their advisers what other families are thinking. Another purpose, of course, is to help us provide services that match even more closely the requirements of our family clients.
The survey was conducted over several months with data gathered both by email and during the course of many conversations. We are extremely grateful to respondents for the time they have given us and the information shared. We hope you find the results as insightful as we do.
1. Wealth in my lifetime: what am I to do with it?
2. Does my family share a vision for our wealth?
3. The biggest threats to my family’s wealth
4. Our wealth, other people and the planet
5. Giving it away
If you'd like to discuss any of the reported findings further, please contact us here.
1. Wealth in my lifetime: what am I to do with it?
The origins of every family’s wealth is different. But what most families share is a sense of questioning its purpose. Political events in recent decades, and the pandemic itself, may have played a part in bringing these questions to the fore.
“To what extent is the wealth for me to use and enjoy? And to what extent is it for the benefit of others, both now and in the future?” These are the questions our family clients raise amongst themselves and with us.
When asked to rank a series of five statements about wealth (see chart, below) it was clear that most respondents take a multi-generational view. They see future generations as having a claim to family wealth, which in turn governs behaviour in their lifetime. They also feel an obligation to wider society.
- Two-thirds (63%) of respondents consider themselves as custodians for future generations, ranking either of the two uppermost statements number one.
- Helping others is a priority. Half of respondents ranked “wanting to use their wealth to help those with less” in either first or second place.
- Only 15% felt their wealth was theirs to spend in their lifetime (ranking it first of the statements below).
"Not just for me": your view of your wealth
Weighted ranking of all responses. For more on the methodology, scope and timing of the survey see addendum.
2. Does my family share a vision for our wealth?
An agreed plan for wealth within the family is important to many. Even so, less than half stated that they have a “shared vision and plan for our wealth”.
Many respondents feel it was something they should be doing. Some were curious about what it entailed: “It’s a good idea,” said one, “but what does it involve in practice?”
Discussing the purpose of family wealth
While half of respondents do not have an agreed vision, a much higher proportion discuss financial matters in some way – including with their younger children.
When asked whether they discussed financial matters within the family two-thirds (66%) said yes, but not with children aged under 18. A further 21% said conversations included children under 18. Around a tenth of families do not talk about finance.
Who’s leading? The role of a family conductor
We see increasing interest among family clients in the issues of leadership and decision-making. Clear leadership within families appears linked to family discussions about money, and the likelihood of achieving an agreed longer-term plan.
The role of a “conductor” – a family member or professional who co-ordinates advisers – is recognised by many families. In most cases this is informal.
- Two-thirds of families (65%) have a “generally acknowledged or self-appointed” family figure acting as conductor. A further small group (3%) formalise this by appointing or electing the family member.
- One in ten (13%) appoint an external professional for this role.
- One fifth of families (19%) don’t identify the role as being currently fulfilled, but of that group one quarter is “actively considering” some form of structured leadership.
The youngsters’ view: is anyone listening?
The involvement of younger family members in the oversight of shared wealth is a priority for most. We were interested in how younger respondents (those aged under 30) felt about their influence within their families.
Even accounting for an element of bias in our respondent pool – after all, these are younger family members who were prepared to help with the exercise – there was a sense that overall their views were taken into account. But there was divergence in relation to topic.
- Nine in ten (92%) felt their career aspirations were “heard” by their elders. By comparison, a smaller proportion (75%) felt their opinions on social or environmental issues were listened to.
- When asked whether their views on the challenge of living up to family expectations were fully heard, almost a third replied “no”.
Do you hear me when I voice opinions about…
The under-30 respondents were a subset of the wider respondent base. See footnotes.
3. The biggest threats to my family’s wealth
Much of the data for this report was gathered during a period of extreme uncertainty. Around the world, what began as a health crisis was turning into an economic and social crisis, with ramifications impossible to predict.
The pandemic-related shock to global markets in early 2020 saw a peak-to-trough drop of 34%. It was the most rapid collapse in stock markets for more than 40 years**.
Families told us that their greatest worries did not centre upon external dangers. Instead the most pressing threats were identified as internal to the family.
The greatest risks are close to home
Weighted ranking of all responses. For more on the methodology, scope and timing of the survey see addendum.
Almost half (49%) believe the biggest dangers are posed by failings and fallouts arising among family members, with respondents ranking as their greatest fear one of the following scenarios: poor family leadership; family conflict leading to a dispersion of assets; a failure to engage with younger family members and poor succession planning.
“I hear about family members at war with one another and the financial wreckage it causes, and I think, that mustn’t ever be us,” said one respondent. “Markets are unlikely to inflict the kind of irreparable harm that comes when families start a feud.”
External factors including economic conditions, inflation or geo-political risks featured much further down the list of perceived dangers.
The spectre of taxation: is it really so alarming?
The pandemic has triggered a surge in nations’ borrowing. Future increases in taxation are, in many countries, expected to be an inevitable result, with a likely focus on wealthy individuals and families.
We were interested to gauge families’ attitude toward tax as a potential threat, and the extent to which they might act to limit its effects. We asked specifically about families’ views on potential wealth taxes and exchange controls.
- More than ten per cent were unconcerned. The vast majority (64%) said they were concerned, but not enough to take “drastic” action.
- One quarter (23%) were considering or had already taken action to mitigate tax increases.
- Of those subject to UK tax, 71% stated that current UK tax rates are “reasonably fair”.
Concerned - to a degree
The dilemma of indivisible assets
Succession is a central concern for many. Within that broader issue, a recurrent problem involves family holdings which are not easily split. These could range from business assets to shared family properties, artworks or other heirlooms.
- The most common solution (48%), where practical, is to bequeath assets on an equal-ownership basis.
- The second choice is to allocate the assets to individuals within the family and find equable compensation for other members, as needed.
- Primogeniture – the selection of the first-born child as inheritor – was not a favoured solution, cited by just 6%.
4. Our wealth, other people – and the planet
Covid-19 and successive lockdowns brought a seismic shift in how people lived, travelled and worked. Social and environmental causes gained popular support and the climate crisis rose on the world’s political stages. Resulting legislation will trigger economic and corporate consequences which investors must heed, regardless of differing views on the issues.
Families’ values appear in step with these changes. When asked what was most likely to benefit society over the next 30 years, our respondents predicted that advancements in technology and environmental issues would have the most positive impact.
- Referring to their investments, a high proportion (42%) stated that environmental and social issues were equally important considerations as financial returns.
- A committed core of investors said that where their social and environmental holdings were concerned, they did not expect any financial returns.
- Overall this meant only a minority of investors (36%) placed financial returns ahead of environmental and social considerations; with a clear majority saying that environmental or social issues were of equal or greater significance.
Priority shift
There is a requirement among many families that the process of investing their wealth reflects their values in relation to the environment, society and corporate governance (ESG).
- One in five families (22%) expect ESG objectives to be reflected across their entire portfolios. A further, bigger pool of respondents (45%) expect these objectives to be reflected in at least a proportion of their holdings.
We believe the search for long-term returns must take into account the wider costs and benefits of business activity – the impact on the environment and society – giving a more valuable insight into potential future performance, or “impact adjusted profits”. Impact is thus the “third dimension” of investment management, alongside the traditional existing metrics of risk and return. During 2020 we developed our process of impact reporting so that clients can quantify the impact of their own investments on society and the environment.
Being seen to care is important, too
While families are passionate about environmental and social causes – and are prepared to give generously and forgo returns in order to support them – there is an awareness that these issues are also closely linked to reputation.
Investments that cause harm are viewed as a reputational risk. Interestingly, an association with “aggressive tax avoidance” falls into the same category. This appears to reflect growing public and political unease about tax avoidance measures whether taken by companies or individuals.
We asked families to rank in order of negative impact a list of 12 potential reputational risks. The following were viewed as the most serious:
Harmful investments are among top reputational risks
Weighted ranking of all response across a total of 12 criteria. For more on the methodology, scope and timing of the survey see addendum.
5. Giving it away
As we have seen, there is a powerful impulse among families to share their wealth with others. In practice this giving is undertaken in very different ways.
In recent years a growing number of families are seeking to formalise their philanthropy. This can help focus the giving on families’ selected causes, and is often tied into families’ collective vision for their wealth. A more structured approach to philanthropy can result in more effective and measurable outcomes, as well as benefits to the family in relation to tax and other long-term planning.
Unsurprisingly then a large number of respondents – 35% – have created a charitable trust or foundation through which to give. But other forms of giving are also widely practised.
Favoured ways to give
Total respondents selecting each approach (%).
Families increasingly find that traditional charitable structures prove burdensome. UK charity regulations, for example, require annual tax filing as well as public access to trustee names – something disliked by privacy-conscious donors. The administration of both investments and grant-making, whether domestic or international, can also prove onerous. As a result we are seeing increased use of “donor advised funds”. With these arrangements the legal, regulatory and administrative work sits with one of a select number of umbrella charities with the underlying assets being managed by an investment manager, such as Cazenove Capital. There may be significant tax advantages for donors, with their gifts incorporated into their wider tax and investment planning. Donors’ privacy is protected, but they do not lose their influence over the grant-making process.
Notes, methodology and sources
The data in this report was drawn from a survey of 70 respondents. These were family members or representatives of families where invested assets were valued at GBP10 million or more. The survey was conducted between November 2019 and October 2020.
Respondents’ ages varied, with 35% falling into the age group 51 to 65. Over-65s made up 17% of the respondent base. Respondents aged 30 or under were limited to 26.
Three quarters of respondents were male. Half of the female respondents were aged 30 or under.
Where respondents were asked to rank responses out of a longer list, we applied a process of weighting to reflect higher or lower priorities. This produced an overall score taking all responses – and their ranking – into account.
*Our global family office service is delivered through Cazenove Capital in the UK, and Schroders Wealth Management in Switzerland, Hong Kong and Singapore.
**Source: Refinitiv, Schroders, data based on Datastream World Stock Market index, January 1973-November 2020.
