Many countries are experiencing increasing disparity between the wealthiest families and the rest of their citizenry. This raises the question of how the wealthiest can and ought to contribute to those with less. While not everyone believes they have such a responsibility, many families are deeply concerned about inequality and want to use their resources for the betterment of their communities and the world.
As they look to ensure their long-term future prosperity, families frequently turn to their advisors to help them define their goals and craft their strategy. Advisors, however, often wonder whether they should even be raising issues of social impact and the use of wealth with their clients. The role of the advisor is currently in great flux, as it extends beyond prescribing wealth preservation and investment strategies to helping families examine the use and societal impact of their wealth.
Beyond increasing and preserving wealth, families are considering what their wealth can and should do for their heirs and for the community. Increasingly, advisors are invited to facilitate this cross-generational family conversation. The older generation often asks advisors to help them educate their rising generation on using family resources responsibly. More broadly, they are also called in to help the family explore how to have a positive impact on their communities and the world.
STEP (Society of Trust and Estate Practitioners) — an association of trust and estate professionals including lawyers, accountants, trustees, wealth managers and other advisors to wealthy families — conducted a survey of 909 experienced advisors from 86 countries who work with the wealthiest families. The report offers a snapshot of how attitudes toward wealth stewardship are shifting in families.
STEP found most client families are deeply concerned with ensuring their wealth has a positive impact on future generations:
- 78% reported their priority was financial security for future generations.
- 45% wanted to see their wealth well-invested.
- 35% were concerned to maintain family unity, and high living standard for their children.
- 20% wanted to establish a positive legacy and avoid entitlement.
- 11% wanted to see an entrepreneurial spirit in new generations.
Despite the vast diversity of the respondents, there was surprising consistency among their responses. As a result, it is tempting to read this survey by looking for what the greatest number of people do or feel about an issue. The assumption is the majority will enlighten us, as if there is one “correct” opinion. But we might instead view the responses with more nuance. I view the data as indicating at least two distinct groups of families, each of whom require a different type of advice and guidance. One group, the majority, is concerned about wealth as security. But there is also a sizeable group — perhaps a third of the respondents — concerned about generative issues of family unity, positive legacy, avoiding entitlement and instilling an entrepreneurial spirit. That group is also looking to take active steps to achieve those goals.
Advisors can tailor their approach depending on which of those groups a client family fits into. If a client is in the “wealth as security” group, the advisor might probe whether they are open to a broader discussion of how wealth can be used to build a positive legacy. But the advisor must take initiative to open that conversation. For clients who are already interested in how their wealth can be used to make a positive impact, the advisor can help them look together at options and discover resources for achieving that goal. This group typically welcomes the conversation, even if it makes them a little anxious and uncomfortable.
The report seems to support this perspective. Let’s look further at the report’s findings.
Social Impact and Philanthropy
According to the report, advisors are unsure how much social responsibility really influences clients’ wealth planning decisions. Only 8% said they feel such considerations are a driving force for clients, while 65% said they feel these factors occasionally influence the family and 26% feel they do not. However, 42% of respondents said their clients want to take such steps, but have simply not yet started. (Only 25% of respondents said their clients are actively taking these steps.) The advisors’ dilemma: should they take the initiative to bring this issue up to their clients, or wait until asked? The results suggest more advisors are and should be taking the initiative. They don’t feel comfortable on the sidelines; they want to actively help.
Philanthropy is an important topic for families, and advisors are ready to counsel them on it. Clients appear to be split almost evenly between those who expect to make major gifts in their lifetime, and those who will incorporate gifts into their estate plans. If their gifts are already proposed in estate plans, they take remove the possibility of the rising generation having any say in the future use of the family wealth. This may become a deterrent to their having positive motivation to become engaged in defining the future path of their family.
By contrast, the lifetime givers are increasingly supported by members of the next generation, who want to see immediate, active philanthropy. Advisors view nearly half of next generation inheritors as being concerned about wealth inequality, engaging in philanthropy, wanting to participate in creating a positive legacy and preferring to focus on purpose over profit growth. Advisors who sense tension between the elders’ views on social responsibility and the younger generation’s attitudes toward it might, in a respectful way, engage the family in a conversation about the role and impact of philanthropy. Discovering that philanthropic practice can have a positive effect on the motivation and responsibility of the rising generation and may lead to a modification of the family’s view.
Taxation and Preserving Wealth
While many families are moving beyond tax minimization as their core strategy, one attitude remains crystal clear: 2/3 feel that taxation is unfair and that they pay too much. Few families — and keep in mind this data is from scores of countries — feel that taxes lead to positive social impact. Families and their advisors have traditionally worked hard on strategies to minimize taxation, and that continues to be the case. Still, according to the STEP report, older clients, especially wealth creators, tend to feel more negatively about taxes. Their view is that they’ve worked hard and the government has not contributed to their success. Younger respondents, meanwhile, are more likely to accept taxes as part of wealth stewardship and social responsibility.
In fact, many heirs — perhaps because they didn’t create their wealth — tend to see the social benefit of paying taxes. According to the STEP report, there is a desire among many advisors and, increasingly, families to view taxes in a more positive light: as a civic duty that supports significant benefits and services for society. Still, advisors told STEP that the predominant language clients use when discussing taxes continues to be negative — e.g. a “burden” — and they advocated for a more nuanced approach to the topic.
Confusion, Fears and Misconceptions
According to the STEP report, advisors are most often called upon to educate families, especially the rising generations, on complex topics like trusts and financial instruments. Young family members face a barrage of concerns about their responsibility for the family wealth. Some feel guilty or unworthy of having such gifts, while others spend unconsciously and do not understand limits on the use of their wealth. Their families often add to this by failing to offer information or clear messages about what is expected. All of this leads to confusion and fear, and in turn to misguided expectations and irresponsible actions.
Often, the family’s advisor is either implicitly or explicitly asked to help in these situations, but it can be unclear how best to proceed. According to the STEP report, practitioners are evenly divided on whether to take on a limited role or a more active one in these situations. Two-thirds of respondents said they want to talk more with their clients about topics like family dynamics, goals and risk tolerance, but are unsure of whether they can even bring such concepts up.
Advisors must be careful in broaching these topics with clients who don’t see the need for such discussions, but it can be done. These families tend to be concerned about entitled children adopting unhealthy and destructive habits in using family wealth. They also tend to be concerned about confidentiality. Elder family members, meanwhile, often want to avoid conflict. Rational arguments about the need for education on wealth stewardship are rarely effective in addressing these fear-based impulses.
However, it’s important to remember these fears and concerns are common, and all are fixable. Families often desire better wealth education for their offspring, but are hindered by limited communication skills, procrastination and conflict avoidance. This clearly creates an opportunity for advisors to step up. Doing so, however, means providing not just financial education, but also mentoring and guidance for how families can face these issues.
While clients’ needs are clear, as evidenced by the STEP report, advisors must learn to offer an expanded scope of services aimed at deepening engagement with the families they serve. As advisors hone their own skills in this regard, this knowledge will filter down to clients, helping families to better manage their anxieties about the future. It is only recently that advisor training programs and workshops have begun to address this need, but doing so will become increasingly important in the coming years as more wealth is transferred from the current to the next generation.