MORGAN STANLEY PRIVATE WEALTH MANAGEMENT AND CAMPDEN WEALTH RELEASE NEXT-GENERATION WEALTH STUDY
Families struggle with issues of wealth transfer
Lack of knowledge leads to discontent among next-gen
Many next-gen creating their own wealth or involved in entrepreneurial ventures
Advisors increasingly serve as “quarterbacks”
Unique multi-generational survey focuses on families with
Net worth of $100 million or more
NEW YORK, May 7, 2012 – With an estimated $27 trillion expected to pass from one ultra-high net worth generation to the next by 2050, issues of control and empowerment are causing some tension when it comes to wealth transfer, according to a new next-generation study by Morgan Stanley Private Wealth Management and Campden Wealth. The report, Next-Generation Wealth: The New Face of Affluence, provides an in-depth, comprehensive look at the concerns and needs of the latest generation of inheritors.
“In some ways, families feel as if they are walking a tightrope and are seeking the right balance. Parents want to educate and prepare the younger generation for steering the family’s legacy and wealth. But they grapple with giving up control and weighing when and how much to divulge about the family wealth so that it’s not a disincentive,” said Mindy Rosenthal, managing director of Campden Wealth North America, who authored the study. Campden is the parent company of the Institute for Private Investors (IPI).
“At the same time, the next generation is balancing a desire to learn more about their wealth and have greater control of it with not wanting to push too hard,” Rosenthal said. “Younger family members often feel they don’t have the right to make decisions about wealth management. Many next-gen respondents said they felt it wasn’t appropriate to ask for control, because it wasn’t their money.”
The study, completed earlier this year, surveyed members of 53 UHNW families. 73% of respondents had a net worth exceeding $100 million; 75% had a family business. Notably, it examines attitudes across multiple generations: next generation, ages 20-49, represented 45%; 55% were older generation, age 50 and up. The research was conducted via detailed questionnaires and interviews.
“For ultra-affluent families, wealth transfer can be a complicated process, both emotionally and practically. A goal of the research is to provide unique insights into the needs and concerns of the next generation and those of their elders as they face the challenges of wealth transition,” said Douglas J. Ketterer, head of Morgan Stanley Private Wealth Management in the U.S.
“These findings have important implications for financial professionals who serve families of significant wealth. One is that they need to think like family advisors in the fullest sense, attuned to the attitudes and psychological disconnects that may exist between generations,” Ketterer said.
My generation: next-gen wealth transfer
A majority (79%) of the next-generation respondents considered being a good steward of the family’s wealth extremely important and the desire for more involvement was universally significant. But the older next-gen, those in the 40-49 age bracket, tended to have more information, involvement and control of the family wealth compared with those aged 30-39, affecting satisfaction with families’ investment decisions and wealth transfer plans. For example, 25% of those aged 30-39 said they generally were not satisfied with their families’ investment decisions and 43% of thirty-somethings said they did not agree at all with their families’ plans for wealth transfer. Just 14% in this age group expressed strong satisfaction with wealth transfer, compared to 84% aged 40-49.
30% of the next-generation inheritors had already created significant wealth of their own and 17% of the next generation said they were involved with entrepreneurial ventures. Among the older generation, 29% of the inheritors had also built on family on family wealth. 45% of the next-gen respondents said wealth re-creation was highly important to them, but 28%, a significant minority, said wealth re-creation was of little importance to them.
In general, the older generation planned to pass on more of their wealth to their children than the younger generation did. More than half (60%) of the older generation planned to leave substantially all of their wealth to their children, compared to just 44% of the next generation who felt this way.
Family governance: Fully 62% said they were neither largely nor completely satisfied with their family’s governance. Almost one-third (31%) of the next generation participants did not feel their families have a strong system of governance.
Wealth management vs. career: None of the respondents said they wanted their children to focus solely on managing the family wealth. About half of the older-generation parents (56%), those 50-plus, felt their children should balance the family finances with a successful career. More than a third (37%) of next-generation parents said it was up to the children to do what they wanted, while only 19% of older-generation parents expressed this view. 19% of next-generation and 18% of older-generation parents felt their children should establish their own careers and leave wealth management to the experts.
Investment education: Most families said they take an informal approach to teaching about wealth, with education focused on budgeting, asset allocation and knowing advisors. Almost half (47%) of the next generation seek educational help from advisors. Families relied heavily on private banks/trust companies (56%), accountants (50%) and independent attorneys (49%) for help in educating their children. Only 29% of respondents felt children were highly prepared for wealth; 32% said children were not ready yet.
Philanthropy: The survey found a very substantial commitment to philanthropy across the generations. Nearly three-quarters (73%) of next generation respondents and 56% of the older generation use philanthropy to teach about wealth. 87% of survey participants had a role in gifting strategy. Almost two-thirds (62%) consider leveraging family wealth to affect society a top priority.
Advisor relationships: Increasingly, families now utilize a primary advisor who serves as the “quarterback” to coordinate and execute their investment and wealth transfer plans and serve as the point person with other advisors. This was the case with 42% of the survey participants. Families used multiple advisors to diversify risk and gain access to unique investments. Generally, the older generation was happier with advisors than the next generation. Change is coming specifically for wealth transfer advisors: one-quarter of the older generation family members said they would most likely replace a wealth transfer advisor in the next two years, while 62% of next-generation family members were highly likely to do so.
Women and wealth concerns: Major differences existed between men and women in their attitudes toward wealth. Next generation women were more concerned than their male counterparts that their wealth would complicate their relations with spouses/partners, friends and colleagues. 79% said they were highly concerned, compared to 22% of men. Women also worried more about being targeted by unscrupulous people: 50% were highly concerned vs. 28% of men. 43% of women were very worried that their wealth would be mismanaged, compared with 22% of men. Three-quarters of the women in the study were highly concerned wealth would affect their children’s relationships with spouses/partners, friends and colleagues. Only 35% of the men were worried about this and about one third (34%) were not worried at all. Fears of the unscrupulous preying on their children weighed on the minds of 56% of the women compared to 39% of the men. Women accounted for 38% of the survey sample.
About Morgan Stanley Private Wealth Management
Morgan Stanley Private Wealth Management (www.morganstanleyindividual.com/pwm/) provides highly customized financial advice, investment solutions and brokerage services to individuals, families and foundations with $20 million or more in investable assets.
As Morgan Stanley’s premier service for individuals and families with significant means, Private Wealth Management specializes in providing clients with custom-tailored financial solutions and a level of sophistication and access to expertise and investments typically reserved for large corporations, financial institutions and endowments.
About Campden Wealth
Campden Wealth (www.campdenwealth.com), founded in 1987, provides education, news, research, conferences and other networking opportunities to principals of ultra high-net-worth financial and business-owning families, and the family office executives and trusted advisors who serve them. Campden produces global conferences and proprietary research serving the ultra high-net-worth, multigenerational family community, as well as Campden FO (Family Office) and Campden FB (Family Business), two market-leading magazines and websites that inform this highly targeted audience. Campden Wealth is a global business with offices in London, New York and Singapore and is the parent company of the Institute for Private Investors (IPI) (www.memberlink.net).