In the past four months, a lot has changed in the world, largely in unexpected or unpredictable ways. No one has been immune to the disruption. As a result, I’ve had some incredibly candid and meaningful conversations with clients. Many of them, rightfully so, feel unsure or anxious, but they are also using this moment to look at things through a different lens. In talking with them, I’ve realized that this time has either accelerated or elevated the importance of three major shifts related to familial wealth—the confluence of which illustrate that families are recasting what their money means and its impact in the world.
This trifecta of influences includes: first, the change unfolding as the anticipated transfer of wealth builds to a crest; second, the new opportunities emerging as research shows how generations differ on the purpose of wealth, and finally, the impact a profound values realignment is having within society. In times like these, money can drive measurable change. In fact, UBS’ just-released Global Family Office Report 2020 shows that 46% of family offices surveyed said the next generation of wealth owners are influencing their family’s investment decisions with the intention to have a positive impact on society. As we realize this shift, it has never been more important for families to engage in meaningful dialogue and action and for people everywhere to be paying attention to how their financial decisions are being made.
Change is Imminent as Wealth Transfers Within Families
We’re now two years into the 25-year wealth transfer period among U.S. families that Cerulli Associates predicted would move $68 trillion to heirs and charity. And even more immediate—within just the next 10 years—37% of next-generation family members are preparing to take over their family wealth. That shift in financial power, rest assured, has ripple effects throughout society.
For many families, the advantage of certain wealth planning initiatives, namely, family meetings, during which relatives align on their values and their family’s mission, were rare as recent as 2018. Talking about money in any sense is hard, and among families it can be especially so. But now, these conversations are beginning to be seen as essential. The push toward having family meetings is experiencing what I call an “iPad moment.” What I mean is this: When Apple first introduced its tablet, I, like many, thought, why would I need that? Flash forward to today, and the truth is I use my iPad more than my computer, and it has really enhanced my life. This is the realization our clients experience with family meetings. With so much at stake, individuals cannot afford to think that estate planning alone, or simply the “wealth transfer,” is enough to prepare themselves and their children or grandchildren for what is ahead. It’s just as important to focus on the “wealth transition,” which includes a discussion about values, heir preparation and the family mission. This is a time for crucial discourse, and what we are seeing more and more is that younger generations are ready to rewrite some deep-seated assumptions about wealth.
Generations are Redefining Wealth’s Purpose, Opening Up New Opportunities
When money moves between generations, preferences change. For instance, younger generations are more likely to pursue sustainable investing opportunities. More nuanced, however, is the new meaning successors impart on their wealth. Recent research shows that when wealth moves from the first generation to the second, the goal becomes less about generating more wealth and more about defining its purpose and legacy. The rising generations also tend to take a more collaborative approach to leveraging their wealth. At a crossroads like we’re seeing in the world today, this approach to wealth management needs to be fostered.
Our global society is not simply disrupted right now; in many ways, it is being redefined. For purpose-driven successors, there is a real opportunity to shape a better future. Where and how families invest their philanthropic capital has always been an important and complex part of the global economy, and the new generation of wealth proprietors are being called upon to chart a different course.
According to Giving USA, Americans give about two percent of GDP—roughly $449.64B in 2019—to charity. However, when those numbers are drilled down, as Dan Pallotta did in his book, Everyday Philanthropist, only 22% goes to human services or social issues rather than religious institutions, higher education and hospitals. Rising generations are changing that. Given all that is going on the world today, I anticipate an even greater focus on new forms of social impact giving.
Families are Realigning Their Values and Driving Societal Impact
These months of global unrest have compelled people to focus inward on humanity and core values. As a result, a new path has opened up for wealth to catalyze incredible societal impact. Leading into 2020, this was already a priority for many families. In the past year, 71% of family offices engaged in philanthropy, giving, on average, $6.4 million, according to UBS. Those priorities are not likely to change. In fact, we are seeing an increase in families looking to put larger philanthropy plans in motion. Doing so has to start with a values-based, self-reflective discussion.
I approach the conversation about values with an exercise called The Purposeful Dialogue. I use a deck of cards that displays words representative of values—words like “power,” “reliability,” “community,” and so on. I ask members of the family to pick out three words that define their guiding principles and one that does not. Then we have conversations about what each person picked and their interpretation of those values. Almost immediately, this becomes an eye-opening dialogue for any group of people who have a shared interest, whether it be a family, a work group or a board of a foundation.
The reason this kind of tactical approach to defining values is so important right now is because communication and priorities have shifted. Change is happening quickly, and money is moving. Like everyone, families have to do the work to be prepared for the challenges—and great opportunities—that are just around the corner. That starts with having values-driven conversations today.
Judy Spalthoff is Head of Family and Philanthropy Advisory Services Americas at UBS.