May 16, 2012

Ultra-Wealthy Will Transfer $27 Trillion by 2050

Inheritors want to be ‘good stewards’ to family wealth and want to be more involved in investment decisions

Among ultra-high-net-worth investors, it’s estimated that $27 trillion will pass from one generation to the next by 2050, a study released May 7 by Morgan Stanley Private Wealth Management and Campden Wealth found.

The report, “Next-Generation Wealth: The New Face of Affluence,” surveyed 53 families, 73% of which had a net worth of more than $100 million. The “next generation,” those between ages 20 and 49, represented 45% of respondents.

Most next-generation respondents (79%) consider “being a good steward” of their families’ wealth very important, and the survey found many wished for more involvement. Unsurprisingly, older members of the next generation were more involved with their families’ investment decisions than younger members of the same group and were more satisfied with the outcomes. Eighty-four percent said they were happy with their families’ plans for wealth transfer. One-quarter of those between 30 and 39 said they were unhappy with their families’ investment decisions and 43% said they did not agree at all with their families’ plans for wealth transfer.

The report found next generation respondents are already working to build their own wealth. Thirty percent have “significant wealth of their own” and 17% are involved in entrepreneurial ventures.

Twenty-nine percent of older respondents said they built their wealth on family wealth. In fact, 60% said they planned to leave “substantially all of their wealth” to their children. By comparison, just 44% of the next generation said they planned to do the same. Less than half of the next generation said wealth re-creation was very important to them and 28% said it was of little importance.

When it comes to managing their wealth, 19% of parents from the next-generation group and 18% from the older generation agree that wealth management should be left to the experts, while their children focus on their careers. Over half of the older-generation parents said their children should find a balance between managing wealth and focusing on their careers. None of the respondents said they wanted their children to focus solely on managing the family wealth.

Despite their high level of wealth, most respondents said they took an informal approach to educating their children about money, focusing on budgeting, asset allocation and getting to know advisors. Nearly half of the next generation look to advisors for education. The report noted wealthy families frequently use a primary advisor as a “quarterback” to execute plans and coordinate efforts between other advisors. Philanthropy is a popular way for families to teach their children about wealth. The report found 73% of next-generation parents and 56% of older-generation parents use philanthropy to teach about wealth.

“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,” Douglas Ketterer, head of Morgan Stanley Private Wealth Management in the United States, said in a statement. One implication of the findings for advisors, Ketterer said, 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.”

As usual, men and women showed dramatically different attitudes about wealth. Nearly 80% of next-generation women were concerned about how wealth would affect their relationships. Less than a quarter of men shared the same worry. Half of women were worried about being targeted by unscrupulous people, compared with just 28% of men. Mismanagement of wealth is another fear for women (43%), while just 22% of men shared that worry. 

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