A new research series by Barclays Private Bank shows that building trust and understanding between generations will be key to ensuring the success of wealth transfer among high net worth (HNW) families in the coming years – a matter of growing importance as a result of the pressures Covid-19 has placed on businesses and investments.
With around 25,000 high net worth individuals in Europe, Africa, Asia and the Middle East estimated to transfer US$15 trillion to the next generation by 2030, the passing on of wealth is high on the agenda of many wealthy families.
Barclays Private Bank’s Smarter Succession: The Challenges and Opportunities of Intergenerational Wealth Transfer research, undertaken by global intelligence business Savanta, identified that senior members of global high net worth families have concerns about delegating the management of their businesses and investments, as well as the next generation’s ability and commitment to manage the family assets. For the younger generation, these concerns are resulting in some feeling less prepared to take over, despite having a sense of duty to carry on the family legacy.
The research is based upon a survey of over 400 global HNW individuals with at least £5 million in assets each, in-depth interviews with 20 HNW families and their bankers and intermediaries, supported by independent behavioural analysis.
Rahim Daya, Head of Private Banking, Barclays in the Middle East, said “Family businesses across the Gulf Cooperation Council which have prospered in the past, are facing new challenges as a result of the pandemic and falling oil prices. As wealthy investors steer through the Covid-19 crisis, they are becoming more agile and digitally savvy, seeking the latest insights and bespoke advice on how to diversify, manage wealth and achieve their financial ambitions.
“The pandemic is leading many family businesses to review and reevaluate how they will fund their liquidity, longevity and legacy needs. This means that, as wealth managers, we have a growing responsibility toward our clients, as we try to prepare them as much as possible for this new, post-pandemic, operating environment.”
Wealth originators cautious to handover family business
The research found that almost six in 10 (57%) wealth originators among global high net worth families believe that the younger generation (24 to 39-year-olds), are not currently fully prepared to take over the family business, and 40% in the Middle East compared to 63%globally believe that this millennial generation is not as committed to maintaining the established wealth.
The older generation feel it’s their personal identity is tied to their business successes, having often held a singular authority over the direction of the business and investments, so the majority (67%) are cautious about stepping back and more than a third (35%) are uneasy about the next generation’s potential appetite for taking on extra risk. The research indicates that it is believed younger generations could take greater risks in general, this is particularly true in Saudi Arabia.
The younger generation have a sense of duty to continue the family legacy
In this environment, only 45% of millennials globally currently feel prepared to take over the family business, and an additional 23% feel nervous about the prospect of inheritance. In the GCC, 49% of respondents feel that they are better prepared to run the family business as they have been raised in a business-owning background. In the UAE, Qatar and Saudi Arabia, there is an expectation to take over the family business.
94% of millennials globally stated that they expect to be given that responsibility in the future, and 69% have a sense of duty to continue the family legacy, showing that there is an appetite to take on greater responsibility and develop their experience, skillset and advisory network to take the family and its business interests through the next phase of development.
Effie Datson, Global Head of Family Offices, Barclays Private Bank, said: “The transfer of wealth between generations is an emotive subject for families and one that has risen to the top of the agenda recently, accelerated by the pressures of Covid-19. It is important for families to have open, honest dialogue about their priorities and concerns, and build trust between the generations. Knowing clients’ priorities and concerns enables us to work with them to ensure their legacy is carried on in the best way for all.
“One way we see families successfully transition wealth between the generations is by establishing strong governance within their family office. By clarifying their values, their investment and management principles, and building a shared vision of the future, the family commits itself to an identity that is forward-looking and focused on building a better world for many generations to come.”