Welcome to our series on “Generational Wealth Planning”. In this edition, we will further our discussions around the “7 Ages of High-Net-worth Individuals (HNWI) and Family” and our focus would be on Age 4: Young Person, Diversifying Investments (ESG/digital assets), Managing Super Luxurious Assets, Marriage/Divorce. If you missed our previous edition, you can access it here.
Great power they say comes with great responsibility. This is not only true of great power but also significant wealth. With significant wealth comes an even greater responsibility of effective stewardship and management that ensures its preservation through generations.
In the world of generational wealth planning, age 4 marks a significant timeline for High-Net-worth Individuals (HNWIs) and their families. At age 4 high-net-worth individuals (HNWIs) and their families are usually focused on the future financial security of the young persons who are typically in their late teens or early 20s. The considerations that comes to fore involves diversification of investment portfolios, management of super luxurious assets while also keeping an eye on major life events such as marriage or divorce.
Investment diversification is a critical aspect of generational wealth planning and one of the ways young HNWIs are diversifying their investment portfolio is through environmental, social, and governance (ESG) investing. According to a report by UBS, 85% of HNWIs under 40 have expressed interest in ESG investing, compared to 66% of those over 60. The report also noted that ESG investing is expected to become more mainstream, with millennials and Gen Z driving the trend., particularly for young people who are just beginning to accumulate wealth.
Diversification is investing in multiple assets as a means of reducing risk. As young persons with family wealth come into themselves and are making their marks in the world and understand more about how the world works, they may decide to diversify the investments of the family. Diversification can be easier if the family’s social goodwill, business strength, and government relations are taken advantage of.
Most often than not, this diversification may be led by the next (rising) generation who want to stay in the family business but not the exact business started by their Patriarch or Matriarch.
Diversification by younger persons in the family business may also be a way for them to cut their teeth in business, be a growth engine for future generations and incorporate the younger generation into the family business. This can be done by seeking opinions, and new products/services from the younger people.
Sustainable investing is also needed to tackle social and climate change and this is the greatest commercial opportunity of this age. Almost 30% of wealth holders are presently targeting investments that support the economy transition to low/zero carbon (emissions). There are investment case for sustainable investments and impact metrics are being implemented to support same.
Another investment avenue that young persons are exploring actively is digital assets. Digital assets, blockchain driven technologies such as cryptocurrencies, NFTs and activities within the Metaverse, have been gaining traction in recent years, and they offer a unique investment opportunity. A survey by Capgemini found that 70% of HNWIs under 40 are interested in investing in digital assets, compared to just 13% of those over 60.
Super luxurious assets, such as yachts, private jets, and artworks, are also assets that young persons at this stage would be utilising and learning more about. Managing these super-luxurious assets can be challenging task, this is because these assets require specialized knowledge and experience. It therefore becomes expedient to develop a plan that includes regular maintenance, storage, and insurance for these assets in order to preserve their value. It is therefore essential that young persons work closely with financial advisors and wealth managers to ensure their assets are adequately managed and enhanced to secure maximum benefits (both personal and economic) on the assets.
Marriage and divorce are common life issues that young HNWIs may also face at age 4. According to a report by the American Academy of Matrimonial Lawyers, prenuptial agreements (other variants are post nuptials, push-nups and separation agreements) are increasingly popular among younger couples, with 51% of attorneys reporting an increase in their use in recent years. Wealthy families and HNWIs must consider how these events can affect their wealth and work with their advisors and legal professionals to develop a plan that preserves their assets and interests.
In summary, age 4 is a critical stage for young HNWIs. Not only do they begin to diversify and pursue sustainable and social impact investment portfolios, manage super luxurious assets, they also prepare for major life events such as marriage or divorce. Hence, it is important to work with advisors and experienced professionals to navigate this age.
We hope you found this edition insightful, and we look forward to continuing our discussions in the next edition where we will focus on Age 5: Middle Age, Succession Planning and Operating Businesses.
References:
- “Investor Watch: UBS Investor Watch Pulse Report,” UBS, 2021.
- “World Wealth Report 2021: Global High-Net-Worth Individuals Wealth Growth,” Capgemini, 2021.
- American Academy of Matrimonial Lawyers.
We would be examining the other Ages of High-Net-worth Individuals (HNW) and Family in subsequent editions of this Newsletter.
In the meantime, our following newsletters will be insightful to you:
- Generational Wealth Planning – Operational Insights In Utilizing Trust
- Generational Wealth Planning: Use Of Trusts
- Professionalizing the Family Business
As part of our Private Client services, we have experienced Trust and Estate Planning Advisors ready to assist you to develop an estate plan that protects, preserves and sustains you and your family’s wealth for generations.
Get in touch with one of our professionals today by sending a mail to contact@fiduciaryservicesltd.com
