Studies and predictions about the transfer of wealth from parents to their children started popping up around the turn of the century. In their 1999 study, “The Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy,” Paul Schervish and John Havens at the Center on Wealth and Philanthropy at Boston College had financial planners scurrying to prepare investment plans to accommodate an estimated $41 trillion that would be passed over 50 years.
For the next several years, investment firms rolled out products that would absorb the wave of assets. I heard about “pre-mortem” consultants hired by children to negotiate with parents ahead of time to make sure everything went smoothly. As in no generation before the assumption was children would receive, invest and spend. When they became older they would then be philanthropic.
After the Boomers take their share the 50-year transfer will have $30 trillion remaining and until now planners and consultants have assumed the pattern will be the same: receive invest and spend. However new patterns are emerging and, once again, the financial experts are having to adjust their strategy.
In the latest “Private Banking and Wealth Management Survey” from Helen Avery at Euromoney, the findings indicate two important changes. First, the survey states that, “This club of inheritors ranging from 20 to 45 years of age is the first to feel little duty to remain with their families’ private banks. Pressure is therefore mounting for banks to adapt to the preferences of the younger generation. Those preferences might end up reshaping the private banking industry as a whole.”
Second, this next generation is not waiting to be philanthropic. They are more aware of social issues and have greater access to information and options for giving. They are not interested in the traditional process of investing first and being philanthropic later. They are looking for firms that have an interest and helpful expertise in their giving. This is quite a reversal from their parents’ way of thinking.
Again, while in the past private banks and brokers would have opened the discussion with their array of investment and management services, they are now starting with their new products and services designed to help with their young clients’ philanthropy.
Private banks have been very good at advising clients how to structure estates and how to set up foundations but beyond that their offerings in the area of philanthropy have been sparse. As one private bank executive put it, “If you want to have access to family investments as a whole you now have to engage them with their philanthropy. We are developing a whole new set of skills we have not had in the past. It’s terrifying sometime because we really have had nothing to offer in terms of advice or how to connect them with people and ideas that match their giving profile and you don’t want to embarrass your bank.”
“Hearing it from other people who have experience is really the only way you learn in philanthropy,” says Paul Knox, head of wealth advisory EMEA at JPMorgan Private Bank. “It means banks have to offer their clients experience shared by peers rather than just advice.”
It will be interesting to see what happens as this generation drives their own changes in the world of inheritance, investing and philanthropy. So far I like what I see.