As the global wealth of HNWIs grows, the meaningful transfer of wealth to the next generation becomes crucial. Many private banks are using philanthropy as a way to introduce clients’ children into the concepts associated with inheriting wealth and to integrate them into family structures. John Schaffer finds out more
Go deeper with GlobalData
Philanthropy is perhaps not the first thing that comes to mind when the transfer of wealth to the next generation is being considered. However, with wealth, a myriad of challenges can be inherited – this is especially true if the wealth is underpinned by a family business, where the next gen can often be left confused as to what their role in the family structure may be.
Involvement in philanthropy can often curb the effects of an existential crisis for a child inheriting wealth, where they can throw themselves wholeheartedly into various charitable projects. In this respect, philanthropy can act as a glue to bind a disparate wealthy family together and carry forward any core family values. It is an increasingly popular mechanism to engage millennials, in order to create more sticky relationships and organise family wealth.
Maya Prabhu, managing director of the Coutts Institute at Coutts & Co., says that philanthropy is integral for wealthy families and that it "sits at the heart of what people want to do with their wealth". She tells PBI:
"A family may choose to establish a foundation – it may include family members who are not involved in the business, but are passionate about philanthropy and who can take a leading role in this field. In some parts of the world, it may be the first public appointment that some of the women in the family might take in relation to the family business.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData"It is also a great way to start educating the next gen around family values while also giving them a project to work on that’s philanthropic in nature."
Prabhu suggests that charitable projects can be useful as early business training for children – developing leadership and teamwork skills that they could then use in the future, if they were to take a position on the board of directors of the family business.
Jasmijn Melse, philanthropy advisor at ABN AMRO MeesPierson, also promotes the educational value of philanthropy and says that involvement can help the next generation to learn about the mechanics of wealth:
"A lot of families are worried about whether the next generation are capable of managing wealth and whether they have enough knowledge of asset management. I think getting involved with a family foundation creates a safe learning environment for the children."
"For example, last year I was involved in a gathering with a family of seven children. They set up a family foundation to help less well off children and called it their "Ace child" – so they essentially saw it as an additional child. The family’s only grandson, who’s now 23 years old, really took the lead in the foundation. His parents saw him growing fast – learning about government structures, asset management and how to use money in an impactful manner."
Bursting the "bubble"
Rebecca Eastmond, managing director of the philanthropy centre at JP Morgan, says that a primary concern for wealthy families is that their children do not grow up in a "bubble". She says:
"Our clients want to ensure that their children grow up understanding that wealth gives them more ability to do well in the world, and to become well rounded and more capable human beings – rather than the horror stories that you read about children going off the rails."
In order to mitigate against potential "horror stories", JP Morgan engages with children from as young as eight-years of age, encouraging them to get involved in small charitable projects.
"We put together a programme that gives young children ways of using small amounts of money to get involved with their community. The results of the small things that they’ve done mean that they’re now raising money in their school for local projects and really understand what’s happening in the community around them," Eastmond says.
ABN AMRO’s approach to engaging young children via philanthropy also develops potential business acumen. Children are given a small budget and are required to research different charitable projects, they then present the idea to the family and the best pitch is subsequently chosen.
The desire to escape the wealthy bubble can often be driven by children themselves. This is especially true if a child feels an element of guilt as an inheritor. Prabhu, Coutts, says:
"It’s quite complex if you’re an inheritor, if you think about the emotion and psychology behind it. We see a whole range of views from young people: I have nothing to do with this money; I’ve not done anything to create it; I feel guilty that I have it; I’ve won some sort of birth lottery; what’s this got to do with me?
"They’re uncomfortable with being wealthy, and therefore philanthropy is a great way to give meaning to their wealth and to help develop their comfort around it."
Making a difference
Eastmond, JP Morgan, adds that using wealth for "making a difference" is a key focus for the next gen.
"Last year we ran a couple of events that were specifically for our next gen client base. At one of these, we had quite a large group of people in their 20s, so I did a straw poll to understand what their wealth was for. Around a third said that their wealth was for making a difference in the world, which is really interesting. It wasn’t about giving back (which was an option), and it wasn’t about building additional wealth."
Eastmond also suggests that the younger generation is taking a different approach to giving than their parents.
"They care more about global themes than their parents. Younger donors are much less focused on local community issues and social cohesion, and are more focused on the gap between rich and poor.
"Poor standards of education are key topics for both generations, but corruption, climate change and global poverty are big themes for the under 30s. Over 45s are more interested in community break down, older people’s welfare, religious tension and children’s welfare.
"We also see amongst our clients that the younger generation want to be more hands on and personally involved than their parents," adds Eastmond.
