There comes a time when a family must introduce their children to the wealth that they are to inherit. Succession of wealth is an age-old practice, but as the younger generation who are set to inherit wealth develop and change, so do the ways in which they choose to manage their money.
Within the family, philanthropic involvement is an excellent way of engaging children with wealth, and it’s a well-known fact that millennials are increasingly choosing to invest in ESG, impact or sustainable investments. Philanthropic inclinations tend to be instilled in the next generation by their families early on, and historically, wealthy families used charitable donations as part of the overall means to manage their wealth.
The motivation to make a positive contribution to the world remains the same across generations, yet the strategies and approaches to achieving this are constantly evolving. It’s important to recognise and respect that these nuanced differences exist and to understand how and why next generations approach investment, in order to ensure successful wealth transfer.
Making it personal
Unlike previous generations, today’s millennials are digital natives, global and interconnected, marked by experiences and a sense of collective responsibility. As we know, millennials can focus on social and impact investment, but they also look to diversify their portfolio in sectors that were never previously available to their parents or grandparents. Technology plays a huge part in today’s investment world and millennials want to be on the front foot with start-ups and entrepreneurial ventures. At Sandaire, we partner with Horizons, a network for young investors that runs international meetings with entrepreneurs and start-ups to discuss investment opportunities.
We are seeing a real upswing in the next generation’s appetite for greater personalisation when it comes to their investing. While there is much that defines a millennial, there is also a lot that divides them – and therefore each portfolio requires different attention and focus.
Philanthropy in its traditional form is no longer sufficient for the traditional next generation investor who wants to do more to solve the world’s complex problems, rather than simply throwing money at them. Millennial philanthropists are making themselves more accountable in their social and environmental impact by measuring and quantifying their ESG investments.
As part of a growing technological world, next generations have instant access to information and data that was never previously possible. Through this, they’re able to demand more transparency and accountability in their investing and philanthropic endeavours.
Millennials want to join the movement of whatever focal cause they feel passionately about. Whereas previously wealth holders would write a cheque or transfer the funds, the trend we see most obviously in next generations is the deeper engagement and passion they direct to their investments.
Risk vs. Reward
We’re increasingly realising that millennials are not content with standard ESG or sustainable investments. Instead, they want investments that cater to their individual ethical considerations.
The development of social and impact investment offers the prospect of achieving returns measured in more than merely financial terms. Most next generations do not see a trade-off between financial, and social and environmental returns, and believe they can go hand in hand – a deviation from the previous generation’s thinking and one of the reasons that impact investing has become more of the norm.
Traditionally philanthropy would bridge this divide, for example through investing in financial products for a financial return and then donating to social or environmental charities for a social and environmental return. This line is now more blurred than ever before, as more next generations are motivated to “do good” with their investments than their parents and believe that these two returns are symbiotic.
At Sandaire, we understand that the next generation of UHNWIs are deviating from the traditional approach to where and how their money is invested. With everything at their fingertips, linked through digital technology and travel, investing must become more transparent than ever. Evolving our services and offerings as new generations inherit and changing trends emerge is a complex and fascinating journey, the importance of which cannot be understated.