Self-made HNWIs show highest levels of trust in their children to manage their wealth

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INTERNATIONAL. When it comes to passing on wealth, 35% of global high net worth individuals (HNWIs) do not trust their children or stepchildren to protect their inheritance, says the latest report in the Barclays Wealth Insights series.

The report ‘The Transfer of Trust: Wealth and Succession in a Changing World’, launched this week is based on a global survey of more than 2,000 high net worth individuals. It provides an in-depth examination of wealthy individuals’ attitudes towards wealth transfer and succession planning, as well as offering insight into what the future holds for the next generation.

Interestingly, it also looks at how wealth in many cases can act as a double-edged sword, leading to distrust and conflict.

Globally, developed countries display higher levels of uncertainty when it comes to trusting their children and stepchildren to look after their wealth.

Respondents in the Middle East (78%), Africa (77%) and Latin America (75%) show high levels of trust in their children and stepchildren when it comes to money management and protecting their inheritance, when compared to Australia (59%), North America (61%) and Europe (62%).

Global regions showing the highest level of trust in children and stepchildren

1. Middle East (78%)
2. Africa (77%)
3. Latin America (75%)
4. Asia Pacific (69%)
5. Europe (62%)
6. North America (61%)
7. Australia (59%)

Of all those surveyed, 29% of global wealthy believe that inheritance places an “unnecessary burden” on the next generation, with respondents in India (50%), Latin America (44%) and Hong Kong (38%) showing the highest levels of agreement with this.

Some 35% of respondents in the UK and the same number again in Ireland also share this view, bringing to life the concerns parents have when it comes to wealth and succession.

Rory Gilbert, Managing Director and Head of Middle East and North Africa for International Private Banking at Barclays Wealth, said: “This report provides an in-depth study into the attitudes of high net worth individuals towards succession planning.

Regionally, 90% of Middle East respondents place a high priority on setting up a trust fund for their children to secure their future. However, when it comes to seeking professional advice in developing an inheritance plan for their offspring, respondents are evenly split on their views.

“Understanding options for succession planning in advance, and seeking professional advice can provide confidence that your wealth will be wisely managed in the future.”

Globally, parents want to pass on their material wealth to their children, as well as a roadmap for a happy life, but the report reveals some interesting paradoxes about inheritance and succession.

Source of wealth is seen as a key determinant of financial happiness, with earned wealth much more likely to result in happiness than inherited wealth. However, wealthy respondents remain committed to passing on their wealth, with 96% of global respondents intending to do so.

However, an unfortunate drawback of wealth is its ability to cause conflict – and in the context of succession – family conflict. The report reveals that 40% of global wealthy have had direct experience of family wealth leading to disputes.

This figure was highest amongst respondents in India, with 61% of those surveyed stating that they have encountered family conflict due to wealth, a sentiment echoed by respondents in Singapore (53%), Hong Kong (51%) and Monaco (51%). Conversely only 11% of respondents in Qatar said that they have experienced family tensions as a result of wealth.

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Amongst global respondents, the report reveals that those with higher levels of wealth of more than £10 million (44%) and those that have inherited their wealth (46%) are more likely to have experienced such conflict. Yet the reverse rings true for earned wealth, as those with a higher income are less likely to find that wealth causes conflict.

Globally, 43% of respondents earning a salary less than £100,000 cite that they have experienced conflict due to family wealth, compared to only 37% of those earning over £500,000.

The report also shows that those with more children are also less likely to encounter such disputes over family wealth. Globally, 47% of respondents with no children state that they have seen wealth lead to family conflict, as opposed to 32% of respondents with four or more children.

Catherine Grum, Director, Wealth Advisory, Barclays Wealth commented: “In the case of wealth that has been inherited, tensions around entitlement may lead to disputes.

However, it is surprising just how many wealthy respondents report experiencing such conflict and the impact that source of wealth can have on this, with wealthier respondents more likely to have encountered such conflict.”

Despite all the potential conflicts associated with succession and wealth, the report shows that the world’s wealthy remain committed to passing on their assets to the next generation, with only 4% of global respondents believing that this should not be the case.

Globally, 60% of respondents say that they require a significant level of professional advice when deciding on an inheritance plan for their children and stepchildren, emphasising the need for expert advice to guide them through this decision-making process.

The report found that 70% of global respondents believe that when it comes to wealth transfer, assets should be divided equally amongst their children.

The report also explored what the global wealthy perceive to be the major challenges facing the next generation, and what they can do to best prepare for success in the future.

“Economic turbulence” is ranked as the biggest challenge facing the next generation, with 56% of global respondents expressing anxiety over the future of the economy.

This is a consistent concern across all surveyed regions, reflecting the scale and intransigence of the global economic problems we currently face. It also links to the third most cited concern, “employment opportunities”, which is also deemed as a worry across the globe.

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Top five challenges for the future

1. Economic turbulence/inflation/rising taxation (56%)
2. Caring for ageing populations (52%)
3. Employment opportunities (51%)
4. Climate change/environmental issues (38%)
5. Rising education costs (22%)

When it comes to the skills that the next generation need to equip themselves with in order to be successful in life, global respondents advocate technical subjects, such as IT/Technology (68%), Science (59%) and Maths (54%), rather than Humanities and the Arts.

The global wealthy also have clear ideas on the languages that the next generation should learn. The rise of China and the country’s significance for future generations is revealed in the fact that 69% of respondents believe that Chinese – specifically Mandarin – is the most important language for the next generation to learn.

Overall, respondents thought that Chinese was marginally more significant than English, with 68% of global respondents believing English to be an important language for children to learn.

Catherine Grum, Director, Barclays Wealth continued: “The report has found that wealth is not the only thing that parents can pass on to their children. Sharing insight into what the future holds, imparting advice on what it takes to be successful, and the skills needed to equip younger generations to achieve their goals in life are also important to them.

Respondents are aware of the growing influence of China and the globalisation of industry and are keen for the next generation to capitalise on this to give them the best chance in life.”

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