The great intergenerational wealth transfer is already underway and will be unprecedented in history. By 2045, over $72.6 billion will be passed down from capital founders to their heirs.
However, here’s a hard pill to swallow: statistically, an average HNW family loses more than 30% of their fortune during the wealth transfer.
The findings are from Owner.One’s ‘Penguin Analytics’ reports. It is one of the largest studies on issues related to wealth transfer in HNWI and UHNWI target groups.
Anticipating Significant Losses
Owner.One’s research team conducted surveys with over 13,000 high-net-worth individuals from 18 countries and conducted more than 200 in-depth interviews and focus groups.
The outcomes, unfortunately, are rather stark:
- 36% of capital founders anticipate a potential loss of 10% to 50% of their wealth during the transfer
- 79% of capital founders believe that it won’t be possible for family members to comprehend information about family assets and capital.
The obtained data significantly broadened the understanding of the reasons behind the main problem: why high-net-worth individuals tend to incur greater losses than others during economic downturns, upheavals, and intergenerational wealth transfer.
The Great Blind Spot
Here are the key wealth management patterns that were discovered during the research. These patterns have resulted in anxiety, worries, and low expectations for successful wealth preservation and transfer.
The paradox is that HNWIs, in general, have an insightful understanding or are purposefully aware that the picture is not perfect for future asset transfer. For example:
- Capital founders are willing to part with 25-50% of their wealth in exchange for the assurance that the rest will be passed on to their successors.
- 48% of them consider it impossible for their family to inherit rights to the capital and assets.
- 68% of hnwi find information about storing and disclosing asset information to family members stressful. Only 6% have either established or are in the process of developing a wealth transfer plan.
- 85% do not share any data about their assets with family members at all.
The data reveals a significant level of immaturity among the new families and individuals. Once they assess the issue, they sharply and wisely recognize its importance. However, no action is being taken afterward. The great blind spot continues to obscure future risks.
It’s possible that the lack of suitable services and tools to rely on leaves high nets with room for anxiety and encourages procrastination.
The Lack of Tools and Procedures for New Money
Old money has successfully established routines to preserve wealth within and between generations. For wealth structuring purposes, they opt for family trusts and offices to handle all the duties related to wealth transfer issues.
Reasonably, this might be the first choice for him to consider. However, the research has revealed that high nets are not yet ready to venture into these waters to safeguard their capital.
On the contrary, capital founders’ behavioral patterns show a certain degree of apprehension towards established corporate entities that provide services of that kind:
- The overall penetration rate of family offices and trusts among hnwi stands at 0.45%.
- Even this half percentage, in fact, manages to cover only 30.5% of the capital of high nets that decided to use trust and family office services.
- The remaining 99.55% are not covered by these services at all.
The research discovered two key factors that play a significant role in high-net-worth individuals’ decisions not to engage with traditional wealth management institutions:
- Family offices primarily cater to the needs of super-wealthy families, making the entry threshold unacceptable for him.
- Fully delegating the information flow from third parties to family offices is impossible, resulting in no reduction in the founder’s time and energy commitment. Capital founders become overly dependent on specific specialists, which becomes especially problematic during staff turnover.
Accept and Prepare for the Unexpected
If the pandemic, financial crises, and geopolitical turmoil have taught us anything, it’s the value of being prepared and planning for the unexpected.
In the life of every family founder, wealth transfer occurs only once. After it starts, whether expected or unexpected, there’s no going back to make corrections. The success of this transfer is determined long before the actual wealth transfer takes place. The key decisions to make it successful are outlined in the Owner.One report.
