the generation gap: how uhnw investors feel about wealth transfer

THE GENERATION GAP

How much are families really sharing hopes, fears and expectations? It’s the American dream for people to use their abilities and ambition to build a business, rise to the top of their professions and create a lasting legacy for themselves and their families. As evidence, more than 8.4 million U.S. households have a net worth of $1 million or more (not including primary residence.)1 At the “ultra” end of the market, 55,000 individuals hold wealth greater than $30 million each.2

Clearly, the American dream is working for many. Except for the part about

building a legacy. New research into the attitudes of ultra-high-net-worth

investors has raised flags about effective succession planning and wealth

transfer. As a generation of wealthy investors heads into retirement over the next

20 years, it’s clear that most are better at building wealth than passing it along.

Conducted in June 2011, the SEI Family Wealth and Succession Survey reveals

insights into the attitudes and behaviors of wealthy investors. The survey shows

a disconnect between investor expectations and behavior, and highlights a

worrisome lack of communication about wealth within the family. Many wealthy

individuals hope their financial successes will help their children build a happy

life, but privately worry it will squelch work ethic and ambition. Far too many

have failed to take steps to protect assets and ensure an orderly transfer to the

next generation.

The survey captured attitudes about wealth and succession from a representative

sample of ultra-high-net-worth investors across the U.S. Their average assets

topped $21 million, with an average annual income of more than $800,000.

1 Spectrem Affluent Market Insights, 2011.2 Segmenting the Ultra-Wealthy, Wealth-X, 2010.

“ This is a very significant survey because it provides insights into the beliefs and attitudes of wealthy investors.”

– Jeff Ladouceur, Director, SEI Private Wealth Management

Pessimistic ExpectationsWhen ultra-high-net-worth investors were questioned about the importance of

wealth, it was clear that it’s all about family. Maintaining family security, helping

children become more successful, and providing a quality education topped the

list of goals (see Figure 1).

Those goals make sense, but beg a larger question. Why are so many wealthy

parents pessimistic about their family’s ability to handle wealth? Only about

half of survey respondents said they have faith that the next generation would

successfully create wealth and improve their lives. The remainder said they

thought their children would do so “to some extent” or “not at all.”

One of the more puzzling results came from a question about whether

respondents had “strong expectations” for how family members use inherited

wealth. The results were almost split down the middle with 51% saying they

had strong expectations and 49% saying they did not. It’s hard to explain

why people have relatively low expectations on a topic they rate as so

important—other than worrying about interfering in their children’s lives. As

one respondent put it, “I don’t think it’s my role to give people everything they

need or think they need. I want to create opportunities—opportunities they can

pursue or ignore.”

“ Our children need to be self-driven and independent. We’re concerned about their attitude of entitlement which is unsustainable.”

– wrote one respondent

2%—Children are involved

24%—Spouse is kept fully informed

20%—Spouse is kept somewhat informed

5%—No communications with spouse

28%—No communications with children

15%—Children are kept informed

55%—Children know the basics

51%—Spouse is kept fully involved

32%—Professionals are kept fully involved

28%—Professionals are kept fully informed

15%—No communications with professionals

25%—Professionals are kept somewhat informed

29%

18%

38% FulfillingChallengingUncomfortableLiberatingFrustratingOther

3%

5%

7%

29%

18%


3%

5%

7%

38%

8%8%

46%Have a plan in placeHave done minimal preparationHave done nothing so farOther 38%

8%8%

46%Have a plan in placeHave done minimal preparationHave done nothing so farOther

35%—Help the less fortunate

31%—Buy the things I really want

24%—Have an impact on personal causes I care about

29%—Open new opportunities/experiences

19%—Leaving a legacy

11%—As a barometer of my success

2%—Allow me to meet interesting people

1%—Increase my social status

3%—Other

45%—Educate children

50%—Help children become successful

94%—Financial security









3%—Other
















›› Figure 1: Importance of wealth to you

The Communication GapIt’s worth noting that a majority of these investors hope their wealth makes

their children happy, yet many worry it won’t. More to the point, they’re not

talking about it with their children. Survey results show the wealth generator

in the family regularly confers with his or her spouse, and to some extent, their

financial professional. But they rarely talk to their children, even when grown

(see Figure 2).

›› Figure 2: Communication around decision-making













29%

18%


3%

5%

7%

29%

18%


3%

5%

7%

38%

8%8%


8%8%










3%—Other












3%—Other




























29%

18%


3%

5%

7%

29%

18%


3%

5%

7%

38%

8%8%


8%8%










3%—Other












3%—Other
















For example, 51% said their spouses are “fully involved” in financial decisions,

while 24% keep spouses “fully informed.” Children, on the other hand, aren’t

in the loop. Only 2% are involved in making decisions and 15% are simply kept

informed. The largest group (55%) “know the basics,” while 28% have had no

communications.

When communication does take place, it’s usually informal, described in the

survey as “general family conversations,” as opposed to structured “family

meetings,” or “guided sit-downs with professionals.”

It’s apparent families fail to talk about wealth because the conversation is

often less than satisfying. It ranks among politics and religion as subjects to

avoid. Only 38% percent of respondents described conversations about money

with family members as “fulfilling.” A similar number (39%) of respondents

were far less glowing, describing the experience alternately as “challenging,”

“uncomfortable,” or “frustrating” (see Figure 3).

›› Figure 3: Feeling when involving family members

Hopes and FearsRegardless of expectations, a vast majority of respondents said their greatest

hopes were that their wealth helps to “increase the overall happiness within

the family,” and that their children would “follow their dreams regardless of

financial implications.”

Planning Wealth TransferIt’s reasonable to assume that a lack of communication suggests a lack of

planning. Here, the results are mixed. Forty-six percent of respondents said

they “have a full wealth transfer plan in place,” 38% “have prepared nothing

more than a will,” and 8% said they “have done nothing so far” (see Figure 4).

›› Figure 4: A closer look: your wealth transfer plan













29%

18%


3%

5%

7%

29%

18%


3%

5%

7%

38%

8%8%


8%8%










3%—Other












3%—Other
















“ There’s nothing more important than providing roots and wings for my children—whether there is wealth or not. That being said, having some wealth to pass down is a blessing.”

– a respondent wrote

The Bottom LineWhat’s the message from this survey? Clearly, there is work to do. Whether

someone acquired wealth building a business or climbing the corporate ladder,

he or she got there with hefty doses of smarts, drive and guile. Those same

attributes can be applied to transferring wealth.

The process should start with articulating realistic expectations and then sharing

them with the family. Expectations are rarely met when not communicated. Is the

plan for the children to take over the family business? Or would Mom and Dad

prefer their children follow their own paths? Regardless, wealth owners need

to come to peace with that decision, declare it and share it with their families.

It’s natural for people to worry about the possible negative impact of wealth

on their children. They fear too much wealth will deflate a child’s drive.

It’s not unheard of for the promise of wealth to make the next generation

irresponsible and overly dependent. Those concerns should be articulated.

They are legitimate fears, and not easy to talk about. The key is to strike

a balance between supporting the children without stifling their work ethic.

As one respondent said, “Too much wealth transfer can decrease motivation

but I prefer that my children have less financial stress than I did.”

Finally, for most multi-millionaires, a simple will, by itself, is insufficient for

wealth transfer purposes. Clearly, many investors are doing things right, but

the fact that more than a third of respondents have a will as their only wealth

succession tool, and 8% have taken no steps to formally transfer their wealth,

is disturbing. A lot of money—and family happiness—is unnecessarily at risk.

Based on the survey, past research and working with clients, SEI Private Wealth Management suggests the following: ›› Build a launching pad for success. Successful families spend time

establishing an expectation that the inheritors are accountable to build

upon family success and improve the lives of future generations.

›› Talking about values is not the same as talking about wealth. Parents

often talk about personal values, but don’t raise issues about financial

values. Future generations know they’re affluent but they don’t know how

much, where it came from, or the plan to sustain it. Wealthy families must be

comfortable with the idea that talking candidly about money is not rude, but

necessary, especially if the hope is that the next generation will sustain their

legacies and create new wealth.

›› Estate documents only document the legal transaction and don’t go far

enough. The most successful families establish a framework to help decide

how to educate their heirs about money and when to get them involved in

wealth-creation activities.

The insights offered by the survey participants highlight the challenges of

integrating family dynamics, personal values and financial wealth. More

importantly, they declare an urgency to “get it right” and to transfer both

personal and financial success to the next generation. A comprehensive

wealth transfer strategy or succession plan will help wealthy families get

all the issues on the table and ensure their hopes for their families and

communities are fully realized.

For more information, call 1-888-551-7872 or email [email protected] to reach a team member. To learn more about SEI Private Wealth Management, please visit www.seic.com/privatewealth

SEI Private Wealth Management provides individuals and families with an innovative approach to wealth management. Our approach starts with knowing our clients. To that end, we have sponsored a series of surveys, peer round-table discussions and other work, all designed to uncover and share the insight of wealthy individuals. The Family Wealth and Succession Survey was conducted in partnership with Scorpio Partnership Limited, an independent research firm.

SEI Private Wealth Management, formerly SEI Wealth Network, is an umbrella name for various life and wealth services provided through SEI Investments Management Corporation, a registered investment advisor.

©2011 – 2012 SEI 120843 (09/12)

1 Freedom Valley Drive / P.O. Box 1100 / Oaks, PA 19456

1-888-551-7872

seic.com/privatewealth

the generation gap: how uhnw investors feel about wealth transfer

Economy & Finance