Mandell Crawley, Head of Private Wealth Management, shares how to preserve and grow wealth while achieving other legacy goals.
Our work demands close attention to the shifting needs of ultra high net worth individuals in an evolving world where wealth creation is rapidly expanding and diversifying.
When it comes to steering wealth that spans generations and continents, ultra high net worth individuals face both exceptional challenges and exciting opportunities when considering their legacy. The ever-shifting dynamics of wealth creation—the "who," "what" and "where" of our client population—require us to constantly evolve and improve the way we work.
Personal wealth management is closely intertwined with business activities, and we serve both families and foundations across the globe. Billionaire wealth declined slightly in 2018 because of trade tensions, a slowdown in global growth and a late-year slump in equity markets. This impact was felt most in Asia-Pacific, but there was a modest expansion of the billionaire class in the Americas (+1%), including a 3% increase in North America. Most of this growth is driven by young entrepreneurs, particularly in the tech space, who are creating wealth early in their lives. Rather than rest on their laurels, these innovators prefer to seek out next ventures, requiring close coordination with our colleagues in Capital Markets and Investment Banking.
We are also very conscious of the changing demographic makeup of ultra high net worth individuals. Last year, after Forbes added to its global list 259 new billionaires across 35 countries and 18 industries,1 billionaires in Asia outnumbered those in North America for the first time ever.2 Women account for one out of every eight global billionaires, and that portion continues to rise as women are increasingly likely to have created their own wealth. Today, women are a larger wealth management market in the U.S. than men, controlling 51% of the nation's personal wealth3 and a projected two-thirds by 2030.4
We are currently in the middle of the greatest wealth transfer in history: from the baby boomers to Generation X and millennials. Over the next 30 years, $30 trillion will be passed on to heirs and charities,5 creating new demands as generations with different priorities interact. As a firm, we have invested a tremendous amount in our digital and cyber capabilities to keep up with this windfall to individuals who embrace technology, and its resulting improvements in convenience, transparency and communication.
Millennials regard wealth management in a different light than their parents. They are increasingly focused on environmental and social outcomes in the businesses they support, the careers they choose and the investment decisions they make. They are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes, and 84% of millennials view investing with ESG impact as a central goal.6
Today, women are a larger wealth management market in the U.S. than men, controlling of the nation's personal wealth and a projected two-thirds by 2030. 4
But this increasing interest in positive social change is not limited to millennials. Philanthropy is on the rise among ultra high net worth individuals generally, and the focus is on investments that solve the root causes of societal problems rather than address symptoms alone. Over the last eight years, the number of families that have signed the Giving Pledge, a vow to devote at least half of their net worth to charitable causes, has quadrupled to 190, with family members ranging in age from their 30s to their 90s and hailing from 22 different countries.7 Ultra high net worth individuals most often manage these commitments like they would business decisions, with well-defined metrics for success and active strategic contributions—an approach especially resonant among young people, who lead what has been dubbed the new "Golden Age of Giving." We are proud co-hosts of the Social Impact Exchange, a two-day program that promotes cross-sector collaboration, through philanthropy, impact investing and systems-change strategies, to guarantee our clients can achieve whatever charitable legacy they hope to leave behind.
The ultimate owners of this legacy, of course, are the next generations, and many affluent families wonder what steps they can take now to ensure they will achieve their ambitions over the long term. The lack of control inherent in this situation, or fears that children are not prepared to inherit wealth, can create needless mistakes in estate planning. One of the biggest of these is letting the "tax tail" wag the dog: Families chase tax savings without considering the nontax impact on asset allocation, estate-plan objectives and family dynamics, or even the ongoing cost and administrative demands of setting up tax-driven structures like trusts and partnerships.
Estate plans are often mired in complexity through the use of tax-favored jurisdictions and the targeting of multiple objectives—to the ultimate detriment of the family. And the natural discomfort in sharing financial information with children can create failure points as well, the same way a CEO can fail at leadership by keeping a firm's strategy a secret. It is essential to communicate about an estate plan and explain why it is in place and what needs to be done to ensure its success. No investment return can compensate for bad behavioral outcomes.
By communicating openly, affluent families can establish a coherent set of values that will stand the test of time and recognize the emotional issues that unconsciously drive planning decisions. Children and grandchildren may feel aggrieved if they weren't privy to the true nature of the family's wealth before receiving it, or they may be disengaged from the family foundation if it focuses solely on the issues important to previous generations. There are also more specific questions around inheritance—such as prenuptial agreements or the splitting of an estate between children of very different independent means—to factor in.
As James Gorman, Chairman and CEO of Morgan Stanley, has stressed, "Our DNA, our culture and our history are rooted in serving our clients." My takeaway is that no matter how well we serve our clients at Morgan Stanley, there is always room and necessity to grow and improve. This has always been our commitment, and we pledge to stay true to it as we continue our work into the future.
At Morgan Stanley, our team of elite practitioners focuses on three pillars of value for our clients - financial, family, and social capital.
We provide deep talent, insight and expertise to help clients preserve and grow their investment capital. We have a history of staying in the middle of the investment debate across global markets. We have an extraordinarily open investment platform, where we seek to bring to the table the best investment capability from across the industry.
We help our clients deal with the complexities that span tax, trust, estate planning, and, most importantly, family dynamics, governance and wealth education for the next generation.
We assist our clients with the development and execution of their philanthropic mission to fully optimize their giving strategies.