Responsibility in wealth: HNW research on wealth management practices


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Responsibility in Wealth - New research from Scorpio Partnership demonstrates that many wealthy individuals have a strong sense of social responsibility and intend to give back to society across a number of touch points including philanthropy, engagement in civil society and being environmentally responsible. This report, which assesses the wealth practices of 250 high-net-worth individuals across 4 core markets, also reveals that this group seek positive engagement with the major driving forces of global change as a way of creating wealth.

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Responsibility in wealth: HNW research on wealth management practices

  1. 1. Responsibility in Wealth The Kaiser Partner Special Report Series Issue #1/June 2012
  2. 2. With great wealth comes great responsibility.
  3. 3. Introduction At Kaiser Partner, we understand that the world is changing faster and more fundamentally than at any time in history, and therefore we believe that we must change the way that wealth is managed and created. The Special Report Series, which gathers the findings from our research centre and wealth owners’ forum, is a publication designed to help wealth owners to navigate on the right side of change, by sharing insights into the threats and opportunities that they face in a fast moving environment. Kaiser Partner Privatbank AG Geschäftsbericht 2011 These assessments help us to constantly adapt our strategies for wealth preservation, growth and succession. For this paper, we asked the views of 250 multi-millionaires in four of the world’s greatest wealth creating economies: Russia, USA, Germany and the UK, and have contrasted their views with those of a number of wealth experts and advisors. In this first report we explore the importance of sustainability and responsibility because, as it is often said, ‘With great wealth comes great responsibility’. In fact, versions of this concept have reverberated through history, from Homer to Hollywood. And, like all great aphorisms, its beauty lies in its simplicity. The potential for social harmony is captured in six simple words. But, as with any doctrine – social or otherwise – it is the practice that is fraught with difficulty. And, in today’s interconnected world, the practice of responsibility in wealth is certainly no simple matter. There is the primary responsibility to self and family, then to community and civil society, as well as to humankind and the ecosystems that support us. Rarely are these responsibilities in alignment and all too often, they clash. In this paper we seek to unravel some of that complexity, and to explore the best approach to taking responsibility in a time of great uncertainty. 3 3
  4. 4. Executive Summary W hen it comes to matters of wealth creation and wealth management, advisors make the assumption that “family comes first”. Their priority is to tailor for the individual client and they tend to consider social responsibility from the perspective of self and family first. Sadly, they may well be missing the whole person in front of them. In this research, 250 multi-millionaires, with average wealth of USD3.5 million, show that they are proactively engaged in responsible wealth creation through their businesses, their investments and their philanthropic activity.* They give almost equal weighting to family, to civic duty and to wider social issues in their approach to wealth creation. And, crucially, they want to do more to be more effective responsible wealth creators. “Men of genius are admired, men of wealth are envied, men of power are feared; but only men of character are trusted.” Richard Dawkins, a British evolutionary biologist famously wrote a book called The Selfish Gene in the latter part of last century. The book crystallised the debate about altruism in the context of family and society from an evolutionary perspective. Almost four decades later altruism remains a troublesome topic to biologists, sociologists and philosophers alike. Yet, the common experience of humankind is the primal need to protect family first coupled with the desire to see wider society thrive. And, while we may not be able to explain it completely, it seems to be something hardwired into our DNA. So, perhaps it comes as no surprise that when we gave our sample of 250 wealth creators a series of options that could be regarded as factors in responsible wealth creation and asked how important each was to them, a clear pattern of altruism emerged. * The survey research and analysis for the Special Report Series was undertaken by Scorpio Partnership 4
  5. 5. It is an insult to creation if we fail to live with our fellow man Family comes first, naturally, followed closely by civic duty to obey laws and regulations. But, on an almost equal footing is the desire to engage in activities that give something back to society – through environmental responsibility, ethical investment, engagement in civil society and charity. It is interesting then to contrast these views with traditional wealth advisors. When asked a similar question, they overestimate the importance of securing the family’s financial future and significantly underestimate the urge of wealth creators toward wider altruism. [Figure 1] Figure 1: Dimensions of responsible wealth creation Importance to clients Importance to advisors Average importance Individuals put similar weight on different aspects of responsible wealth creation, whereas advisors see a hierarchy in the factors that contribute to responsible wealth creation. 10 9 8 8.51 7.83 7 7.19 7.17 6 7.04 6.79 5.64 5 5.57 5.56 5.56 Charitable activity Environmental responsibility Investing ethically Engaging in civil society Paying taxes Obeying industry regulations Conducting business fairly Operating within the international law Ensuring children share family values Securing �inancial security for the family 4 1. Question: When considering wealth creation, how important are the following factors to you / your clients? 2. Client responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012 (average wealth USD3.5 million). 3. Advisor responses from 60 UK-based lawyers and accountants, November 2011. Kaiser Partner Privatbank AG Geschäftsbericht 2011 5 5
  6. 6. Society Figure 2: Achieving potential as a responsible wealth creator Individuals see the most room for growth to achieve their potential as responsible wealth creators on wider issues such as charity, ethical investing, environmental responsibility and engagement in civil society. Current Growth Civic duty Current Growth Family Current Growth Charity 40% Charity 47% Taxes 59% Taxes 19% Environment 58% Regulations 62% Family security 28% Fair business 24% Civil society 36% Family values 65% Regulations 26% Environment 37% Family security 76% Fair business 69% Civil society 56% Family values 26% International law 24% International law 63% Ethical investing 57% Ethical investing 38% 1. Question: How important these factors are to you when considering your wealth creation now, and in which areas do you feel you could do more to achieve your potential? 6 2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012 (average wealth USD3.5 million).
  7. 7. This paradox between self-interest and the interests of society presents a fundamental challenge for the traditional wealth management industry. Their tendency is to tailor for the individual client and only engage with social responsibility from the perspective of the self and family first. And yet, not only do wealth creators put more emphasis on wider altruism than their traditional advisors acknowledge, their consideration for family and their fellow man extends much further than that. When asked what they would do to achieve their full potential as a wealth creator, it is in the realm of wider social engagement that they feel they have most room to grow. [Figure 2] Figure 3: Responsible wealth creation The actions individuals would take to achieve their potential as responsible wealth creators involve making an effort to identify their options, then balancing business and investment with wider social actions. In other words, responsible wealth – in the eyes of wealth creators – is as much about engaging with society at large as it is about protecting one’s own interests. Indeed, it would seem there are three spheres of responsible wealth: self and family, civic duty, and engagement with wider society. In each sphere, the wealth creators who took part in our research highlighted specific actions they would take to achieve their full potential. Their responses point to a desire to do good while making money. [Figure 3] 1. Question: Are there specific actions you are taking to improve your performance as a responsible wealth creator? 2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012 (average wealth USD3.5 million). Kaiser Partner Privatbank AG Geschäftsbericht 2011 7 7
  8. 8. It is because these wider values are so intimately connected to motivation and, indeed, to identity that we put responsibility at the centre of what we do at Kaiser Partner. Wealth creators are investors, but they are simultaneously children, partners, parents, citizens, owners, workers, leaders, humans – and take profound responsibilities in each of these roles. And, if responsibility is the corollary of success, as the history of civilization teaches us, then it follows that our clients inevitably juggle deeply conflicting obligations. From the work-life balance to questions of tax equity and the role of capitalism in society, success brings with it complex choices. When any individual makes these choices there will be an inexorable trade-off between being good, being good enough and being right. These are the tensions at the heart of responsible wealth. It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change So, it follows that responsible wealth management means capturing what matters most to our clients, distilling it and reflecting it back in each of the services we deliver. To do this, we use a simple guiding principle. We call it navigating on the right side of change. As our clients’ lives change, their roles change, society changes and the world changes, our aim is to focus on the right outcomes and on good practice. If you want to understand the big picture, look first at the detail Ten drivers of global change 1. Science and technology 2. Communications revolution 3. Changing energy sources 4. Food sustainability 5. Globalisation 6. Population growth 7. Environmental change 8. Lack of long-term leadership 8 9. Pandemics 10. War and terrorism
  9. 9. Responsible wealth also means walking the talk. To navigate on the right side of change ourselves we too try to look at the big picture. Interestingly, when we asked the 250 wealth creators who took part in our research about these 10 drivers, we found that they are thinking along similar lines. In 2005, with the help of Al Gore, the Nobel Prize winner and former vice president of the US, we distilled from the myriad of forces driving the world just 10 themes. We call these the 10 drivers of global change. In everything we do, our aim is to influence and benefit from positive change in these areas for ourselves and for our clients. In fact, two thirds were positive that the drivers of change present long-term opportunities. They are far less focused on the threats. [Figure 4] Figure 4: Responding to the drivers of global change Major threat On balance, wealth creators see the driving forces in social and economic change as opportunities for wealth creation rather than threats. Threat 13% 6% Changing energy sources 13% 12% Globalisation 11% 16% Population growth War and terrorism 13% 11% 13% 15% 29% 22% 33% 18% 23% 28% 26% 17% 11% 16% 28% 16% 22% 16% 18% 19% 1. Question: To what extent do you regard the following global factors as opportunities or threats for your wealth creation? Kaiser Partner Privatbank AG Geschäftsbericht 2011 37% 21% 18% 24% 25% 36% 38% 11% 10% 17% Food sustainability Pandemics Major opportunity 4% Communications revolution Lack of long-term leadership Opportunity Minor threat Scienti�ic and technology revolutions Environment change Minor opportunity 13% 13% 13% 24% 23% 21% 14% 27% 24% 11% 19% 10% 13% 8% 17% 14% 2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012 (average wealth USD3.5 million). 9 9
  10. 10. Indeed, more than that, when we asked if they are already engaged with these themes, we found our wealth creators are actively and positively influencing the change they see in the world around them. This is good news for us, but it is significantly better news for the planet. If those in the driving seat of wealth creation are optimistic about change – and are engaging in positive change themselves – then we all have less to fear for the future. Around 21% of them are proactively leveraging the opportunities through their businesses and through investment. And, just over 5% are seeking to counter the potential threats to the world from these forces through business, investment and their charitable giving. [Figure 5] Figure 5: Leveraging opportunities and countering threats Through my business A significant proportion of wealth creators are proactively leveraging the opportunities that are being created by the drivers of change through business and investment. Many are also actively countering the threats through their business investment and social activity. Through my investments Through a charity Leveraging opportunities 31% 29% 3% 1% Population growth Communications revolution 2% 2% 1% War and terrorism 7% 6% 8% 4% 3% 1% 3% 5% 8% 5% Pandemics 9% 1% 4% Lack of long-term leadership 4% 6% Globalisation 9% 6% 5% Food sustainability 34% Scienti�ic and technology revolution 30% Environmental change 23% Scienti�ic and technology revolution 20% 9% 5% 11% 6% 4% Changing energy sources 12% 1. Questions: how are you involved in taking advantage of the drivers of change which you consider opportunities or safeguarding against the drivers of change which you consider threats? 10 36% Communications revolution 18% Environmental change Pandemics 16% 29% Globalisation 21% 21% Food sustainability 14% Lack of long-term leadership 13% War and terrorism 10% 14% Population growth 9% 8% 21% Changing energy sources 13% Countering threats 2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012.
  11. 11. So, in conclusion, it is exciting to find that those in positions of wealth and influence are already widely engaged in acts of responsible wealth creation. Although, perhaps it should not be so surprising. It could be argued that there is a genetic imperative to act in the world in ways that are cognizant, ethical and transformational. And so, if we as wealth managers fail to put the values of responsible wealth at the centre of our relationships, then there is a real danger that we will miss the whole person in front of us. Kaiser Partner Privatbank AG Geschäftsbericht 2011 11 11
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