What are the wealthy worried about? (it’s not tax)

The pandemic has triggered a seismic change in how the world works, lives and travels, and many of us have reappraised our priorities as a result. A recent report by Cazenove Capital provides some insights into what the new priorities are for some of the wealthiest families around the globe.

The emphasis is on safeguarding the family from internal pressures, realising philanthropic aims and preserving the family’s reputation.

Nearly two thirds of those participating in the research consider themselves to be stewards of the family wealth for future generations and using that wealth to help those who have less is a priority for half of respondents.

What is really worrying these families are internal factors which could trigger the dissipation of their wealth:

‘Almost half (49%) believe the biggest dangers are posed by failings and fallouts arising among family members, with respondents ranking as their greatest fear one of the following scenarios: poor family leadership; family conflict leading to a dispersion of assets; a failure to engage with younger family members and poor succession planning.’

External factors, such as geo-political risks, inflation and taxation come much lower down the list. There is widespread recognition that the financial turmoil caused by the pandemic is likely to result in an increase in taxation and the report specifically asked about attitudes to the possible introduction of wealth tax and exchange controls. Only 3% said they were ‘very concerned and have already taken action’, while 13% were ‘not concerned’ and nearly two thirds (64%) were ‘concerned but unlikely to take drastic action’. Interestingly, 71% of those subject to UK tax considered the current tax rates ‘reasonably fair’, and amongst all respondents, ‘association with aggressive tax planning’ is seen as one of the top reputational risks.

The pandemic has also accelerated the focus on ESG investment and supporting social and environmental causes generally. Indeed, unethical investment, along with aggressive tax schemes, is seen as a major risk to the family’s reputation. Over 10% of respondents said they did not expect any returns from their ESG investments and 42% regarded financial returns and social and environmental impact as equally important.

Families are also more likely to formalise their philanthropy and focus on specific causes. 35% of respondents support good causes through their own charitable foundation, while others prefer direct donations, practical ‘hands-on’ help for favoured causes or investing in social enterprises. More than 70% prefer to focus on smaller charities where their contribution will have the greatest impact.

In summary, the report indicates that today’s wealthy families have the future in mind, both the future of the family and the future of the planet, and most are prepared to make their contribution through taxation, an ethical approach to investment and structured philanthropy.