Responsibility in wealth: HNW research on wealth management practices

Responsibility in Wealth

The Kaiser Partner Special Report SeriesIssue #1/June 2012

With great wealth comes great

responsibility.

Kaiser Partner Privatbank AG Geschäftsbericht 2011

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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.

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.

Introduction

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“Men of genius are admired, men of

wealth are envied, men of power are feared; but only

men of character are trusted.”

When 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.

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.

Executive Summary

* The survey research and analysis for the Special Report Series was undertaken by Scorpio Partnership


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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

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.

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.

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It is an insult to creation if we fail to live with our fellow man

Importance to clientsImportance to advisorsAverage importance

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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.

Society Civic duty Family

CurrentGrowth

CurrentGrowth

CurrentGrowth

Family security28%

Regulations62%

Environment58%

Environment37%

Ethical investing57%

Ethical investing38%

Civil society56%

Civil society36%

Charity47%

Charity40%

Regulations26%

Internationallaw63% International

law24%

Fair business69%

Fair business24%

Taxes59%

Taxes19%

Family security 76%

Family values26%

Family values65%

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?

2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012 (average wealth USD3.5 million).


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1. Question: Are there specific actions you are taking to improve your performance as a responsible wealth creator?


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]

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]

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.

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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.

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.

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

9. Pandemics

10. War and terrorism

Ten drivers of global change

It is not the strongest of the species that

survive, nor the most intelligent, but the

one most responsive to change

If you want to understand the big picture, look first at the detail


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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.

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.

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 fact, two thirds were positive that the drivers of change present long-term opportunities. They are far less focused on the threats. [Figure 4]

1. Question: To what extent do you regard the following global factors as opportunities or threats for your wealth creation?


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Lack of long-termleadership

War andterrorism

4%

6% 21% 29%

10%11% 17% 22%

12% 18% 23%13%

16% 18% 24%11%

11%17%13% 16%16%

13% 21% 16%11% 18%

13% 13% 11%13% 24%

24% 14% 10%15% 19%

13%25% 23% 17% 14%8%

13% 36%

Major threatThreatMinor threat

Minor opportunityOpportunityMajor opportunity

Figure 4: Responding to the drivers of global change

On balance, wealth creators see the driving forces in social and economic change as opportunities for wealth creation rather than threats.

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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.

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]

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.

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?

2. Responses from 250 HNWs in USA, Russia, Germany and the UK, February 2012.

Through my businessThrough my investmentsThrough a charity

Leveraging opportunities Countering threats

Figure 5: Leveraging opportunities and countering threats

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.


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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

Pflugstrasse 10–12, 9490 Vaduz, Liechtenstein

Zollikerstrasse 60, 8702 Zollikon (Zurich), Switzerland

www.kaiserpartner.com

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