Many wealthy families living off their investments are returning to active business operations, impact investing or philanthropy, as they feel they lack of purpose, a new report says.
The meaning of wealth in the 21st century: unlocking the secrets of wealthy families, conducted by Withers and Scorpio Partnership, sought to find whether the wealthy are focused on wealth generation, preservation or the application of their wealth.
Based on qualitative interviews, the report questioned wealthy individuals from Europe, Asia and the Americas, with a net worth anywhere from $30 million into the billions.
It made a distinction between families that own a business and those that have sold out of their business activities and are focused on investment.
“In a financial family the business is the money: its management, its stewardship and its division,” the report said.
The report found there is an increasing recognition of the importance of “purpose” when it comes to the creation, control and distribution of wealth, and many families felt they were lacking this if they were focused solely on investments.
It said some financial families had attempted to return this purpose to their wealth by creating mission statements, having formal governance strategies, leadership training and education. Others have used their wealth to establish new family-owned enterprises, or engage in philanthropy or social investment.
One high net worth individual from a financial family, quoted anonymously in the report, said they “pine for a business that makes stuff”.
“If you are a financial family, you can just clip a coupon – and the question is whether that is enough for you?” the wealthy individual said.
The report also pointed out that business-owning families can be more cohesive because they have a common focus that brings everyone together, and this is often lacking in financial families.
Withers partner Sarah Cormack says: “For many wealthy families, we found that simply having large amounts of money to invest is not enough to provide purpose and cohesion to the broader family group.”
“Once the decision has been made to sell out of the family business, what you’re left with is something more intangible,” Cormack says. “There is no ‘stuff’ being produced, people aren’t necessarily working in the family business because the family’s business has become investing.”
Cormack says financial families may lack the original common goal of the family business, and the nature of financial investments means they are very easy to divide among individual family members, more easily allowing them to each go their separate ways.
In order to return cohesion to the group, many financial families were re-establishing a sense of purpose by returning to money-making enterprises, or participating in philanthropy or impact investing.
“Many wealthy individuals feel a personal need to give back to the communities and societies that have supported them on their way up,” Cormack says, adding that this wasn’t just through philanthropy, but also social investment and impact investing.
“There is a positive sense of the pioneering spirit among those who are active in this field amongst wealth creators” the report said, adding high net worth individuals can “afford to risk a little trial and error”.