Why the Great Wealth Transfer Will Change Philanthropy
By Mary Rose Gunn, CEO of The Fore
The great wealth transfer is usually discussed in terms of the amount of money that will move from one generation to the next. Over the coming years, enormous levels of wealth accumulated by the baby boomer generation will pass to children and grandchildren, creating a major shift in ownership across property, investments and private businesses. The financial implications are significant, but the more interesting question is how the expectations attached to that wealth will change.
Younger generations are inheriting in a very different social environment to the one in which much of that wealth was created. Questions around inequality, climate change, social mobility and access to opportunity are increasingly part of the way families think about wealth.
At the same time, those who inherit significant assets may find themselves under greater scrutiny from peers and wider society, particularly as the gap between those who inherit and those who do not becomes more visible. The result is likely to be a much broader conversation about what wealth is for, rather than simply how it should be preserved.
This has important implications for wealth managers. Twenty years ago, many clients would have judged an adviser primarily on their ability to protect and grow financial assets. That remains fundamental, but the role is becoming more holistic. Advisers increasingly need to understand what a client wants their wealth to achieve across their lifetime, for their family and for the causes they care about. Helping somebody live a good life can mean managing investments effectively, but it can also mean helping them use their resources in ways that reflect their values.
Philanthropy is becoming an increasingly important part of that conversation. Many wealthy individuals already want to create positive social impact, but the range of options can make getting started difficult. Traditional charitable donations now sit alongside impact investing, social investment, donor-advised funds, foundations and a growing number of other structures. For somebody who has spent decades making commercial investment decisions, philanthropy can appear surprisingly difficult to navigate because the measures of success are different and the available information is often less familiar.
We see this regularly at The Fore. Philanthropists want to understand what their funding will achieve, how progress will be measured and whether the organisation they are backing has a credible plan. That does not mean every donation needs to resemble a financial investment, but the underlying discipline is similar. A clear objective, strong leadership and good evidence can give funders the confidence to provide capital more flexibly and over a longer period. Unrestricted funding, for example, becomes much easier to understand when it is viewed as investment in an organisation’s ability to grow, adapt or become more resilient rather than simply as money without conditions.
The demand for evidence is particularly important because many philanthropists come from business backgrounds. They are accustomed to understanding return on investment and naturally want to know whether their money is creating meaningful change. Good impact measurement can show both the scale of the problem and the progress being made towards solving it. The challenge is to provide enough information to build confidence without creating reporting requirements that become disproportionate for smaller organisations.
Philanthropy can also play an important role within families themselves. The great wealth transfer will not simply involve transferring assets; it will require families to make decisions across generations that may have very different attitudes towards money, investment and social responsibility.
Philanthropy provides a useful environment in which those conversations can begin. Families can identify causes they care about together, allocate responsibility to younger members and learn how to make decisions collectively without immediately dealing with the more sensitive questions surrounding ownership of a business or management of a family investment portfolio.
This can make philanthropy a valuable form of family governance. Different generations do not need to agree on every cause, and in many cases, it is healthy for individuals to develop their own interests alongside areas the family supports collectively. What matters is the process of discussing priorities, evaluating opportunities and learning how to reach decisions together. For wealth managers and family offices, helping facilitate those conversations can deepen relationships with both the current wealth holder and the generation that will eventually inherit.
The next generation may also be more willing to accept risk in pursuit of social impact. Venture capital investors understand that transformative ideas often require backing long before success is certain, and some philanthropists are beginning to apply similar thinking to social problems. Ambitious or “moonshot” philanthropy accepts that not every intervention will achieve its ultimate objective, but that does not necessarily mean the capital has been wasted. An organisation may fall short of solving an entire problem while still improving thousands of lives or creating knowledge that enables a better solution to emerge.
This is particularly relevant at a time when governments are withdrawing support from some areas and social challenges are becoming increasingly complex. Philanthropic capital can move more quickly than public funding, tolerate greater uncertainty and back ideas that are too early-stage for conventional investment. Used well, it can provide the risk capital for social innovation. The opportunity for advisers is to help clients understand the difference between taking an intelligent risk for impact and simply giving without sufficient diligence.
There is also a growing appetite among wealthy families to work together. Family offices and individual philanthropists increasingly want to share knowledge, pool resources and learn from peers who are tackling similar issues. This mirrors behavior that investors already understand through co-investment and professional networks. Philanthropy can benefit from the same approach, particularly where no single family has the expertise or resources required to address a complex problem alone.
The great wealth transfer will therefore change much more than who owns financial assets. It will influence how families think about responsibility, how younger generations define success and what they expect from the advisers managing their wealth. Wealth managers who understand philanthropy will be better placed to have those conversations because they will be able to advise not only on how wealth can be preserved and grown, but also on what clients want that wealth to achieve.
The next generation of wealth holders will still expect strong investment performance. However, many will also expect their advisers to understand the wider purpose of their capital. As wealth changes hands, the firms that recognize that shift will be better positioned to support families through one of the most significant transitions in private wealth for decades.
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