Understanding the ultra-wealthy

Banking & Finance
| The European | 18th July 2019
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Unfair stereotypes do an injustice to those with vast wealth. Leonardo Braune, founder and Managing Director of Intercorp Group, paints the real picture 

There has long been a sense that ultra-high-net-worth individuals (UHNWIs) are shrouded in mystery. Because many of them choose to keep their affairs private, there tends to be a lack of understanding about how they lead their lives, spend their money, and what matters to them most.

This is understandable, but the lack of clarity can leave a vacuum, which ultimately gets filled with distortions, empty speculation and myths. Meanwhile, the common stereotypes attached to them tend to apply only to a small number.

Contrary to what people may think, not all UHNWIs inherited all their wealth, and not all pursue a life of endless luxury. Additionally, some high-profile revelations in recent years – such as those contained within the Panama Papers – have created the impression that all wealthy people are engaged in nefarious activities or are unwilling to pay their fair share. This too is far from the truth. A recent economic analysis revealed that the richest 100,000 individuals in the UK contributed 20% of the total income and capital gains tax in the year 2016/17.

We often hear about the myths surrounding the ultra-wealthy, and it is important to dispel those myths. However, it is equally important to understand how they think about their wealth and recognise their priorities. When we look at the unique circumstances their wealth puts them in, it becomes easier to understand the complexity that underpins their decision-making.

Capital preservation and the economic climate 

Despite the prevailing narrative about the ‘1%’ – that they are immune to economic cycles and unaffected by the tumultuous political climate – UNHWIs have many things to consider amid such circumstances. While the challenges they face might not be the same as those confronted by ordinary people, there is a myriad of deeply complex matters that external events impact, and UHNWIs have to invest in attending to them in the most careful way.

These range from their asset portfolios and investment options, through to their family plans and where they want to live, as well as how to properly manage the multiple tax rules their families and assets are exposed to. For this reason, they often need to rely on special counsel to develop bespoke solutions across disciplines – from legal and finance through to immigration – to develop strategies that address every issue in a unified way.

Creating a legacy and family values 

What often gets overlooked is that wealth preservation is not an end in itself. What ties these considerations together is the understanding that, for most UHNWIs, wealth preservation is a means of ensuring the security, prosperity and wellbeing it affords, remains for the people who matter to them most.

For instance, some who earned their wealth from relatively humble beginnings often want their children to fully understand the meaning of privilege and learn the value of hard work. They may set pre-conditions when opening access to their wealth, such as establishing a trust for a successor with a pot of money to be used only for investment purposes, to foster their entrepreneurial development. Others take a more lenient approach because they want their children to lead the life of luxury that they themselves did not have early in life.

Meanwhile, UHNWIs who inherited their wealth often see themselves as the guardians or stewards of that fortune, tasked with ensuring that it is responsibly passed through to the next generation and beyond. Simply put, UHNWIs want to pass on their vision and values to their successors just like anyone else. The difference is that the stakes are incredibly high, so the transmission of those principles matters all the more.

Philanthropy and social purpose 

It is no secret that philanthropy looms large when people think about UHNWIs’ wider societal engagement, although a dark cloud sometimes hangs over the charitable activities of the wealthy. It can provoke scepticism from some quarters, with suggestions that these are self-interested and legal ways to avoid tax.

It is not that some unscrupulous actors do not use financial vehicles for unwholesome purposes. But in practice, these tend to be a minority. UHNWIs use their philanthropic activities to funnel investment in organisations and people that work to tackle the issues that matter to them most. These can include human rights, education, sustainability or science and technology.

Increasingly, UHNWIs are coming together to identify ways in which they give more back to society. For instance, in the UK there is a movement of wealthy individuals called the Beacon Collaborative, which works with the government and charities with an aim to donate more than £4bn a year to worthy causes.

Breaking the stereotype

There may never be a time when the ultra-wealthy are free from myths and speculation surrounding them. And as awareness grows around income disparities that prevail across the globe, UHNWIs will find themselves under the spotlight with growing frequency.

Increasingly, there is a need to properly articulate the real issues the wealthy face, the complexity of issues they confront, and how they contribute in a meaningful way to society at large. For UHNWIs, there is a need to acknowledge what the public’s sentiment towards them is, so that they are equipped to dispel misconceptions and demonstrate their value to the world.

Further information

www.intercorpgroup.com

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