Win by Focusing on Educating the Children of the Wealthy

Emma Rees 13 August 2007

Win by Focusing on Educating the Children of the Wealthy

Private banks assisting in the financial know how of their clients’ offspring to prepare them for the challenges and opportunities that their inherited wealth will offer them is not a new phenomenon, but it is something that private banks and wealth managers are increasingly focusing on and publicising.

Private banks assisting in the financial know how of their clients’ offspring to prepare them for the challenges and opportunities that their inherited wealth will offer them is not a new phenomenon, but it is something that private banks and wealth managers are increasingly focusing on and publicising. Coutts has recently launched its first official “Assets and Responsibility” courses for the sons and daughters of wealthy clients and Merrill Lynch Global Private Client, JP Morgan Private Bank and American Express Private Bank all run initiatives for their clients’ children. Dina de Angelo, director of Rothschild Private Banking and Trust says that private banks have been involved in this activity for years: “There is so much intellectual capital within financial institutions, it is a natural place for education to occur. Of course, you need to couple that intellectual capital with people who can lead, inspire and nurture young people.” Fiona Fenn Smith, head of strategic marketing at Coutts, says that whilst the bank has carried out similar courses for a while through its private office, this is the first time that Coutts has formalised an intensive course for the next generation of clients: “We are working with educational consultants to ensure that each subject area has clear objectives and learning outcomes for the participants. The overall aims of the course are to ensure that this next generation of clients understand the opportunities of wealth, as well as developing commercial and personal financial acumen”, says Ms Fenn Smith. Coutts’ intensive two and half day course is targeted at young people aged 17-23 and encompasses four modules covering financial awareness, setting up an enterprise, philanthropy and protecting human assets such as reputation and personal safety: “The course is delivered by a mix of academics and top industry professionals, including entrepreneurs and fund managers, as well as some senior bankers,” says Ms Fenn Smith. “For example, the enterprise module is run by the designer Lee McCormack and teaches about the business aspects of creativity and design. If you leave Goldsmith’s College, it is important to know how to make your design skills work commercially.” Ms De Angelo says that those whose wealth has been created recently often have a strong desire for their children to have what they did not have: “Every family is different in terms of their needs - some families need to pass on large estates which are asset rich and cash poor and their offspring need to be trained on how to keep the legacy alive and live at the same time. Most families want to make sure their children grow up as healthy and motivated individuals with a strong work ethic and desire to succeed in whatever they choose to do.” Now its seventh year, American Express Private Bank is holding its “Tools to Build Your Financial Future” programme this summer in London. It covers the basics of investment, an introduction to the world’s capital markets and includes the opportunity for participants to build investment portfolios with insight from the experts, and take part in interactive market games. Aimed at young adults aged 18 to 26, the seminars are led by the bank's senior economist and strategist, Kevin Grice: "Our seminar is always oversubscribed and we find that clients are eager for their children to learn about the 'bigger picture’ when it comes to money and investing”, says Amanda Wallis, executive director and regional head of Private Banking in Europe, Middle East and Africa. “Teaching our clients’ children to stay abreast of current investment thinking and ideas is so important to protecting and growing their wealth,” she said. At the Ultra High Net Worth end of the spectrum, Merrill Lynch’s Global Private Client group has recently hosted a four day Global Investing Programme in London for the children of its clients in Europe, the Middle East and Africa. Targeted at those aged between 20 to 30 years old, the “by invitation only” events are also run in New York, Dubai, Singapore and Hong Kong. The aim is to make participants, whose parents have more than $30 million in investable assets, better informed about managing their wealth in the future. Attendees are taken through a step-by-step guide to investing with presentations by Merrill Lynch analysts and investment professionals on different asset types, discretionary asset management, wealth structuring, alternative investments and philanthropy: “UHNWIs are well-informed of approaching economic conditions and place huge importance on their children having an understanding of the industry to allow them to capitalise on future market trends. This is particularly true as the investment universe becomes more global and sophisticated,” says Nick Tucker, market leader of UK & Ireland, Merrill Lynch Global Private Clients. Amy Braden, head of JP Morgan Private Bank's Family Wealth Centre, develops JP Morgan’s "Next Generation Leadership" conferences which have been held around the world for a number of years, providing advice to help clients achieve long term success as family enterprises, targeted at adult children of their clients, aged between 25 and 45 years. She sees an increasing trend throughout the world amongst parents to support the development of their children with regard to their wealth, and not just from a financial perspective: “A recent poll we took at one of our US programmes showed that parents are particularly concerned about whether wealth will cause their children to lose motivation, whether it will make them targets for others and if it will cause conflict amongst their siblings and cousins. A relatively small proportion of the parents we approached were thinking purely in terms of financial knowledge. Ultimately the parents wanted to give their children experience and exposure, not only to information, but also to work environments and negotiating real life situations.” Ms Braden says that there is an enormous generational transfer of wealth occurring, and the ability of future generations of owners and decision makers to make effective decisions about their wealth is a big factor. Research by JP Morgan shows that successful families place great emphasis on the competencies of family members. Its courses are highly selective and seek to provide participants with an exclusive network of peers for ongoing support and friendship. More than purely altruistic, there is a clear commercial element to running courses for the offspring of wealthy clients. Ms De Angelo says that whereas this might once have been carried out as part of a normal private banking service, today, as fee rates have come down, formalised programmes can be an additional source of revenues for private banks: “Firms have realised that wealth is going to transfer at a rapid rate. The Generation Y's are due to inherit $40 trillion and statistics show that 92 per cent of heirs switch advisors soon after inheriting. If bankers do not build relationships with the next generation, that annuity revenue will be lost. The next generation often has a keen understanding of future investment ideas and themes which are useful to investment managers - they can challenge the status quo.” Ms Fenn Smith believes that the increasing appetite amongst wealthy clients for courses of this type stems in part from the fact that where the wealthy tend to feel that their children have a greater need and responsibility to understand how to manage their money than the rest of the community, in the UK at least, financial awareness is not part of the curriculum. JP Morgan is also seeing increasing requests and seeking to meet demand in various ways. Competition for inclusion in such courses can be fierce: “For our analyst and associate programmes, clients need to go through the same rigorous selection criteria as any other applicant and are hired on the basis of merit”, says Ms Braden. Philanthropy is also becoming a key focus for wealthy individuals and their heirs. Ms De Angelo concludes: “Most children of wealthy individuals understand how privileged they are and want to know more about what their money can do for someone else and for the environment, rather than themselves. The next generation is often leading those family efforts where charitable giving is concerned.”

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