Is it Time to Rethink Private Wealth?
The private wealth industry in the UK prides itself as being one of the leading centres of global wealth. As practitioners we spend much of our time advising individuals and their families about how to protect and preserve their assets. There is plenty of conversation in the advisory community around the need for philanthropy and responsible investment, but this never extends to discussion on the impact that wealth accumulation and tax minimisation is having on the rest of society and our economy.
In January 2020 a friend told me that food banks outnumbered McDonald’s restaurants in the UK. I was absolutely horrified. To put matters into context, there are 1,300 branches of McDonalds over 2,000 food banks. My reaction to these statistics was emotional. They represent something extremely worrying about inequality (as evidenced by this video of a food bank queue which went viral last week). I was also disturbed by the fact that this data was not remotely on my radar.
Later in the year, I stumbled across “The Colour of Money: how racial inequality obstruct a fair and resilient economy,” a report published by Runnymede Trust. The report exposed economic and wider social inequalities faced by ethnic minorities in the UK prior to Covid-19. As the pandemic unfolded last year, like many others I began to reflect on the precarious nature of our economy and the everyday injustices faced by members of our society who are disproportionately exposed to the impact of Covid-19.
I grew up in a working class community in inner city London and have lived experience of socio-economic inequality. I have also been involved in various civil society organisations which are on the front lines of fighting inequality. But in reality, when your day-to-day work almost exclusively involves preserving and protecting the assets of some of the wealthiest individuals in the country, it becomes almost entirely possible to exist without engaging meaningfully with the everyday injustices encountered by an increasing number of people in the UK and beyond; let alone connect the dots between wealth accumulation and inequality.
Last year’s confluence of events highlighted an urgent need for economic reform. It occurred to me that we are all either conscious or unconscious actors in the global economy. I found myself thinking about the ways in which my personal choices might be contributing to an inequitable economy based on systematic extraction and exploitation inflicted on people and planet.
How do we shift from unconsciously contributing to economic inequity towards developing greater consciousness around our behaviours and participation in the global economy? For starters, what do I consume and how often? Am I promoting sustainable production and consumption or am I complicit in extractive consumer behaviour? What industries are my investments propping up? It gets uncomfortable pretty quickly.
I wonder what would happen if ultra-wealthy individuals made a habit of asking themselves and their advisers similar questions. After all, the behaviours of individuals with extreme wealth — and their advisers — have a critical role in shaping the global economy, especially in terms of how capital is allocated.
Capital in the Twenty-First Century is a documentary produced by Justin Pemberton, based on the book bearing the same title written by eminent French economist, Professor Thomas Piketty. It charts the story of wealth and income inequality from the 18th century to date and highlights that global wealth and property ownership is concentrated in the hands of a tiny fraction of the population. Ultimately, Piketty argues that the introduction of progressive tax reform is the panacea for extreme wealth inequality. An increasing number of wealth holders and future inheritors are inclined to agree that one of the most effective ways of redistributing of wealth is through a fairer system of taxation supported by public policy and legislative reform.
In November last year I was invited by TEDxLadbroke Grove to share some thoughts on the role of private capital in response to calls for us to reimagine modern capitalism in a post-Covid world. According to specialist analytics company Wealth X, between now and 2030 an estimated $15 trillion of assets will have been passed down the generations by the world’s richest people (defined as people with net assets of $5 million or more). This is a global phenomenon known as the Great Wealth Transfer — it’s the largest ever wealth transfer in history and will result in assets changing hands from baby boomers to millennials and Generation X.
This wealth transfer could play a significant role in reforming the economy because the millennial generation is characterised by a need for purpose, making an impact and ensuring alignment with their personal values when it comes to things like work and money. Although such traits are not exclusively attributable to millennials, owing to the cultural and historical factors that have shaped the generation, they are more likely to be concerned about living in an equitable and sustainable economy where capital serves everyone not just a handful of people. The demands of wealthy millennials and other wealth holders with strong social values will have the potential to drive unprecedented change and to shift our current economic paradigm. Our role as advisers is critical.
Many of our clients will require us to support them in adopting more regenerative and redistributive approaches as to where they direct capital and how they choose to shift their positional power in the context of wealth structuring, investments, business ownership and philanthropy. A great number of our future clients will reject the notion that excessive wealth accumulation and tax minimisation is acceptable. This emerging generation of wealth holders will need to be surrounded by advisers who genuinely share their values and are bold enough to espouse different narratives which centre more radical impact and wealth redistribution objectives.
This is an invitation for those of us who sit as gatekeepers to the ultra-wealthy, to think carefully and honestly about the extent to which we ourselves are engaging with the challenging problems facing our society. What this really demands of us in the private wealth advisory community is some much-needed self-reflection, as to how our individual and collective practices are upholding an economic system which is benefiting a relatively small number of individuals in a world where there are many losers. Only then can we attempt to align with the interests and values of the next generation of wealth holders in an authentic manner.
If you are an adviser reading this, I challenge you to take some meaningful action in response to these reflections, whether it’s: asking your team for ideas on what changes could be made to the way we approach advising clients; discussing industry norms in your next catch up with a referrer; or exploring the key themes of wealth accumulation and progressive taxation as basis for an educational workshop.
As an advisory community we need to prepare ourselves for clients who want to go in a radically different direction when it comes to wealth stewardship. Where will you go from here?
