Trend wealth: where is wealth coming from?
Citywealth welcomes the new year interviewing international experts. We look at trend wealth – new trends in the private wealth sector.
Trend wealth – With the global market becoming increasingly connected and the younger generation being more tech savvy, where is the new wealth being generated? Citywealth welcomes the new year interviewing international experts. We have a look at new trends and where they come from geographically. We also analyse differences comparing present trends with traditional choices.
New wealth comes from new ideas
Nowadays people who think differently have more chances to get funded. Plant-based chicken and e-cigarettes are just some of the new trends generating billions. Where is the new wealth being generated? “We can see this new wealth in almost every area you can think of, from bank credit cards to transportation alternatives,” states Joshua Rubenstein, Partner at Katten, based in New York. “Young entrepreneurs are the protagonists of this change. They question not only the traditional application of the fundamentals, but also the fundamentals themselves. Not every idea is a home run, but many are.”
“We are seeing a growth in entrepreneurs in our HNW client base,” confirms Ros Bever, Partner and Head of Family Law at Irwin Mitchell, based in Manchester. “These entrepreneurs tend to be self-made post a concept to start up, to second and third stage funding. The spread still has tech as a central theme but the amount of private equity and VC funding for non-traditional sectors appears to be growing.”
Steven Lannigan, Director of Financial Services at Moore Stephens Isle of Man, has an opposite view. “We are not seeing any new trends in wealth generation but rather the shrinking of existing ones. This will continue until supply side issues are eased – which theoretically could provide a new trend. What that will be, however, is yet to emerge.”
Traditional approach vs unconventional trends
New entrepreneurs think differently to achieve innovative results, exploring new ways or revolutionising existing ones. Henry Findlater, Partner and Senior Wealth Manager at MASECO, talks about non-traditional income strategies adopted by his clients. “Until very recently global interest rates have been low. In turn this means the income yield derived from traditional asset classes, such as fixed income, has also been meagre. Many MASECO clients have been exploring non-traditional income strategies, such as alternative credit or direct real estate investments. Now interest rates have begun to rise. We are seeing clients revert to more traditional areas. In search of yield, such as Certificates of Deposit, or controlling their income stream, they hold single corporate or government bonds to maturity.”
What about old UHNW and HNW individuals who are used to behaving following specific patterns? Are they coming up with new ideas or do they prefer to stick with traditional choices? Joshua Rubenstein says that “older clients are sticking with traditional choices, though perhaps coming up with more efficient ways of addressing and implementing them. Younger clients are generally coming up with brand new ideas. Younger clients, however, are much harder to plan for. On the one hand they want to create this massive new wealth outside the transfer tax system. On the other hand they have no families or beneficiaries yet for whom to plan. That has caused us to be creative ourselves as planners, and to think outside of the traditional planning box!”
“There is wider and deeper thinking,” adds Ros Bever. “The rise of pre-nuptial and post-nuptial agreements and general protection for cohabiting couples give concrete examples. There is also wealth protection where parents are using the law to protect a child’s inheritance from a future divorce. They are however very reliant on the expert advice. They will tend to go down the path of the advice provided.”
Steven concentrates on how his clients come to his firm in search of new ideas. For him there is a clear winner: tradition. “Our clients come to us for the new ideas. For us traditional choices remain the ‘safest’ choice because we are sure they work over the course of a cycle.”
Rise in billionaires: where are they located?
Geographically there are some regions and countries which are more prolific than others in witnessing a rise in billionaires. “In the US, much of the activity has been based in New York and California. With those being high tax states, a lot of that activity has moved to Florida and Texas,” explains Joshua. “Around the globe, young people are coming up everywhere with fascinating new ideas. They are constantly in search of funding (and, in some cases, new solutions in search of a problem).”
Steven agrees that now the US is one of the main centres, together with Japan. “For a good while Asia dominated (rising) wealth. This is no longer the case. In the last couple of years the pendulum has swung back towards capitalist markets, especially the US and Japan.”
Ros focuses on the UK, adding that “the wealth remains in the key traditional hubs. We are talking about London, the South East, the South West, the Home Counties, Norfolk, the Leeds (West Yorkshire) area and pockets in and around Manchester and Birmingham. We haven’t seen a shift away from this in the UK market however we are receiving increasing amounts of cross border work from uber wealthy foreign nationals entering the UK market. This is primarily via London.”
Trend wealth and its connection with the Covid19 pandemic
According to the BBC, more than five million people became millionaires across the world in 2020 despite economic damage from the Covid19 pandemic. Trying to analyse the reasons behind this phenomenon, Steven believes that the key factor has been “human ingenuity. Whether it’s because they ‘have’ to find an alternative income source or whether it’s because now that they have some time they can take stock and look around for alternatives (be they gaps or simply other routes to wealth), then I believe that was the reason. Covid, aside from anything else, gave us time to reflect (as well as to wear sweatpants).”
“The pandemic was a perfect storm for private wealth in many regards,” states Joshua. “People had more time on their hands. Being quarantined, people needed to find alternative ways of doing things remotely. I believe this spawned a large number of new ideas. To paraphrase Plato, necessity is the mother of invention (proving that traditional ideas still have a place as well!).”
Ros looks at property values and how the pandemic has affected this area. “The significant growth in wealth that we are seeing across the middle classes is in property values. The rising house prices in London and desirable countryside properties, which lift assets of those on relatively low incomes into the millionaire bracket, is a good example.”
What were the top trends in private wealth for 2022? Our experts think that…
… investors are willing to pay more for a personalised service driven by the right technology. Both advisor-led and hybrid investors greatly value recommendations from advisors as their top source of reliable information. Opportunities and innovations, such as ESG, cryptocurrencies, tokenised assets and non-fungible-tokens (NFTs), are just a few of the areas that wealth firms need to understand and incorporate into their strategies in order to differentiate and provide value.
Steve Lannigan, Moore Stephens Isle of Man
… as we came out of the pandemic in 2022, the markets had a very rough year. Private wealth continued the expansion it saw during the pandemic. It involved not only increased planning but also increased administration and litigation. This proves the point that private client is neither cyclical nor countercyclical; rather, it is a-cyclical. This will change only when someone finds a cure for death, or when population growth drops dramatically. I would also like to mention the most important trend of all, which is to be thankful for our abundant blessings, and hope for a prosperous new year.
Joshua Rubenstein, Katten
… in the legal sector there has been a significant focus on wealth protection and tax management. We can say this is likely to continue. Trusts, complex estate planning and family law protection to ring-fence earnings and assets will continue to be key. We have also seen a growth in contentious probate where increasingly more wills are being disputed by interested parties. It is anticipated that these areas will grow whilst the top end conveyancing market might slow until economic stability is achieved.
Ros Bever, Irwin Mitchell
… we are privileged to serve a global client base at MASECO, as such we see trends in private wealth through an international lens, particularly focussed on the US. Post-Covid we are seeing the return of global mobility, clients are beginning to move around the world again which means they may require more specialist financial planning advice and investment products. Secondly, a strong trend that continues to capture investor attention is sustainable investing. This area is close to our heart, MASECO was the first financial services firm in the UK to receive B Corp status back in 2013, we truly believe capitalism can be a force for good and offer our clients a comprehensive range of sustainable investment solutions.
Henry Findlater, MASECO
Written by Silvia Ricciardi
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