How Wealth Management Makes a Positive Difference to Legacy and Lifestyles

Money, as the saying goes, can’t buy you happiness. But it can provide an opportunity to make a positive impact on the world around you.

Wealth managers typically offer a package of services – covering everything from investment management to estate and retirement planning to insurance and tax – to help clients achieve their financial and personal goals.

Those goals increasingly incorporate environmental or social aspects, as more and more individuals are concerned about having a positive impact on the planet and its inhabitants. The COVID-19 pandemic helped drive this trend. Such thinking naturally aligns with seeking to benefit the next generation – in other words, wealth management should go hand in hand with sustainability.

Here we will explore how the various services that constitute wealth management can make a positive difference to clients’ lifestyles and legacies – and society and the environment more broadly.

People with sufficient capital to hire a wealth manager will typically be looking for investment services. Broadly speaking, the more focused they are on growing their money rather than protecting it, the higher the risk they will be looking to take. A portfolio dominated by equities, for instance, will be more volatile – but will theoretically earn higher returns over time – than one that is fixed income-heavy.

Wealth managers work with clients to understand their risk tolerance and objectives over different time periods to create portfolios that work for their lifestyle and future plans. They can balance short- and long-term needs and help clients structure investments so they can plan for big life milestones. 

Stocks and bonds have historically formed the basis of a portfolio. But there is a wider choice of investments now for clients to negotiate, and allocations to alternative assets, such as real estate and private equity funds, have grown substantially.

The use of derivatives and indices provides ‘synthetic’ access to a huge range of assets, while the growth of passive investing via instruments like exchange-traded funds offers low-cost and diversified exposure to different asset classes, sectors and geographies. It is also possible now for individuals to buy smaller shares in illiquid assets such as private equity as a result of ‘tokenization’, which converts such assets into tradable digital securities.

Another overarching trend that has spread beyond institutional investment to wealth management is the rise of sustainable or ESG investment. Retail or high-net-worth individuals increasingly want exposure to sustainable investment options that align with their own priorities or objectives – be they green bonds, climate indices or renewable energy assets.

EY’s 2023 Global Wealth Management Research Report, which surveyed around 2,600 wealth management clients, showed that nearly half (46%) believe advice on ESG and sustainable investing is important (see chart below), with stronger views in Latin America, EMEA and Asia Pacific. In response, wealth managers are embedding ESG criteria into plan strategies, investment management benchmarks and reporting across all asset classes, according to the April 2023 report.

Clients are also looking for information on the positive (or otherwise) impact of their investments. Accordingly, wealth managers are working on providing portfolio-level reporting on things like corporate CO2 emissions, water waste and diversity. Climate views were increasingly being incorporated into the wealth management context at least as early as 2020, according to a CFA Institute report published that year. On the social side, 53% of asset and wealth management firms are making efforts to improve transparency over ESG matters and efforts around societal considerations such as diversity and inclusion, found a PwC survey in July 2023 (see chart below).

After building up wealth, the next steps are to manage and draw it down in retirement and then pass it on to the next generation. Wealth managers offer estate and retirement planning services to help clients prepare for the future – including, unfortunately, for incapacitation or death. They can thereby help clients protect what they’ve worked for and ensure financial stability for their loved ones, even if the unexpected happens.

Wealth managers can help clients assess how much they will want to pursue their chosen lifestyle after retirement, and calculate how much capital they will need to accumulate to fulfil that aim. They can also advise on how to adjust one’s investment portfolio risk – generally downwards – as retirement approaches and asset protection becomes more important than asset growth.

Estate planning entails determining how assets will be preserved, managed, and distributed after death – and ensuring they pass to the intended beneficiaries in the most tax-efficient way. It involves establishing wills and trusts to that end and keeping on top of probate and estate administration. Legal and tax experts are paramount here.

The rise of sustainable investment and finance is also making its mark on estate planning. Incorporating ESG factors into estate planning is increasingly becoming a consideration for wealth management clients.

Sustainability considerations can influence estate planning decisions in various ways. One is charitable giving or setting up trusts, particularly to support organizations that champion environmental conservation, social justice, or ethical governance.

What’s more, involving heirs in ESG-focused investing or estate planning can help instil values of responsibility and stewardship in the next generation. Establishing a family foundation with a focus on ESG initiatives is another way to engage the next generation in philanthropy.

Similarly, family-owned firms can look to incorporate ESG values into their succession planning, with a view to creating a legacy of sustainable and responsible business practices.

When it comes to philanthropy, the affluent have often sought to put their wealth to work for social good. That kind of activity is now both more in the spotlight, given the increased global focus on sustainability, and more necessary, in light of how Covid exacerbated inequalities.

Wealth managers can help by acting as super-connectors between wealth management clients and philanthropic causes that match their chosen values. 

Trends like this will become increasingly important as younger generations embrace the notion of charitable giving. In Asia, for instance, an explosion of new wealth alongside changing attitudes towards giving illustrates the huge potential for increased philanthropic activity.

Wealth managers were already key influencers of how the USD454.4 trillion in capital held by individuals around the world can affect lifestyles and legacies. They now have the potential to have an even greater impact thanks to trends like rising wealth in developing countries and greater awareness of environmental and social problems.

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