This year’s research suggests that attitudes to responsible wealth management vary among family members, and the issue is more likely a priority for the younger generation. However, the trend is gathering momentum, and the experts consulted for this report expect that responsible investing is likely to become even more important for families within three to five years.

How should families adapt when individual members have different priorities? Conflict is sometimes inevitable, even in the most harmonious families. The point is not to avoid conflict but to manage differences while remaining united. This can be achieved when there is a common purpose. Those without a light to guide them could drift apart or suffer a permanent split.

The danger of unresolved differences

Of course, differences of opinion are to be welcomed. While the older generation usually brings vital stability and leadership, the younger generation is often the first to embrace new trends. Without this flow of new ideas, families could miss opportunities or risk losing touch with the world around them.

The Julius Baer Family Barometer 2022 shows that roughly four out of ten ultra-high-net-worth individuals (UHNWIs) have family members on three or more continents. Today, families are more global than ever, and the growing independence of the younger generation can create a more significant gap between the experience and values of individual family members. For example, Generation X could have very different opinions from the patriarch/matriarch as to whether wealth should be managed along responsible or ethical lines. Failure to find shared values and a common purpose could lead to slow decisionmaking and eventually cause a breakdown in family relationships.

Regrettably, the potential costs of such a breakdown are very high. Research consistently shows that 70% of families lose a big part of their wealth by the second generation, and 90% of families lose it by the third.

And yet, rather than resolving their differences, families are sometimes tempted to muddle through, making do with a reactive, patchwork approach that lacks the coordination and focus of a deliberate strategy. Ignoring differences in this way is likely to satisfy some family members at the expense of others.

The surveyed experts report that for 23% of UHNW families, topics such as succession planning, philanthropy, and wealth structuring rank among the highest in importance. A further danger, especially with investment ‘hot topics’ like responsible wealth management, is that without a clearly defined purpose, investment decisions may reflect short-term trends, and families could quickly lose track of their individuality and distinct identity.

Values, purpose, and governance

A clear purpose based on core values and sound governance will help families evolve in harmony. This might sound good in theory, but what practical steps might families take to make a start? Nicolas de Skowronski, Head of International Wealth Management Solutions at Julius Baer and a father himself, suggests that “happy, successful families are not created by accident, but are a result of constant alignment and re-thinking one’s own values and purpose. A process that can be hard at times, but also enjoyable”.

First, individual members conclude that families seem to be stronger when they move forward with a common purpose. Second, they understand that it will be necessary to invest time and energy to make a meaningful change.

If these two steps have been taken, family members can then consider engaging an expert from outside the family to help them consider what values and priorities matter to them personally. Giving everyone a voice increases the chance of creating lasting change.

The expert can present the individual values to the family and act as an informal moderator to help find common ground. This ultimately leads to an agreed purpose.

Families who have gone through this process often report that the expert was able to approach issues with a neutrality that members of the family may not have possessed themselves. By following a deliberate, structured approach, family members are more likely to feel heard and respected and less likely to feel that they have been forced to compromise their core beliefs.

What is the next step?

After the values and purpose have been agreed upon, families tend to gain the most benefit when they choose governance structures that will support their everyday habits and behaviours ­– or that are aligned with their everyday habits and behaviours. Indeed, one size does not fit all.

Guy Simonius, Head of Family Office Services at Julius Baer, suggests that “governance itself provides the framework that allows the values to be translated into tangible actions”. These actions can span across the whole value chain of managing the family’s wealth.

We often find that families without a unifying purpose will express some of their values through, say, philanthropy, and apply quite different values to their general approach to wealth management. Families with a clear understanding of purpose and values can opt for a more focused strategy under which both their investments and charitable activities reflect the family values. We can observe families becoming more aware of this opportunity, often also with the younger generation as the driving force. This is underpinned by the results of the Family Barometer: the experts consulted for it believe that environmental, social, and governance (ESG) aspects as well as sustainability will become even more important in the coming years.

In the years to come, governance is likely to play a significant role in helping families apply their values and purpose much more consistently.