The Changing Face Of Global Wealth: Rise Of The Entrepreneurs - Study

Stephen Little

18 June 2013

How the rich accumulate their wealth has changed dramatically over the past quarter of a century. Not so long ago, the rich mainly inherited their wealth, but nowadays they are far more likely to be self-made, a pattern common across the globe, according to a new survey.

When the UK's Sunday Times Rich List was first published in 1989, only 43 per cent of the UK's richest people had made their fortune themselves, with 114 of the people on the 200 strong list having inherited their wealth. Since then, the picture in the UK has changed beyond all recognition, with 80 per cent of people on the 2013 list being self-made, compared to 20 per cent of those who had inherited their wealth.

In the US, numerous studies have also shown that there is less inherited wealth compared to those who have earned their fortunes through their own endeavors.

Perhaps the biggest change of all has been in emerging markets, where factors such as globalization and technology have helped to create a new generation of wealthy individuals.

This growth of entrepreneurial wealth and the shift in economic power away from inherited wealth has had significant consequences for how wealthy individuals plan for the future and deal with the legacy of their wealth.

A new survey by Barclays Wealth and Investment Management illustrates how global wealth is now being driven by entrepreneurship rather than inheritance, as entrepreneurs tend to accumulate their wealth faster than HNW individuals who get it though inheritance or bonuses.

Based on a global survey of more than 2,000 HNW individuals, the Origins and Legacy: The Changing Order of Wealth Creation report revealed that entrepreneurs accumulated wealth over a 16 year period on average, compared to 23 years for other HNW individuals.

The report also found that wealth is being created twice as fast in developing regions. For example, in the Asia-Pacific region it takes HNW individuals an average of 12 years to accumulate their wealth, compared to more developed markets such as the US, where it takes 28 years.

As a result of increased opportunities for wealth creation, proportionally, the percentage of individuals acquiring wealth through inheritance is decreasing.

Outside of developed markets, wealth is more likely to come from the sale of a business. In the Middle East, 48 per cent of respondents said that the sale of a business was a key source of wealth, whilst in the Asia-Pacific region this figure was 57 per cent. By contrast, these figures are 45 per cent for the UK and 21 per cent for the US.

The survey found that the average time it took for respondents to accumulate their wealth in developed markets in the technology sector was 15 years and 19 years for property, compared to 20 years for those in other industries. In emerging markets the rate was far quicker, only taking 11 years for those in the technology sector and 10 years for those in property, compared to 13 years for other industries.

Legacy and planning

One significant trend the report highlights is that many HNW individuals are now choosing to share their wealth with family and friends or give it to charitable causes, rather than as inheritance. This is especially true amongst entrepreneurs and in emerging markets.

“We see strong differences in how wealthy individuals around the world use their wealth to help the next generation. Those who have made their money through business in more developed markets would prefer the next generation to carve out their own path, rather than disrupt the entrepreneurial cycle and discourage the entrepreneurial spirit by simply having wealth handed down to them,” said Catherine Grum, head of UK-international and EMEA wealth advisors at Barclays.

Globally, 40 per cent of entrepreneurs and business owners plan on giving 23 per cent of their wealth to family, friends and charity, compared to 17 per cent who are planning to give away 20 per cent through inheritance.

Only 5 per cent of respondents plan to give away all their wealth to family, friends and charity during their lifetime, compared to 42 per cent of HNW individuals in Qatar.

“Wealth creators in emerging markets very much see their money as an enabler for their family and to the wider wealth cycle. They want to pass their wealth down and leave their business as a legacy for future generations,” said Grum.

Risk

Entrepreneurs and business owners tend to have a higher tolerance of risk compared to wealthy individuals who have inherited their wealth or those that gained it through savings or over time, Grum explained.

“The nuances in why we accumulate and pass on wealth can be subtle, but it is crucial for us to understand them in order to advise clients on wealth and legacy planning. Often, those who have inherited their wealth are more risk averse. They see themselves as a custodian of the wealth and their main ambition is to protect it for future generations,” said Grum.

The report suggested that respondents who had experienced a dramatic change in their wealth situation were more likely to be philanthropic. One third of respondents whose wealth had declined dramatically following the economic downturn said that charitable giving was one of the top three uses of their wealth, compared to nearly one in five whose wealth had not changed during the same period.

“For those who have built up their fortunes through the sale or profits of a business, they are more in tune to the rises and falls of the business world and can be more resilient to risk. They are often more willing to take risks on smaller, charitable organizations where they can make a real impact, as they have empathy towards and often past experience of being in a similar position,” said Grum.

Philanthropy

The report showed that the changing origin of wealth is having a profound effect on the motivations of HNW individuals to become involved in philanthropy around the world.

European respondents tend to give to charitable causes out of a sense of duty and responsibility, with this being the case for 72 per cent of respondents in Spain, 69 per cent in the UK and Switzerland and 84 per cent in Monaco.

Private philanthropy in emerging markets remains at a relatively early stage of development. Although there is often a strong culture of giving in these markets, philanthropic endeavours are often limited by infrastructure and institutional barriers.

In emerging markets, respondents were more motivated by the personal fulfilment philanthropy brings, with this being the case for 71 per cent of respondents in China, 65 per cent in Latin America and 56 per cent in South Africa.

There were also significant differences depending on the source of wealth, with entrepreneurs less likely than those who have inherited wealth to donate to charity out of responsibility compared to those who have inherited wealth or acquired it over time.

Emma Turner, head of client philanthropy at Barclays, believes that for entrepreneurs it is passion that drives their involvement in philanthropy.

“This group of individuals tend to apply the same business acumen, energy and drive that have seen them become successful in their endeavors to their chosen causes. For those who have inherited their wealth, however, philanthropy often comes out of a sense of duty and responsibility handed down by previous generations. Therefore, maintaining that legacy is important to them in their charitable giving,” said Turner.