- The biggest risk facing the world’s billionaires is how to pass on their wealth, according to UBS.
- Over a third of the world’s billionaire’s combined wealth is held by individuals over the age of 70.
- Billionaires are living in a “gilded age” that may not last, with wide gaps between the richest and poorest in society and wealth concentrated among a few.
LONDON — The biggest risk facing the world’s billionaires is how to pass on their wealth, according to leading advisors to ultra high net worth individuals.
The world’s billionaires are worth a combined $US6 trillion and 39% of it is owned by individuals over the age of 70, according to UBS and PwC’s Billionaires Insights report. $US2.4 trillion will be transferred to the next generation over the next 20 years, the report predicts. It will be “a huge windfall for their heirs but also for charities.”
“The biggest idiosyncratic risk is succession,” said Josef Stadler, head of global ultra high net worth at UBS.
In the past, billionaires have passed their wealth on to younger generations of their family but this is changing, Stadler said. Often this takes the form of passing on the family business.
But younger generations increasingly don’t want that and are instead looking to invest in other sectors and in philanthropic projects. There is also a decision to be made about whether passing on the business to an outsider with more experience and skills would be better for the firm itself.
“The risk is to convince the family to do the best thing for the firm,” says Stadler.
Another problem is complex tax law, the report says. This has made planning “increasingly convoluted.”
The problems are compounded in very old, large families, Stadler said.
“The more family members you have, the more liquidity you need to generate for those not involved in the business,” he said. “There could be 600 people in a family if the empire was started in the 1800s,” and “everybody wants a piece of that pie.”
The wealth of the world’s billionaires increased by 17% in 2016 to $US6 trillion, driven largely by entrepreneurs and strong growth in Asia. The majority of wealth is now created, rather than inherited.
“We believe this growth is sustainable,” Stadler said.
However, he concedes billionaires are living in a “gilded age,” which may not last. “We are at an inflection point” in which the world’s wealth is highly concentrated among a very few individuals, he said. Wealth concentration is now as high as it was at the start of the twentieth century.
“The last gilded age lead to the Sheridan [Antitrust Act of 1890] Act,” he says, a competition law that broke up the monopolies held by a few powerful families.
“We’re at the peak point again now,” he says, “will that happen next?”