Maintaining individual or family wealth through generations is one of the major preoccupations of wealth advisors, with people often making very detailed arrangements for how their wealth should be passed on. All too often, though, the values of founders or family members are relegated to the status of informal considerations.

Companies and investors that practise responsible leadership and long-term thinking have something to teach us about ensuring values continue to have an influence in the long run. Family businesses, in particular, provide a good model, as they are often driven by the values and views of their founding members – the need to think and act sustainably is rooted in their DNA. Value-based investing provides family companies with a tool kit to articulate and promote their values and social commitments while mastering global challenges, such as their operational business, investments or philanthropic work.

Making it count
Like investment strategies, values can be integrated into legal structures from the off. When safeguarding wealth, people often set up foundations, trusts or similar legal vehicles. These can generally accommodate all types of assets, including investments in companies, real estate, art collections and, of course, liquid assets.

All too often, the values of founders or family members are relegated to the status of informal considerations

Most people who set up such structures use them not only to provide a safe home for their wealth, but also for planning and structuring. Such plans have to be precisely defined and clearly embedded within the structures. At Kaiser Partner, a leading family-owned wealth advisory group based in Liechtenstein and Switzerland, our experts emphasise the need to define and closely coordinate the details of family governance, business governance and investment governance so that clients’ values can be directly integrated.

In most cases, the priority is to clarify two aspects: family governance and business governance. Family governance issues will typically include details of any claims to foundation assets, criteria for the distribution of income or capital, clear instructions about which family members should be involved in decisions about such distributions, and the uses to which funds may be put.

For a family company that is held via a trust or foundation, business governance will always include detailed provisions of how long this asset should be held and who should receive dividends under which conditions. The criteria for selling stakes in family companies will also be defined, as will the criteria governing whether family members can work for the company and at what point they must leave.

By contrast, foundations and trusts often neglect the topic of investment governance, with most structures failing to establish an investment policy for liquid assets. Consequently, assets are invested conservatively and excessive risks are avoided, which often means there is no opportunity to shape a sustainable long-term strategy. The person or institution setting up the foundation (the settlor) often forgets that they can define specific management criteria, whether that’s in the foundation documents, the trust agreement or in special investment governance and regulations.

Within these guidelines, the settlor can lay down rules about the investment process and give direct instructions that must be considered when eyeing new investments. Alternatively, they can delegate such decisions to a committee. If no instructions are in place, the responsible bodies of the foundation or trust decide on the investment rules.

Assistance from client advisors and investment managers who specialise in responsible and sustainable investing is vital when establishing a value-based approach to investment

Taking responsibility
Over the past decade, value-based investing has become an increasingly important method of long-term wealth preservation for foundations and trusts, with younger generations in particular keen to focus on responsible and sustainable investments. Value-based investing is a strategy that concerns itself with the environmental and social impacts of a company’s actions, products and management. This approach covers various practices and is known variously as socially responsible investing, environmental, social and governance (ESG) factor investing, sustainable investing or impact investing.

An increasingly large number of people want to use value-based investing to put their money into organisations and companies that have a positive impact on the environment, culture, society and government, but they don’t want this to come at the cost of financial returns. Targets of such value-based investments include organisations with inclusive boards and management teams, companies that proactively reduce their consumption of water and production of emissions, and businesses that give something back to society. The latter might take the form of creating long-term jobs or building schools to help educate future generations.

Successfully establishing a value-based approach to investment for a foundation or family business requires perseverance and support, particularly when it comes to younger generations. According to the World Economic Forum’s 2019 report, Impact Investing for the Next Generation: Insights from Young Members of Investor and Business Families, young members of wealthy families face four main obstacles when trying to introduce value-based investing: opaque asset structures and impact objectives; a lack of confidence in their abilities; a dearth of expert support; and concerns about confidentiality. There is a desire, meanwhile, for honest experience and deal sharing.

Support systems
Assistance from client advisors and investment managers who specialise in responsible and sustainable investing is vital when establishing a value-based approach to investment. With the right experts, issues concerning clarity and confidence can be avoided. Another 2019 study, the Centre for Sustainable Finance and Private Wealth’s Impact Investing: Mapping Families’ Interests and Activities, came to a similar conclusion. It found that around 46 percent of the wealthy families surveyed were dissatisfied with private bank or wealth managers who weren’t specialised in impact investing, feeling their plans didn’t have the right support. Those advised by impact investing specialists were, however, mostly satisfied.

In the same survey, more than half of the 32 wealthy families living in the US said they would be investing 90 percent of their investable assets according to impact investing principles over the next 10 years. Studies such as these underline once more the rapid growth of the market (see Fig 1) and the greater diversity of products and services. This presents challenges to investors and client advisors.

It is equally clear that there is a greater demand for experts who can provide clients with solutions tailored to their values. Any advisory relationship should start with a value-based interview with the interested parties, which is exactly what Kaiser Partner Privatbank in Liechtenstein offers. The family-owned private bank, which has specialised in responsible investing since 2009, uses a comprehensive checklist to map out the areas that are close to the investor’s heart. Put simply, it seeks to identify the investment areas in which the client wishes to make a positive impact as well as the areas that should be avoided.

Clients can fundamentally exclude investments in specific categories, such as defence and weaponry, and cap the revenues generated in others, like alcohol and tobacco. In general, assets that generate revenues in segments that are important to the investor are given a high weighting, while those judged to have a negative impact are reduced to the maximum defined percentage or excluded altogether.

A dynamic process
The client-weighted standards and restrictions are put through Kaiser Partner’s screening service for ESG business involvement. As well as ensuring the effective implementation of client requirements, the service facilitates reliable and efficient portfolio management. Thanks to constant monitoring, the defined assets can also be adjusted at any time.

Investors and wealth advisors can make these adjustments with the help of heat maps, which are currently being put together based on an extensive survey of wealthy families. Heat maps are designed to identify underinvested market segments and show which impact topics, regions or asset classes are oversaturated.

Specialist asset managers have a clear task: creating new and innovative solutions while constantly monitoring the asset owner’s needs and interests. There is also a steady stream of new alternatives for philanthropy that wealthy individuals and families can use to express their values through foundations and other structures.

Values such as sustainability and responsibility lie at the roots of Kaiser Partner Wealth Advisors, Kaiser Partner Privatbank and Kaiser Partner Family Office Services. Based in Liechtenstein and Switzerland – two of the most stable and independent jurisdictions in the world – our specialists in sustainable and responsible strategies support wealthy families from all over the planet. The successful, long-lasting partnerships they forge are based on personal values, which are applied to all investment decisions.

Whether it’s in the underlying structure of foundations, the investment strategies or a philanthropic project, asset management can reflect personal values in countless individualised ways. And it can do this without reducing the wealth intended for future generations or compromising on financial returns. Now more than ever, investors and asset managers have the unique opportunity to use this dynamic and reciprocal process to innovate and give a personal slant to
financial, local and global interests.

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