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.