EDITORIAL COMMENT: Changing Ideas Of Status - And How Wealth Managers Should Act
A study on shifting attitudes towards status should interest wealth managers as they discuss life goals and how to prepare financially for them with clients.
According to my copy of the Oxford English Dictionary, the word “cant” can be taken to denote “hypocritical and sanctimonious talk”. The poet, Lord Byron, employed the term regularly in his diatribes against fashionable moralistic humbug (in his view) of the age. All periods, it seems, have versions of cant and today we have “virtue signalling”. The term was minted by the UK journalist James Bartholomew to define how people say or write things to indicate what splendid souls they are, such as by buying organic foods and then being careful to tell everyone about it. (It is not that buying X or Y is wrong per se, but the incessant communication about it is actually a sign of vanity or snobbery.) A variant of this is “status signalling”, in which people seek to mark their supposedly superior position in life in certain ways. At one point, status was achieved by attainments of some kind, or by acquiring luxury cars, boats or private jets. No longer. SUVs are out, studying deliberately "useless" degrees is in.
What on earth has all of this to do with wealth management? Well, it may suggest that pursuit of strong returns so as to enjoy the luxurious side of life may not be so urgent if all those glossy goods and services aren’t seen as the ultimate prize. Philanthropy, for example, becomes more important than high living. In which case, there could be a very rude awakening in the offing if persons concerned haven't planned their wealth requirements because they think wealth doesn't matter as much as it did to their parents. This lack of desire for chasing returns might particularly be the view of a younger generation brought up amidst the global financial crisis. Why bother to study vulgar old finance if this doesn't get you respect?
If we really are living in a world where investment returns are more moderate than they have been in recent decades, then this shift towards “virtue signalling” is simply a way of making a virtue (excuse the pun) out of necessity. It will be necessary for wealth managers, whatever they may privately think about all this, to understand how life goals and objectives change and how that will affect money management and investments of this generation. There may need to be more focus on philanthropy (seen as important in "virtue signalling") as a goal. Some of these conversations may require some frank explanations of the laws of financial life to explain what is realistic, and what is not. There is also, to be fair, a genuine desire for a better, fuller way of living that isn't so focused on material comfort - and advisors need to respect those desires, and work out with clients what to do to achieve them.
Such a conclusion, even if this shift isn’t complete, comes up in a new study by the Adam Smith Institute, a free market thinktank in the UK. Its study, entitled, The New Aristocrats, says new patterns of spending/behaviour are distinct from “classic” aristocratic status signalling based on the costly acquisition of “useless skills” (in the ASI’s opinion), and also distinct from “old” status signalling based purely on wealth. Wealth-based status, the study says, is considered distasteful (or crass/vulgar, etc), so a positive lack of certain possessions is seen as a mark of virtue. This produces a paradox, the ASI argues, in that these new forms of “status signalling” are more wasteful socially than earlier types of conspicuous consumption. The study says, for example, that pursuing practical education, a STEM (science, technology, engineering and medicine) degree, or even building up work experience may be better for an individual’s earnings and society’s productivity, while individuals may pick extended study of essentially useless degrees in pursuit of status.
In the end, however, any wealth manager who takes on a client who does not seem as bothered by buying a large house or having flashy holidays will need to remind the client that a supposedly more “authentic” or “virtuous” life costs money. Sometimes, lots of money. (As an example, when Henry Thoreau wrote Walden - his book on the joys of abandoning dirty modern society - he was lucky to have rich parents to subsidise him.) Often the costs of being “virtuous” can be greater than the more materialistic alternative. So whatever a client strives for, the verities of saving, diversification and clear understanding of risk are here to stay. Adam Smith would, one likes to think, have agreed.