Shirt Sleeves to Shirt Sleeves in 3 Generations

In recent years there has been a lot written about how wealth created by the first generation (the entrepreneur) is lost by the third generation. Often the second generation has also added to the wealth. Then the third generation has lost it through being irresponsible, idle or simply making poor decisions.

Research from a range of sources is consistently showing that this is happening in over 70% of family wealth transfers.

A significant aspect of intergenerational wealth loss is related to the fact that the financial and estate plans do not adequately take into account the human issues involved. Very often poor communication and relationships within the family along with negative emotions lead to bad decisions. The reality is that many wealth transfer plans whilst technically sound become redundant the day after the wealth transferor passes on.

So, how can you improve those statistics so there is greater intergenerational wealth preservation and also family harmony?

The solutions are found in some interesting research undertaken with a high number of wealthy families by groups like Family Office Exchange and also The Williams Group. Their research points to the top priorities for the families are now to address areas such as family legacy and the family relationships. Whilst investment competence is important it is somewhat low on the list. Investment management is generally seen as a given and considered somewhat of a known science. Notwithstanding, getting the family to adopt these priorities and change their behavior is another matter. If you are an advisor, accountant or attorney what areas should you spend the most time on?

The importance of building greater family unity cannot be underestimated. The family needs to have a defined legacy with a shared mission and set of values. This then becomes the framework and platform for family decisions, dealing with businesses, inheritance, financial education, philanthropy and so on. If needed, bring in specialists to deal with the human dynamics and facilitate this. We often do this with advisors. So, I would really encourage for family meetings to be held. Whilst this process can be expensive in some cases, it does not have to be. Just being aware of the importance of these issues and doing a little more to work on them even through more “relational” discussions will help. Of course, for a high net worth family with many financial complexities and plenty of family history then a family meeting is a great idea and will lead to great results.