Stewarding Your Family’s Wealth

For multi-generational families whose goal it is to nurture wealth for future generations, long-term investments don’t just span 10 years, but 50 or 100 years.

Managing your family’s wealth is a great responsibility, especially when it has accumulated over several generations. You don’t want to be the generation that loses it. Where I know families that have made a success of passing on wealth for many generations what they all have in common is that they don’t view the wealth as theirs to do with as they please. Instead it is a legacy that they are entrusted with until the next generation takes over. In essence, they are stewarding the wealth, maintaining and growing it for the next generation to do the same.

But not all families succeed in this way. Where wealth is made, it is often lost in the second or third generation. Successful stewardship requires careful planning and a long-term view. For multi-generational families whose goal it is to nurture wealth for future generations, long-term investments don’t just span 10 years, but 50 or 100 years. They are not investing for their own retirement, but rather for the wellbeing of their children’s children and beyond. It’s one of the reasons why land and property are often staples of family office portfolios. 

But as well as investing smartly and for the long term, I would argue that the hard work required to nurture the wealth for the next generation would be for nothing unless you also take the time to prepare the next generation, both practically and mentally. Inheriting a financial legacy comes with a lot of pressure and responsibility so in terms of practical preparations, discussing your investment plan and strategy behind it, letting the next generation attend meetings with financial advisors and nurturing their financial acumen are all helpful means of preparation. And starting this preparation early not only gives the upcoming generation the best chance of success, it also means they will have at least some preparation if they inherit prematurely. I also know of families that establish ‘subfunds’ where the next generation can gain practical experience in managing money and investments, determining asset allocations, establishing goals and reporting to the family. 

Mental preparation too must not be overlooked. One of the key challenges facing wealthy families is the feeling of entitlement. Particularly when the family has held the wealth for several generations, and children grow up in privilege, it can be challenging to instil the message that creating and maintaining wealth is difficult and requires hard work and dedication. This is where exposing the upcoming generation to the hard work and responsibility that befalls the wealth managers is important. Children often hear that ‘money doesn’t grow on trees’ but seeing really is believing. Educating the upcoming generation about the family history and how the wealth was made and managed in the past also helps to instil a sense of responsibility and legacy. You want them to also think of themselves as stewards whose goal is to preserve the wealth rather than squander it. 

I also think it’s worth being mindful that the preservation of multi-generational wealth also depends on family dynamics. This is because depending on your management structure there may be several other family members on the board of directors or with decision making power and so nurturing family relationships and fostering consensus is important. A coherent family vision can be impeded by generational differences, geographical dispersion or different philanthropic philosophies. It is often helpful to have established governance processes within the family that can help promote a coherent vision and smooth transition to successive generations. Both informal family reunions and formal family stakeholder meetings to discuss values and plans are also key to preserving your legacy. 

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