This month we will explore the principles and tools that can help find the balance between providing the next generation with a comfortable lifestyle – while exposing them to value-added experiences – and the values and culture for which you and your family stand for.
The facts are that around the world 70 per cent of all wealth transitions fail. Over 85 per cent of those cases is due to one or a combination of the four factors below.
Bearing in mind that “wealth” is not only financial but often includes, values, legacy, family name and reputation, and family unity and community spirit, these four key factors (outlined below) are vital to ensure a successful transition.
It is our experience that the key principles in preparing the next generation for a life of wealth are based on four key principles:
• Trust – Do family members typically live up to their commitments to one another?
• Communication – Do family members easily communicate with one another, including spouses, on topics that may be viewed as uncomfortable (eg. money, wills, health)?
• Readiness – Is the next generation prepared for the tangible and intangible challenges that come with ownership and management of significant wealth?
• Purpose – Has your family reached consensus on a written statement that spells out the overall purpose of the family wealth, including a detailed definition of all the important terms used in that statement?
Having family wealth conversations increases the likelihood of a successful wealth transfer. Sharing legacy, priorities, values and knowledge helps prepare beneficiaries as well as furthers open communication. Trust is the foundation for open communication.
Understanding the components of trust helps family members better understand what specifically happens when trust is breached and how to rebuild trust.
Communication that is clear, open, and precise are the cornerstones of avoiding misunderstandings within a family. Lawyers work for clarity and lack of ambiguity. Preachers work for inspiration. Executives seek accountability. Judges seek resolution and order. Parents must seek all of the above while striving to create an atmosphere of love and caring…and they must do so in an environment that is often in dynamic flux with children of various ages and communication skill levels. What a challenge!
Does the family have regular family meetings? Do you understand the terminology used in your family’s estate plans and documents? Are family members encouraged to freely express an interest or passion for a future family role, whether or not that role is directly related to the management of the family’s assets? What education or training is needed? Are younger children encouraged to participate in the family’s philanthropic decisions?
A family wealth mission statement includes the mission, the underlying values, and strategies to accomplish it. It is a short, easily remembered declaration of the family’s highest priorities and enduring purposes. It is created and honoured by the family as a whole. The family develops the wealth mission statement by consensus, with the end result being larger than any one person. The statement is unique to the family – there is no cookie-cutter family mission statement. By the same token “dad's plan” is not the family plan.
Though the challenges to successful wealth transfer across generations may seem overwhelming, they can be overcome. Success requires a commitment of time and energy by the entire family, as well as guidance and facilitation by experienced, independent advisers to take the emotive elements out of the equation. Address these four areas with the help of an independent adviser and you will go a long way to ensuring a successful transition of wealth to your family.
Mr Scott has been in the finance and investment industry since 1986 and has a background which includes relationship and investment management, commercial, private and investment banking, philanthropic advice and family governance. All of this experience has been focussed towards affluent and multi-generational families in the fields of business, sport and entertainment.
As a former executive director at Goldman Sachs JBWere, Mr Scott established and managed the Private Wealth Management business for Queensland and formed part of the national management team. Prior to his years at Goldman Sachs JBWere, Brad had 12 years commercial and private banking experience with one of Australia’s major banks across various roles and responsibilities.