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Intergenerational assets: wealth management or group therapy?

‘You can’t manage wealth unless you manage the family.’ We analyse how family offices help clients preserve money through generations

Intergenerational assets: wealth management or group therapy?

For most investors, the danger of losing money is linked to market volatility and security selection, but ultra-high net worth (UHNW) families also have to fend off different threats.

While good investment performance remains vital for growing their wealth, internal communication issues and proper succession planning can be far bigger challenges when it comes to preserving it.

Private offices servicing such families have to therefore focus much effort toward helping clients manage themselves, by enabling conversations between family members, spotting the next leaders and identifying the ‘unsung heroes’ that help glue it all together.



‘Giving wrong people responsibility is the fastest way of destroying wealth’, said Matthew Fleming, a partner at Stonehage Fleming responsible for helping clients develop and implement plans for passing on their legacy to subsequent generations.

His clients are not oblivious to that observation. Research conducted by the multi-family office found that UHNW families consider disputes between members, miscommunication and failure to engage and train the next generation among the top risks to long-term family wealth. Inflation, political risk and poor investment decisions all feature further down their list of concerns.

‘Giving wrong people responsibility is the fastest way of destroying wealth’

‘The very successful families understand the role of good leadership but others need a process to start articulating a purpose,’ he added. ‘We have to get them together and make sure they come to an understanding. Succession doesn’t work unless there is communication.’

No processes, big problems

The lack of a formal process appears to be a prominent problem. UBS’s 2018 Global Family Office Report found that less than half of family offices around the world have a succession plan in place, is either written or verbal though not always formally agreed, while 17% have no plan whatsoever.

‘Clogs to clogs in three generations is a phrase that exists in different cultures even in countries with very low or no tax,’ said Rupert Phelps, a partner for Smith & Williamson's family office, adding that a great number of families have lost their wealth by the third generation not through bad investments, but due to a lack of planning and their heirs not having the right skills and preparation.

Succession plan status
Formal written plan: 24%
Informal written plan: 9.40%
Verbally agreed plan: 10%
Plan in development: 32%
No plan at all: 17%
Don't know: 9.10%

Source: UBS Global Family Office Report 2018

This is not necessarily due to youngster’s apathy towards family affairs and business. A frequent obstacle, according to Hottinger Group chief executive Mark Robertson, is that information is not adequately passed on to successors as the old generation has conceived ideas about the knowledge, abilities and enthusiasm of their heirs.

Holding annual family forums is the preferred method of enabling dialogue to safeguard families wealth, making all members feel involved and parents feel more confident in their children, say many managers.

‘We have to broker these discussions, allowing all parties to express themselves,’ Robertson said. ‘When you open up these conversations it becomes clear that the next generation also has value to add and although they are young and lack experience they have knowledge that can surprise their parents.’

For him, poor investment decisions have a direct connection to family communication. ‘For example, a more mature matriarch or patriarch may have an appetite for investment in illiquid risk assets that may not be well suited for the next generation. It is only by engaging in conversation with that next generation about their liquidity needs that you can make better investments  for the family,’ he added.

Not a counsellor, just an adviser

Many practitioners agree that it is impossible to make consistent decisions that will last the test of time unless they fully comprehend who the family is, so getting to know each member and collectively helping them identify a purpose is crucial.

‘You can’t manage wealth unless you manage the family.’

Bringing together a family and helping it understand its purpose not only helps with its wealth management, it also helps the family office make decisions on its behalf, especially in rapidly changing times.

‘We are operating in a different environment and we need leaders that can respond in a changing world and who are alert to what is happening,’ said Michael Maslinski, strategic adviser and partner at Stonehage Fleming added: ‘We think you can’t manage wealth unless you manage the family.’

Although the latter makes family offices sound like they are taking on the role of group therapist, advisers insist their job has not evolved quite that far.

‘As a trusted adviser we give strategic advice, unregulated long term succession planning and look at how to prepare the next generation,’ Smith & Williamson's Phelps said.

‘When you write a family constitution you get to know all the family members. You get into emotional issues and you can get people crying, but I am not a counsellor in the sense of a therapist. My job is absolutely looking at the strategic and family relationships.’

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