Managing Legacy Wealth Part 3 Working with the Entire Family

This is the final installment in a series of three articles that delve into the topic of working with families. In the first article, we explored the unique characteristics of the members of the Greatest/Silent, and Baby Boomer generations that currently hold the wealth. In the second article, we examined the Gen X and Millennial generations who will be the recipients of this inheritance.

 By 2045, the Greatest, Silent, and Baby Boomer generations are expected to move $84.4 trillion to Gen X and Millennials.  To tap into this money in motion, you will need to expand your reach by thinking bigger and broader, moving beyond advising a single generation within a family to advising the entire family. This shift enables you to capture the opportunities presented by intergenerational wealth transfer and position yourself as a trusted advisor for multiple generations within your client families. Choosing not to make these changes puts you at risk of losing your clients’ heirs to other advisors once they inherit their wealth.

The first step is understanding the generations within the family.  This involves gaining insights into how today’s generations have approached work, their values, and their attitudes towards wealth creation and management. With these insights, you can better tailor your advice and strategies to align with the family’s unique dynamics and goals.

“From shirtsleeves to shirtsleeves in three generations” is an adage which underscores the challenge wealthy families face as they try to pass their financial legacy beyond living heirs. A 2015 US Trust survey of high-net-worth investors, defined as individuals with over $3 million in investable assets, reported that by the second generation 70% of family wealth has dissipated and by the third, 90% of family wealth is gone. Several factors contribute to the erosion of family wealth. Some of the most significant being excessive spending, heirs lacking financial knowledge, and generational dilution, which occurs when there are too many heirs relying on limited financial resources.

For affluent families, the presence of an experienced and skilled financial professional, such as yourself, can play a pivotal role in determining whether their family’s financial legacy grows or erodes over time. Your expertise and guidance are instrumental in solving complex financial problems, employing effective wealth management strategies, and ensuring the preservation and growth of the family’s wealth for generations to come. Your role as a trusted advisor can make a significant difference in the long-term success and sustainability of the family’s financial legacy.

When your client expresses their intention to pass their financial legacy on to future generations, your task is to assist them in accomplishing this objective. To support you in this endeavor, here are some steps you can take:

1. Foster Open and Transparent Communication
   Begin open and honest conversations with heirs to discuss the family’s values, financial legacy, and long-term goals. Clients are often uncomfortable sharing the value of their financial legacy with their heirs due to concerns about how this information may affect the heirs’ behavior.To assist in preparing heirs for this information, it can be highly advantageous for the client to create an ethical will. This document allows the client to share their life story, including the process of building their wealth or growing their inherited assets that now form their financial legacy. This personal narrative can provide valuable context into the family’s financial journey, fostering a deeper understanding and appreciation among the heirs.
2. Hold Family Meetings
   Establish regular family meetings where all beneficiaries can come together to discuss and align their visions for the family’s wealth. These meetings provide a platform for sharing ideas, addressing concerns, building trust, and fostering a sense of unity.
3. Provide Professional Guidance
   While you play a critical role in guiding families through the process of successfully growing and transferring their wealth across multiple generations, it is important to acknowledge that addressing and resolving family relationship issues may require expertise beyond your scope. While you may not be an expert in diagnosing and healing family dysfunction, you can still provide valuable guidance and resources to help families navigate these challenges. Collaborating with professionals specializing in family therapy or mediation can be beneficial in addressing and resolving any underlying family relationship issues that may impact the wealth transfer process.
4. Create a Family Mission Statement
   Collaboratively develop a family mission statement that encapsulates the shared values, goals, and aspirations of the family. This statement serves as a guiding principle for decision-making and reinforces a sense of purpose. Encourage active participation and listen to all perspectives.
5. Focus on Education and Increased Financial Literacy
   The lack of financial knowledge is one of the most significant impediments to the successful growth of a family financial legacy as it passes from generation. To avoid this result, promote financial education among the heirs. Offer resources, workshops, or seminars to enhance their understanding of wealth management, investments, insurance, and responsible financial practices.
6. Encourage Mentorship and Succession Planning
   Mentorship between generations, where older family members can pass on their knowledge and experiences to younger heirs is invaluable. Develop a clear succession plan that outlines roles, responsibilities, and expectations for each heir.
7. Ensure Regular Review and Adaption
   Continuously review and adapt the family’s values, goals and strategies as circumstances change. Regularly assess progress, celebrate achievements, and address any conflicts or challenges that may arise.

By implementing these steps, your clients can achieve their goals of bringing their heirs together, sharing the intricate details of the family’s financial legacy, fostering a sense of unity, and shared purpose in working toward the family’s common goals. This process will ultimately lead to the successful transfer of family wealth to both current and future generations.