More Than Money. Cole Michael A.

can burst into flame and the resulting conflagration may burn the house down.

      The challenge most wealthy families face is that they do not take an integrated approach to family wealth management – an approach that incorporates both a strategic outlook and exceptional tactical performance. Families like the Robbies, who concentrate too heavily on traditional wealth management, generally do not do well in preparing for long‐term wealth impact.

      Conversely, other families may miss wealth‐creating opportunities because they put too much emphasis on harmony and don't question actions and decisions made by other family members who seem to be in charge. Or they simply rock along, content with today's gains and thinking little about the future. By giving scant attention to interpersonal dynamics and communication, these families may set themselves up for failure when the economy takes a turn or a family member makes a unilateral and spectacularly bad investment decision. Furthermore, the traditional providers of wealth management services such as banks, brokerage firms, registered investment advisors, insurance agents, accountants, and attorneys focus primarily on traditional wealth and estate planning and neglect to address the strategic issues that account for 97 percent of the reasons families fail to sustain wealth. What is needed for multigenerational wealth management and sustainability is the amalgamation of both strategic and tactical planning and execution. The families who have been the most successful in running the family business also put the same kind of effort into managing the business of family.

      Along with the traditional wealth management responsibilities, these families continually mine the nonfinancial elements that affect the growth (or loss) of the family enterprise. These issues include:

      • Family history and values: Who are we as a family? What lessons can we learn from the wealth creators or the concept of wealth creation? How did our forebears build the family fortune? What do they have to teach this generation? Do we have the same values they did, or have we developed a different moral compass? Do we as a family share multigenerational values? If so, what are they?

      • Family vision and mission planning: What do we stand for as a family? Do we have shared vision or purpose for the wealth and the family into the future? What matters to us? What do we want our family legacy to be? Do we agree? If not, how do we resolve differences of opinion about what we want our legacy to look like?

      • Communication planning: How do we currently communicate with one another? Does that method work or should we develop new modes of communication? How can we continue to improve communication between and across generations? Would we as a family benefit from a more consistent and formal communication process?

      • Family governance: Should we manage our wealth as a unit or should we divide and manage it independently? Right now, who's handling the wealth on behalf of the family; that is, who has the greatest say in how wealth is developed and used? Is this the most effective way to carry out the family's mission and values? What are the rights and responsibilities of each family member? Are they clearly understood and communicated? How do we ensure individual family member accountability while allowing for expedited decision making?

      • Leadership development and assistance: How do we prepare the next generation of leaders? What skills do we need, and how do we identify who has them? What education and training should the family provide for those who will fulfill major responsibilities in the future?

      • Role clarification: What roles currently are being played by various family members? Are there gaps we need to fill? Do we need additional members to assume new roles? How do we determine which family members are best suited for which roles? Do any roles conflict with one another? Are there roles that served us well in the past but that now can be pruned as we look to the future?

      • Family education: How do we develop an ongoing educational program designed to prepare and train family members to successfully manage and steward wealth on behalf of themselves and the family? Should such education be carried out by the family, by other advisors, or by a combination of experts both inside and outside the family?

      • Risk: How do we balance risk and reward? How can we avoid the risks that might undermine the family mission? How do we deal with risk if it threatens our values? How does the family priority rank and manage risks based on the likelihood of specific types of occurrences and the level of impact they would have on the family?

      Using a process that is clear, well‐communicated, and well‐orchestrated increases a family's opportunity for long‐term cooperation and unity, generational understanding and happiness, and financial prosperity.

      This book helps readers answer the vital questions above and discover ways to integrate strategic and tactical wealth management tools in planning for successful wealth building and generational transfer.

      MULTIGENERATIONAL BUSINESSES ARE STILL GOING STRONG. HOW DO THEY DO IT?

      A big name and a huge fortune do not ensure the continuation of the family enterprise. The family name may remain on the business and the heirs represented on the board, but the founder's vision can be diluted if the family steps away from the leading roles. The table below names some businesses that have found a way to pass a family legacy from generation to generation. Family members are still active in the businesses, and these companies have grown, changed, and adapted with the times. It appears they have planned well on every front, both strategic and tactical.

      FORTUNES LOST TOO SOON. WHAT WENT WRONG?

      In addition to the Vanderbilts and the Robbies, the families in the following table also lost the family business and the money that accompanied it by the third generation – or earlier. In most cases, planning seemed to be almost nonexistent, and spending was rampant.

      For example, published reports indicate that Huntington Hartford II, grandson of the founders and heir to the A & P fortune, invested heavily in businesses about which he had little understanding: art, movie production, the newspapers, and others. He also had several failed marriages that cost him millions of dollars, and his real estate holdings, including a home in London and an unsuccessful Paradise Island resort in the Bahamas, eventually drained the coffers. In general, it appears that those who lost their inheritances did so because they lived beyond their means for long periods of time.

      Mark Twain lost it all while he was still alive, and most of his $10 million fortune disappeared because he had little business acumen and made a series of poor investment decisions.

      CHAPTER 2

      Wealth Is More Than Money

      In the introduction to his transformational guidebook Family Wealth: Keeping It in the Family, James Hughes mentions that a family's wealth “consists primarily of its human capital (defined as all the individuals who make up the family) and its intellectual capital (defined as everything each individual family member knows), and secondarily of its financial capital.”3 Later in the book, he mentions a fourth type of capital: social capital, which I define as the networks of people of means who use their wealth and influence for the benefit of society.

      If, in fact, human, intellectual, and social capital make up 75 percent of a family's actual wealth, giving 90 percent of the family's and advisors' attention to only 25 percent of the assets doesn't make a lot of sense. Yet this is the way traditional wealth managers and those they advise tend to view their roles.

      Hughes makes exactly this point. In his view, a family that loses its wealth usually does so because of too great a concentration on financial capital and too little attention paid to the other types of capital the family possesses. Hughes goes on to say that “a family's financial capital is a tool to support the growth of the family's human and intellectual capital.”4 In other words, money is simply a means to a more important and meaningful end. Money, rightly considered, can empower an entire family, but if there is too much emphasis on balance sheets and not enough on family relationships, talents, roles, and strategic planning, the family can be enfeebled as its wealth trickles away.

      Families

3

James E. Hughes Jr., Family Wealth: Keeping It in the Family (New York: Bloomberg Press, 2004), p. xv.

4

Ibid., p. 17.