Protecting More than Assets
Good fortune hardly ever lasts by chance alone. The adage that family fortunes do not last beyond the third generation is regularly repeated by advisers, and the saying is much closer to the truth than the families would care to admit. Taxes, divorce, bad investment, and acrimonious arguments will slowly strip away wealth. Private wealth stewardship recognizes this problem by regarding money as a lifelong obligation.
What Stewardship Means
Stewardship is not the same as investment. Investors seek profits; stewards ensure the preservation of meaning. Private wealth stewardship involves the integration of portfolio management, taxation planning, estate planning, philanthropy, and family governance into a cohesive strategy. Advisors consider the objectives that funds can achieve over many years and construct portfolios, trust accounts, and strategies based on such objectives.
When families follow this approach, they document their values and goals. They specify decision-makers, dispute resolution procedures, and times when the wealth will be accessible to their descendants. Such measures preclude conflicts.
The Great Wealth Transfer
The issue of timing increases the stakes involved. Scientists estimate that trillions of dollars will change hands over the next 20 years. The younger generation will have differing perspectives about sustainability and technology and will demand to be heard. Private Wealth Stewardship needs to transform from a discussion with one patriarch to a discussion with the whole family.
A Dynasty’s Blueprint
The Rockefeller family is one such family which can be used as a good example here. The family set up its own family office back in 1882 when it wanted to manage its wealth from the Standard Oil company, and many historians often refer to this as the first modern family office ever. The family office went on to open up its services to other people and now operates as Rockefeller Capital Management.
Tools of the Trade
Stewards need a variety of tools. Trusts keep wealth under certain conditions and help protect wealth from being used by creditors or family disputes. A diversified portfolio includes stocks, bonds, real estate, and private enterprises. Insurance helps cope with unexpected situations and tax optimization leaves more capital in motion. All these instruments have their own purpose, but no one of them can be effective on its own.
It is very important to coordinate everything properly. The lawyer may create a trust that contradicts the investment strategy and the accountant may make the tax optimization incompatible with the needs of the family. This is why wealthy families hire a lead advisor or a family office to ensure that all professionals cooperate according to one strategy.
Preparing the Next Generation
Just money will not educate the heirs. Those families that educate their heirs from an early age claim that they have faced less surprises thereafter. Parents educate their heirs about the financial statements little by little, bring them to participate in board-level meetings, and motivate them to handle small amounts of money. Mentors help them learn about budgeting, risks, and saying ‘no.’
Philanthropy reinforces this connection. Being philanthropic together offers family members a cause beyond money. Donor advised funds, foundations, and impact investments allow the relatives to engage in causes, measure the outcomes, and establish common ground.
Risks That Demand Vigilance
Risks never go away. Inflation cuts into buying power, market fluctuations test patience, and changing regulations bring new taxation laws. Hackers use cyber-attacks to directly threaten the wealth of rich families, knowing that their personal information is what gets them into the banks. Stewards counter such risks with stress tests, stringent security measures, and frequent audits of all documents and policies.
The worst risk of all, however, comes from family disputes. They arise when siblings argue about power, wives get into the mix, and long-held grievances come out at the time of inheritance. Private Wealth Stewardship minimizes this risk by instituting council bodies, a charter in writing, and a mediator before the problem arises.
Choosing the Right Adviser
Advisers need to be scrutinized properly. Qualifications come first but integrity is more important. Find out how the adviser generates his income, what will happen to your assets and how the company deals with conflict of interests. Get referrals from past clients who have gone through tough times working with the company.
The Lasting Legacy
Wealth endures as long as families imbue it with a mission. Wealth without a mission wanders; heirs without a mission mismanage. Families who strategize in advance, communicate effectively, and retain coordinated counsel provide their wealth with its best shot at longevity. The philosophy of Private wealth stewardship is the discipline required, and families who adhere to this philosophy will not only chart their own destinies but also those of the organizations and issues they fund with their money for decades to come. Stewardship is ultimately a commitment to those yet unborn. It takes time.
