The New Year is just around the corner and it’s a time when many of us come up with resolutions or formally set goals (or both). Whether those lofty goals are about finances, relationships, health, or all of the above, the yet unblemished months ahead offer unfettered promise and hope this will be the year you realize your true potential. That said, of course, we’re sure many are just hoping that the coming year will be much better than the last two!
For your clients, financial goals are likely to be a priority: achieving disproportionate returns, managing risk as they approach retirement, saving for children’s future education, reducing the tax burden, and more.
However, for many affluent families in particular, perhaps the most pressing issue is succession planning and inheritance. Cerulli Associates estimates that approximately $ 68 trillion will be transferred from wealthy families to their heirs over the next 25 years, an unprecedented opportunity for which the consulting industry is largely unprepared. The creators of wealth don’t want to just casually pass on the fruits of their labor to the next generation without the assurance that it will be managed appropriately and managed at least somewhat in accordance with their expectations and values.
Likewise, Millennials and Gen Z are keen to put their money where they say it is by supporting businesses whose practices, values, or political ideologies align with theirs. And make no mistake, they won’t hesitate to fire you once they inherit their parents’ fortune – that is, of course, unless you took care of it. ” provide demonstrable value before the event. You have to show your ability to help them achieve their financial and impact goals now, while simultaneously navigating the desires of the donors.
How is it possible? By working with the family as a cohesive unit to create a Unified Family Wealth Mission Statement (FWMS).
Why the FWMS?
Have you asked your clients what they hope to accomplish this year, not only in terms of performance, but in all aspects of their lives? There’s a good chance they’ll appreciate the interest, and it can lead to a much more rewarding series of conversations. It can also be a good springboard for creating the family heritage mission statement and getting them to think ahead of the opportunities and challenges they want to overcome.
The family heritage mission statement represents a coherent and shared vision of what the family, across all generations, believes in and represents. Just like a successful business, a well-off family needs a mission to set priorities, delineate responsibilities, and plan for future prosperity. When you consider an alarming statistic from the wealth consulting firm The Williams Group, which suggests that around 90% of affluent families lose their wealth after three generations, it becomes clear that a proactive approach to succession planning is necessary. A family wealth mission statement offers something to rally around and can serve as a guide in rough waters.
There are many ways to write a mission statement, but they all tend to start with discovering values. The reality is that we all have values, but when asked to define them, there are few who could articulate them clearly and unequivocally. Additionally, when asked to describe their family’s values, people are even less likely to have a solid answer. Why? Because, unless it has been explicitly discussed and agreed upon, it can be particularly difficult to articulate the varied needs of multiple stakeholders spanning different generations.
Here are some tips to keep in mind as you embark on this journey:
- Talk to your clients about their source of wealth and identify how this origin story can be communicated to future generations. There are certain life experiences that underlie and shape our thinking patterns, including our unique view of success, and it is important that they are discussed and validated during the discovery process.
- Start a conversation about current events and see what makes the family tick. Eighty percent of high net worth investors say they expect companies to make profits but also take responsibility for their impact on the environment and society. How will you help them express this through their investments?
- Help the family translate their philanthropic work and donations to establish priority pillars, be it education, the arts, the environment, or whatever. During this process, the family can go so far as to designate specific nonprofit organizations that should receive continued support through the generations.
- Explore and define natural roles within the family. If it becomes apparent that a child will be managing their future finances, you can begin to assess their priorities from both wealth generation / preservation and impact perspective. By learning about these burning issues now, Advisors have the opportunity to strengthen their bonds with the next generation and demonstrate how they can work together to create a values-aligned portfolio.
- Ask yourself if there are any younger children who could benefit from financial education, even at an early age. Not only is this a great time to get the whole family talking about money, which is a controversial topic for some, but it’s yet another opportunity to engage future wealth holders and gain their trust. Educating young family stakeholders about financial responsibilities can also be a source of comfort for older family members, who wish to ensure that future generations are equipped to take on the responsibility that comes with great wealth.
- Encourage each family member to share their priorities and write down those they have in common. Help them understand how, even at a young age, they can take action, whether it’s creating their first budget or getting involved in a charity that reflects the family’s collective priorities.
- Guide the family through formalizing something in writing. The following document should describe the overarching goal of family wealth, the various means by which they will achieve and express that goal, and the respective roles that each family member will assume.
This is an iterative process that will usually evolve over several meetings, especially as you provide thoughtful stimuli and each family member becomes more comfortable expressing their values, aspirations, and fears. The hope is that the collective unit will be energized and inspired enough to continue discussing what matters most to them long after you’ve left the room.
Family values can be very personal, providing a window into family dynamics and bringing you into a more intimate sphere. Understanding the values of a family allows advisors to offer a whole new form of transparency, and therefore value, to their clients. The beauty of this is in the future: in quarterly or annual client family reunions. Here, counselors can remind families of their mission statement and communicate the impact of their holdings, based on the values they hold most, and how they have progressed toward their goals.
The family patrimony is no longer an end in itself; it is a means of uniting the generations around a common objective. A family heritage mission statement can create a lasting set of family values and a shared legacy, and can facilitate a smooth transition in wealth. It can also help the family collectively make key decisions, reducing friction and facilitating a more collaborative approach to wealth management.
Make this year the year you bring families together with a family heritage mission statement. By helping families discover their values and purpose, you can cement yours in their lives.
Alex Laipple is Business Development Manager and Emma Smith is Communications Director at Ethics. Ethic is a technology-based asset manager who works with wealth advisers to create personalized sustainable portfolios at scale.