Research has indicated that up to 70% of wealthy families lose their wealth by the next generation and up to 90% lose their wealth by the third generation.
A failed wealth transfer can mean several things: the loss of the family’s financial assets, the dissipation of important memories and values, and even intense conflict among family members. But why is this happening so often, and what steps can be taken to ensure it doesn’t happen within your own family?
Here are five of the most common reasons money doesn’t survive wealth transfers over multiple generations.
It’s essential for multiple generations of a family to engage in clear, open dialog, which sets the foundation for successfully passing down both financial assets and important values. Understanding how each of your family members prefers to communicate can also decrease the possibility of family discord. Encouraging clear communication can mitigate many of the reasons wealth transfers fail. Conversations should focus on matters that extend beyond financial wealth alone.
Once your family is engaged in meaningful communication, the next step is to define your shared vision. Moving in contradictory directions will eventually seed conflict, so build common ground by identifying what you’re all working toward. What do you want your family’s legacy to look like? What family qualities do you want your great-grandchildren to still value? Giving each person a chance to clearly communicate his or her interests will increase understanding by all, and it’ll help the purpose and positive impact of your family’s financial wealth.
When family communication focuses too much on financial wealth, the opportunity to foster a sense of gratitude can be lost. Be sure you’re also communicating about things that go beyond money – like your core values, the experiences that have had the greatest impact on your life, and the philanthropic causes you care about most. Structured communications around these non-financial topics can help refocus everyone on what matters most: your family.
You may be familiar with the saying, “transparency breeds trust.” However, the reverse is also true: when family members perceive a lack of transparency, trust can begin to deteriorate. Transparency does not necessarily mean disclosing your net worth to every family member, but it does mean including them in discussions about the intended purpose of wealth you’ll pass down. Encourage family members to ask questions throughout your family dialogs and be as open as you can with your answers.
If there’s one emotion that helps support wealth transfer success, it’s gratitude. When family members are focused on what money can do for them, overspending and misuse soon follow. But by communicating about both financial and intangible wealth and participating together in charitable events, you can slowly strengthen an attitude of gratitude.
It’s not always easy to navigate the complexities of family wealth. But with open communication and the guidance of a trusted wealth manager, you can begin these important conversations and help set your family up for wealth transfer success.
This content was created by More than Money 360. Raymond James is not affiliated with More than Money 360.
Source: Preparing for the great UK wealth transfer – FTAdviser
Bear market of 1974The severe bear market of 1974 threatened the existence of Raymond James, which was bleeding capital by the day. Tom James, his father and other leaders took extreme measures to keep the firm afloat, slashing costs, forgoing pay checks and even attempting to sell the firm for just enough capital to protect client assets and retain as many associates as possible. The story could have ended very differently if not for a sharp upturn and continued rebound in the stock markets late in the year. |
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Black MondayOn 19 October 1987, the stock markets experienced a dramatic plunge that prompted many firms to shut down their trading desks and turn off their phones to minimize internal losses. Raymond James refused to do the same. Our desks stayed open to help meet clients’ needs, resulting in our first and only unprofitable quarter since the firm went public in 1983. |
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Who was Raymond James?The Raymond in our name is actually from Edward Raymond, owner of a 15-employee mutual fund sales group, Raymond and Associates, along Florida’s west coast. He sold his company to Bob James on 15 July 1964, on condition that the surviving firm be called Raymond, James & Associates. Three days after the sale, Ed Raymond was involved in a near-fatal automobile accident and never joined the firm. Nonetheless, even after Raymond had passed away, Bob James insisted that his name remain on the door – ahead of James’ own. That was a promise he made to Ed Raymond three days before the accident, and Bob James was a man who kept his promises. |
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Taking Raymond James PublicWhen consideration was being given to taking Raymond James public, Tom James penned a letter to shareholders (largely employees at the time). ” … the public offering should be considered as a statement of our independence. While this is a psychological rather than an economic rationale, it is nonetheless very important. We have asserted for some time that we are not interested in becoming a small part of a very large corporation. That assertion results mainly from the inclinations of management rather than the economic benefits associated with either alternative. The public stock offering affords us the opportunity to enjoy a little bit of the best of both worlds. While shareholders will be given liquidity at fair market value, we will still have the ability to control our own destiny.” After 40+ years of Tom’s leadership, upon becoming CEO, Paul Reilly was often questioned about whether the company might ultimately surrender its cherished independence and be acquired by some larger entity. His response: “Not while I’m around.” It’s a theme that continues today. |
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