The new year is almost upon us, and it’s a time when many of us either outline resolutions or formally set goals for ourselves (or both). Whether these lofty aims pertain to finances, relationships, health or all of the above, the as-yet unblemished months ahead offer unfettered promise and hope that this will be the year you fulfill your true potential. With that said, of course, we’re sure that many are just hoping the year ahead will be significantly better than the last two!
For your clients, financial goals will likely be top of mind: achieving outsize returns, managing risk as they approach retirement, saving for children’s future education, minimizing tax burden and more.
However, for many affluent families in particular, arguably the most pressing issue is succession and estate planning. Cerulli Associates estimates that some $68 trillion will transfer from high-net-worth families to their heirs over the next 25 years—an unprecedented opportunity for which the advisory industry is largely unprepared. Wealth creators don’t just want to glibly pass off the fruits of their labor to the next generation without assurances that it will be stewarded appropriately and managed at least somewhat in line with their expectations and values.
Equally, millennials and Gen Zs are keen to put their money where their mouths are via support of businesses whose corporate practices, values or political ideologies align with their own. And make no mistake, they won’t hesitate to fire you once they’ve inherited their parents’ wealth—that is, of course, unless you’ve taken care to offer demonstrable value prior to the event. You should showcase your ability to help them meet their financial and impact goals now, while simultaneously navigating the desires of the donors.
How is this 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 about what they hope to achieve this year—not just in terms of returns, but in all aspects of their life? Chances are, they’ll appreciate the interest, and it may lead to a series of much more rewarding conversations. It can also be a good springboard for the creation of the family wealth mission statement, and get them thinking in advance about the opportunities and challenges they wish to address.
The family wealth mission statement represents a cogent, shared vision of what the family—across all generations—believes and stands for. Much like a successful business, an affluent family requires a mission to ascertain priorities, delineate certain responsibilities and plan for future prosperity. When you consider an alarming statistic from wealth consultancy The Williams Group, which suggests that approximately 90% of affluent families lose their wealth after three generations, it becomes clear that a proactive approach to succession planning is required. A family wealth mission statement offers something to rally around and may serve as a guiding light in choppy waters.
There are many ways to craft a mission statement, but they all tend to start with values discovery. The reality is, we all have values, but when asked to define them, there are few people that could clearly and unequivocally articulate them. Moreover, when asked to describe their family’s values, people are even less likely to have a robust answer. Why? Because, unless it has been explicitly discussed and agreed upon, it can be especially challenging to express the varying needs of multiple stakeholders spanning different generations.
Here are some pointers to bear in mind as you embark upon this journey:
- Get your clients talking about their source of wealth, and identifying how that origin story can be communicated to future generations. There are certain life experiences that underpin and shape our ways of thinking, including our unique views of success, and it’s important that these are discussed and validated during the discovery process.
- Engage in 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 a profit 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 giving to establish pillars of priority—whether it’s education, the arts, the environment or something else. During this process, the family might go so far as to stipulate specific nonprofit organizations that should receive ongoing support throughout the generations.
- Explore and define natural roles within the family. If it becomes apparent that one child will manage future finances, you can begin assessing his or her priorities from both a wealth generation/preservation and impact standpoint. By becoming familiar with these hot-button issues now, advisors have the opportunity to strengthen their bond with the next generation and demonstrate how they can work together to create a values-aligned portfolio.
- Consider whether there are younger children that could benefit from financial education, even at an early age. Not only is this a great time to get the entire family talking about money, which represents a contentious topic for some, but it’s yet another opportunity to engage future wealth-holders and earn their trust. Educating younger family stakeholders about financial responsibilities can also serve as a source of comfort to older family members, who are keen to ensure that future generations are equipped to handle the responsibility that comes with significant wealth.
- Encourage each family member to share their priorities and take note of those that they share in common. Help them to understand how, even at a young age, they can take action—whether it’s creating their first budget, or engaging in charity work that reflects the collective priorities of the family.
- Guide the family toward formalizing something in writing. The subsequent document should outline the overarching purpose for the familial wealth, the various means through which they will achieve and express that purpose, and the respective roles that each family member will assume.
This is an iterative process that will usually evolve throughout multiple meetings, particularly as you provide thoughtful stimuli and as 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 leave the room.
Family values can be highly personal, providing a window into family dynamics and bringing you into a more intimate sphere. Understanding a family’s values empowers advisors to provide an entirely new form of transparency, and thus value, to their clients. The beauty of this lies in the future: in quarterly or annual client family meetings. Here, advisors can remind families of their mission statement and communicate to them the impact of their holdings, based on the values they hold most dear, and how they have progressed toward their goals.
Family wealth is no longer an end in and of itself; it is a means to unite generations around a shared purpose. A family wealth mission statement can build a durable set of family values and a shared legacy, and may facilitate a smooth transition of wealth. It can also help the family to collectively navigate key decisions, reducing friction and facilitating a more collaborative approach to wealth stewardship.
Make this the year that you bring families closer together with a family wealth mission statement. In helping families to uncover their values and purpose, you can cement yours in their lives.
Alex Laipple is head of business development and Emma Smith is director of communications at Ethic. Ethic is a tech-enabled asset manager that works with wealth advisers to create personalized sustainable portfolios at scale.