The wealth management industry is undergoing a revolution in how current and future generations approach their wealth – coined “Wealth 3.0” by Dr. James Grubman and Dennis Jaffe.
Whilst this new thinking still acknowledges the inherent challenges of being a wealth holder, it rejects the negative, fear-based narrative around wealth that we’ve witnessed in the last few decades.
This new approach encourages wealth holders to stop thinking about succession through the lens of control and adopt a more inclusive, more collaborative and more creative approach for passing down wealth to the next generations.
This is a major turning point. Indeed, the misconstrued notion that the third generation will lose it all has been fed for decades, which has led to parents adopting less than ideal behaviours relating to how they communicate with their children about wealth. It is not uncommon to see parents actively preventing their children knowing about the family’s level of wealth. Or the children are purposely left in the dark about the ownership structure or how the assets are managed. These parents then plan to bring their children “into the fold” when they reach an age they deem appropriate – 21 or 25, or even 30 years old. Or, in the worst case scenario, the children gain that level of knowledge when a parent dies and they are confronted with a huge influx of wealth and responsibilities that they had absolutely no idea about.
This approach does not help setting up the next generation for success, so how do we adopt the positive thinking translated under the new paradigm of Wealth 3.0?
From my experience, Next Gens who did not experience a consistent and healthy degree of communication about wealth within their family, can fall under one of two opposite sides of a spectrum: on one side, there are feelings of guilt and shame about the wealth and/or privilege they have access to, and on the other, entitlement and ostentatiousness. Neither of these mindsets are conducive to understanding wealth as the opportunity to create value.
Understanding wealth in the context of opportunity and responsibility should start when the children are starting to understand values – in other words, at a young age. If the children have grown up ignorant of the fact that one day they will have a considerable amount of money or assets to manage, how can they develop the tools to do so effectively from one day to the other? There is a maturing around how to spend wealth that does not happen if someone has 10 to spend on one day and 10 000 on the next.
Understanding wealth in the context of opportunity and responsibility should start when the children are starting to understand values – in other words, at a young age.
Every time I’ve asked a parent why they are not being fully transparent with their child in the context of wealth, the answer has always been a variation of the words “I’m afraid that…”. Fear is an incredibly powerful emotion, it justifies protecting our children at all costs and in any shape or form. In this case, it becomes about control. Control of knowledge, control of information, control of spending. Control doesn’t teach, it doesn’t educate, it doesn’t develop the tools to deal with anything. It’s an imposition that takes away any agency from the person one is trying to “protect”.
Control doesn’t teach, it doesn’t educate, it doesn’t develop the tools to deal with anything. It’s an imposition that takes away any agency from the person one is trying to “protect”.
Conversely, children who are educated in the knowledge of what is value for money, what things should cost, and what is an acceptable level of spending based on the family’s circumstances and needs, they are more likely to develop the right behaviours towards wealth. The same can be said about children who grow up understanding the family business or assets, how they are managed, who are the people involved and how the owners make important decisions about it all. The overwhelming majority of the families I’ve worked with who promote an environment of transparency and open dialogue on the family wealth end up with interested Next Gens who ask smart questions about it instead of Next Gens who see it as a burden or a birth right.
In the worst case scenario I mentioned above, Next Gens are informed of their family’s wealth through a will. This can have absolutely devastating consequences as it can be perceived as the ultimate lack of trust between a parent and a child.
Parents are by default the ones who children seek for advice, guidance and help in making decisions. If a parent dies and springs onto their children a completely unknown amount of wealth, the consequences are profound:
From one day to the other, they have to manage a set of assets they don’t know anything about and/or don’t understand. Parents should be around when their children start making decisions around wealth. They should be there to counsel and advise, to remind them of their values and to help shape a positive understanding of the purpose of said wealth. The only way to effectively protect children from the negative consequences of wealth is by empowering them to know about it.
The only way to effectively protect children from the negative consequences of wealth is by empowering them to know about it.
It is unfortunate that the fears and prejudices that have encircled wealth in the last few decades have dictated such anxious behaviours between two generations. Let’s shed them and channel the love and high hopes parents have for their children into equipping them to see wealth as the opportunity to generate value for society.
For further information about any of the insights shared above or to find out more about Bedrock’s Family Strategy and Governance services, please do reach out info@bedrockgroup.ch.
Author: Maria Villax, Head of Family Strategy and Governance at Bedrock
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