Family fortunes

Shirtsleeves to shirtsleeves in three generations. From the stables to the stars and back to the stables in three generations. Clogs to clogs in three generations. Wealth never survives three generations – from the Chinese saying fu bu guo san dai.

Versions of this proverb exist in different cultures around the world. They are often disputed and challenged for lacking evidence and being disrespectful to younger generations.

Whether myth or reality, the caution is about much more than being able to manage, grow or sustain financial assets or operate a business. It points to a number of challenges:

  • Keeping a family together through generational transitions and being able to make decisions together over shared assets as well as managing differences of opinions.
  • Harnessing the opportunities that wealth provides younger generations so they can develop their passions and a sense of purpose in the presence of family success.
  • Preparing younger generations to be engaged stewards of family wealth or creators of new opportunities for the family enterprise. Younger generations are most often eager to be involved and to learn.

The complexity around maintaining and developing family ties increases from generation to generation, as does nurturing individual family members. Complications can also arise as the family grows and spreads across different locations.  

What can families do?

Studies such as Wise Counsel Research’s work exploring 100-year-old family businesses1 and Williams and Preisser’s research conducted in 2003, reveal some common themes on effective practices2. Successful generational transitions in wealthy families require intent, communication and preparation. The results demonstrate that focusing on the people within the family and maintaining strong relationships is as important as business resilience and success.

However, talking about wealth and developing a shared vision and purpose for the future is a difficult –and sometimes taboo – task for families around the world. Each generation has its own set of concerns, which they can find difficult to express to each other.

For example, older generations may:

  • feel that talking about wealth could create a sense of entitlement or lead to a lack of ambition among younger generations;
  • have concerns about selecting one of their children to lead the family business when they love all their family equally;
  • be concerned about the financial impact if their children get divorced;
  • wonder if their children could damage the family business by taking it in new and different directions;
  • wish to retain control; and
  • worry about how in-laws may react to wealth.

Equally, younger generations have their own sets of questions:

  • Will they be able to live up to the success of their parents/family?
  • How can they tell their parents that they wish to pursue a different career and not join the family business or family office?
  • How will they work with other family members?
  • Will senior executives in the business or family office respect them?

Finding a solution can take several months or years and requires input from all generations, including:

  • a discussion to develop their shared vision and values;
  • a plan for how they will govern their shared assets over time;
  • how they will continue to build their ties within the family; and
  • how they will prepare the younger generations.

It’s a continuous and evolving journey. Some families choose to write their conclusions down in the form of a family constitution, which is not a legally enforceable agreement but more of a ‘family pact’ that creates clarity and guides how they will work together.

Culture influences communication

As Grubman and Jaffe discuss in Cross cultures: How global families negotiate change across generations3, culture plays an important role in how discussions about family wealth are tackled. Our experience also suggests there are specific characteristics inherent in different cultural groups and how they tend to operate.

In certain areas of the world where a family has developed their financial assets quickly, the generation creating the wealth often avoids having discussions about what to do with it. Among other reasons, this is often because they feel insecure about wealth and anxious that it may disappear as rapidly as it came.

The people involved in the conversations can vary across cultures. For example, in the Middle East and Asia, women have not traditionally been involved in financial decisions as it was believed that they would marry into – and therefore become part of – another family. However, this is changing as families only have daughters and moreover they are highly qualified and keen.

Culture also influences how discussions are held and decisions reached. In societies across North America, western and northern Europe and Australia, for example, adult family members can expect to be equal participants in a discussion with older generations and can express disagreement openly. In other cultures, the generational hierarchy is important and a respect for elders needs to be maintained. Final decisions are made or need to be approved by the elders.

Culture can also affect the style of communication. For instance, in many Eastern, Southern European and South American cultures, communication is indirect, nuanced and can appear vague. This style means that hierarchies and relationships are respected and any difference of opinion does not bring confrontation or embarrassment. Meanwhile, in North America, northern Europe and Australia, effective communication is largely described as being direct and clear, promoting trust.

In a globalised world, it is unsurprising that the families we advise are experiencing a greater degree of cross-fertilisation between cultural styles as they plan to transfer wealth. From the younger generations studying at universities abroad to branches of business-owning families living in different locations, they are bound to be influenced by the communication and decision-making styles of other cultures.

For example, take the second son of an Indian business-owning family who wants to speak to the patriarch about a leadership role. He knows that tradition demands this position is given to his older brother. However, the second son believes he is better qualified than his brother, having been educated at Wharton Business School.

Another example is the communication challenge of the third generation of a Hong Kong Chinese business-owning family, with branches living in Italy, the US and Shanghai. Due to the distance between them, they haven’t spent much time together and have absorbed the cultures of where they have been brought up. They are now coming together to work out how to combine their cultural views and influences to organise and manage their shared assets.

What does this mean for wealth planning?  

The loss of wealth and family relationships in times of generational transition is a global concern. Studies show that alongside business innovation and the proper management of financial assets, successful family enterprises also need a family governance strategy. Having a plan in place enables families to build capacity and help individual members of the unit become stewards for future generations. This process begins with communication and discussion, as well as formulating a way to make decisions together. There is no one-size-fits-all ‘best practice’ – the process needs to work with the cultural style of each family, whether it is more aligned to their home culture or a combination of cultures.



All market and economic data as of March 2019 and sourced from Bloomberg and FactSet unless otherwise stated.

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