Dear Banking Industry,
Scandalous, illegal, or immoral Wall Street activities can happen anytime, anywhere. Take heart! Not one of you is alone. We took a look at some of Wall Street’s dirty laundry ourselves. It seems these days it is not shocking. Yet, the brand messaging of some of our “most trusted institutions” seems to be directly at odds with your actual practices–and that should not be.
When wealth is passed down through generations in a family, the long-term prognosis generally isn’t very good. Research shows that in most families, 70% of inherited wealth is lost by the second generation and 90% by the third.
A new approach to wealth preservation called heritage design aims to fix that. It focuses on helping families communicate better about their values and traditions, and how they want an inheritance to be managed.
When wealth is passed down through generations in a family, the long-term prognosis generally isn’t very good. Research shows that in most families, 70% of inherited wealth is lost by the second generation and 90% by the third.
“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns. So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you. . . the truth is most people don’t even realize that’s happening.” —President Barack Obama.
The President’s recent address to the Save Our Retirement Coalition at the AARP headquarters in Washington, D.C., underscored points we have shared with our clients and readers for years: financial advisors who don’t put their clients’ needs first may not act in their best interests 100% of the time.
“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns. So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you… the truth is most people don’t even realize that’s happening.”
Since publishing our Huffington Post.com blog which mentioned only a small fraction of what occurred at banks and Wall Street firms last year, not much has changed. Why do perpetrators of financial crimes choose to commit them?
Why do smart people make bad financial decisions? More importantly, why do they keep making them? Perhaps they study stocks, market fluctuations, or market indicators. Only a fractional percentage of investors, both professional and amateur, manage to “beat” the market.
What exactly is a family bank and what are its applications? Mainly used to pay for education, buy a home, or start a business, (though it certainly can have other applications, depending on its rules) the Family Bank is not a brick-and-mortar lending institution, partnership, nor is it a corporation. It does, however, operate as an entity formally independent of the family.
In our culture, the phenomenon is called “from shirtsleeves to shirtsleeves in three generations.” In China, it is called “from peasant shoes to peasant shoes in three generations.” In Italy, the saying is “from the stable to the stars and back again,” and the Scottish expression is “the father buys, the son builds, the grandchild sells and his son begs.”
Research studies have found that about 70 percent of a high net worth family’s wealth is often gone by the end of the second generation, and 90 percent is gone by the end of the third generation. Contrary to standard belief, investment mistakes and changes in the economy are not at the root of these losses.
Nearly every country on the planet has its own aphorism to reflect the all-too-common trend of rags to riches and back to rags again. In our culture, this phenomenon is described as “from shirtsleeves to shirtsleeves in three generations.” And it affects many affluent, intelligent families. So when fortunes are built by industrious, bright, innovative individuals, why is their wealth often destroyed in just a few generations?