The Intergenerational Wealth Resource Guide

Successful families risk seeing the fruits of their hard work and dedication destroyed in less than three generations.

Fact: 60% of affluent families will lose their wealth in the second generation, and 90% will lose it by the third generation. Yet many families, such as the Rockefellers and Rothschilds, have managed to beat the odds. How do they continue to do this? What do they know that the average family doesn’t? How can your family apply their strategies to create and preserve intergenerational wealth?

This resource guide is meant to answer these questions and provide your family with a list of immediate actions you can take today, which will help you avoid the mistakes that prevent successful families from creating and preserving generational wealth.

This Resource Guide Includes:

  • The 6 Strategies of the Rockefellers, Rothschilds, and other family dynasties that successful families employ to preserve and grow their wealth from generation to generation
  • Must Have Checklist
  • Educational Resources for Children and Parents
  • What a Family Office Brings to You
  • Fiduciary Oath for your Advisors

The 6 Strategies of the Rockefellers, Rothschilds, and other Family Dynasties

Strategy # 1 – Coordinate and Integrate your Advisors

A patient has a stroke and returns home. Now his primary care provider must coordinate with a neurologist, a cardiologist, a psychologist, a nutritionist, speech therapist, occupational therapist, and physical therapist. He must make sure the drugs being prescribed—perhaps an anti-seizure medication, a blood thinner, a statin, and even pain medication—do not have any contraindications, nor do they inhibit the patient from undergoing any of the necessary activities by making him too drowsy to benefit from therapy. The same holds true for your finances.

The wealthiest families realized the importance of coordinating and integrating their advisors. Only by integrating legal asset protection, tax planning, estate planning, and investment management, can you maximize the efficiency of your assets and realize your assets full potential.

We call this wealth optimization. It’s a simple idea. It says: given your current net worth, your expected future earnings, and your lifetime financial goals, you must make sure that you are managing your assets to extract the most you can from them given your required level of risk. Experts from many different areas of law, accounting and finance must work for you; and of equal importance, each of them must work together.

Strategy # 2 – Teach Your Children the Responsibilities of an Inheritance, and How to Sustain It

90% of affluent families will lose their wealth by the third generation. The primary causes are a lack of communication, lack of trust within a family, and ill-prepared heirs. Less than 20% of families with over $10MM in net worth have conducted even a single activity to help their children understand the value of money.i

Consider that you are a successful physician: You work incredibly hard treating your patients, then you have to deal with managing your practice, then you have to deal with reading or conducting research, then there is continuing education, somewhere in between you find the time for some sleep, maybe even some golf or other recreation activity.

How much time do you really have left each week to spend with your family?

Do you really want to spend that time talking with them about personal financial matters?

The key to sustaining intergenerational wealth is financial education and family wealth monitoring.   As early as age 5, you can begin a formal education process for your heirs. We have included an educational plan in this resource guide as an example for you to facilitate your planning. We have included a list of recommended resources for both children and parents.

Strategy # 3 – Create a Comprehensive Financial Plan, and Monitor Your Progress Against Your Goals

The original robber barons of the nineteenth century understood capital budgeting very well. But their true innovation was taking this concept and applying it to their personal financial lives – they began running their family’s financial affairs just like they ran their corporations. This means that just like their railroad company, their steel company, or their oil company, it was important for each family to understand where they wanted to be in 20 years and put a plan in place to get there.

Think about what you want to do, what you want to own, and how you can pay for these things. Painting a realistic picture means assessing your current financial position, building yourself a balance sheet, and projecting your future cash flows. Make sure to plan for unexpected contingencies such as early death, disability, long-term care, extended bear markets, and inflation. Even the possibilities of litigation, divorce, and other life cycle events should be considered.

Lastly, ensure your financial plan is about you and your life. As each one of us is unique, our financial needs and wants are too. So examine your present financial situation. Protect what’s important. Minimize your taxes. Accumulate wealth. Plan for retirement. Create your legacy. But most important of all, be realistic.

Strategy # 4 – Invest Based On Your Required Rate of Return, Not a Market Benchmark

Between 1871 and 2005 the S&P 500 generated a real return of 6.97%. Yet the median investor expected to generate returns of 14.1% in 2005.ii Even more, during the decade ending 2008, the average stock fund investor realized only a 1.9% return.iii How could this be?

Simply put, investors are taking on too much risk in their investment portfolios. The aphorism “you must take on more risk to generate more return” is not necessarily true for the long-term investor. When considering taking on additional risk, associate the benefit with your required rate of return. If you have $10MM, yet only spend $10,000 per month, it may not be necessary to have any of your assets in the stock market. Instead you could simply own treasury bills, and you would still be a net saver.

Strategy # 5 – Make Sure Your Advisor is Held to the Fiduciary Standard

Federal law requires that a Registered Investment Advisor act solely in the best interest of the client, even if that interest is in direct conflict with the advisor’s financial interest. This is what is known as the fiduciary standard.

It makes sense doesn’t it? Unfortunately, only a small proportion of financial advisors are federally or state registered investment advisors. Most work for broker dealers or insurance companies.iv They aren’t regulated by the Securities and Exchange Commission. In fact, they are required by federal law to act in the best interest of their employer, not in the best interest of their client.

So knowing this, the dynastically wealthy families of the 19th and 20th centuries turned this relationship on its head. They hired experts from every legal and financial category of business (investment management, accounting, financial planning, legal asset protection, estate planning, etc.) to work directly for their families. They bound each expert to this fiduciary standard. You can too.

We have included a Fiduciary Oath in this Resource Guide. Ask your advisors and their supervisors to sign it. Have it notarized. This protects you from advisors who want to make as much money as they can by giving you advice that is not necessarily in your best interest. Better yet, hire advisors that work for a Family Office because you will know for certain that they are employed directly by your family and are working for you, not some large brokerage firm.

Strategy # 6 – Hire Professional Investors with Audited Track Records who are Fiduciaries

Isn’t it interesting how salesmen have gone from calling themselves a salesman, to calling themselves Vice President, to calling themselves a Financial Advisor? How many times are these large financial firms going to try to trick the public into believing a salesperson is a financial expert worthy of advising a family?

Over 70% of folks who call themselves financial advisors generate their primary source of income from commissions, sales charges, and fees.v And we believe even fewer have ever been a professional investor with an audited track record.

Wealthy families know that they should only be listening to advice from recognized experts. This appears to be intuitive, right? As the example above indicates, it’s actually much more difficult than it seems. Most financial advisors are actually commissioned salesmen with fancy titles, not experts.

So how do you identify an expert who is a fiduciary?

Look for audited, professional investors. Those managing funds such as limited partnerships, hedge funds, and private equity funds or those working for Family Offices and bank trust departments are experts. Ask the expert who is available to you, who they would recommend, and have a consultation with these individuals.

Every Family’s Must Have Checklist

A list of absolutely essential documents each family must have in order to make well-informed decisions:

  • Current Balance Sheet
  • Projected Cash Flow Statement
  • Electronic Vault for your important legal, personal, and financial documents
  • Retirement Needs Analysis
  • Education Needs Analysis
  • Contingency Plan
  • Estate Plan
  • Fiduciary Oath
  • Health Care Proxy, Health Care Directive (Living Will), Durable Power of Attorney
  • Risk Management Plan
  • Asset Protection Strategies
  • Strategic Financial Plan
  • Investment Policy Statement and Asset Allocation Strategy

Educational Resources for Children and Parents

William H. Vanderbilt, the famous railroad tycoon, left his heirs $4.8 billion in today’s dollars. A century later, not a single one of his descendants is among America’s most affluent. How is this possible?

It turns out that the primary causes relate to reasons outside of investment performance or poor estate planning. They have far more to do with a breakdown in communication and trust within a family, and failure to prepare heirs for the responsibilities of an inheritance. You can avoid these mistakes by educating your children, as early as age 5. Build a family value statement that is looked upon at family meetings and edited throughout generations. Try the following exercises at home with your kids:

In addition, we recommend the reading list found below.

Recommended Resources for Children

  • Money Sense for Kids by Hollis Page Harman
  • The Kids Guide to Money: Earning It, Saving It, Spending It, Growing It, Sharing It by Steve Otfinoski
  • The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money than Your Parents Ever Dreamed Of by David Garden, Tom Garden & Selena Maranjian
  • Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner
  • Lawn Boy by Gary Paulson

Recommended Resources for Parents

  • Children of Paradise: Successful Parenting for Prosperous Children by Lee Hausner, Ph.D.
  • Silver Spoon Kids: How Successful Parents Raise Responsible Children by Eileen Gallo and Jon Gallo
  • Raising Financially Fit Kids by Joline Godfrey
  • Money Skills: 101 Activities to Teach Your Child About Money by Bonnie Drew
  • Clark Smart Parents, Clark Smart Kids: Teaching Kids of Every Age the Value of a Dollar by Clark Howard
  • Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children by Neale Godfrey and Caroline Edwards

What a Family Office Brings to Your Family

Our Family Office manages the wealth and coordinates the advice of all legal and financial experts for the benefit of the family. We customize our services to your family’s specific needs. In this way, the Family Office members act as the Chief Financial Officers for the family’s decision makers. We do not conduct any action without consent from the family’s decision makers.

We offer a breadth of services unique to each member family. Take a look at our service model below. For further explanation, please see our full list of services.

The Family Office is managed by financial professionals with audited track records of success. It sells no products, has no conflicts, and works directly for your family. It was created to ensure that your family has access to state-of-the-art financial and business counsel for all of your personal, financial, and legal affairs.

Wealth Management Services: Who Offers What?

The Family Office strategy was developed by experts in portfolio management, banking, tax law, accounting, practice management, and practice valuation. This team approach brings together experts in every financial sector needed for effective wealth management, fully coordinated under one roof.

It is designed to save families time and money and help them make more well-informed decisions.

Fiduciary Oath for your Advisors

Click here to download a Fiduciary Oath template in PDF format

i Wiliams, R.O. Preisser V. (2003). Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. San Francisco, CA: Robert D. Reed Publishers.

ii Securities Industry and Financial Markets Association. (SIFMA) . Annual SIA Investor Survey: Attitudes Toward the Securities Industry. S&P 500 Returns (dividends included) from Robert Shiller and Yahoo! Finance (http://www.moneychimp.com/features/market_cagr.htm)

iii Barron’s. Money Paradox by Marton Conrad. January 3, 2012. Realized returns are from 1998-2008

iv NAPFA, 2011 Financial Advisory Survey. Bureau of Labor Statistics Occupational Outlook Handbook, 2010-11 Edition. CEG Worldwide LLC

v College for Financial Planning, 2011 Survey of Trends in the Financial Planning Industry