According to the Family Business Institute…only 30% of family businesses survive into the second generation and 12% into the third. A mere 3% make it into the fourth and beyond
Many sources cite similar statistics, pointing to an extraordinarily high worldwide failure rate in wealth transitions (generally defined as wealth remaining under the control of the beneficiaries). This begs the question, “Why does this happen?” One of the pioneering thinkers on this issue, attorney, James E. Hughes, Jr., focused on the lack of structure and governance in families. The article below suggests that lack of inter-generational communication and collaboration have been the primary causes of wealth dissipating over three generations.
CNN Money Article: Squandering the Family Fortune…Why Rich Families Are Losing Their Money
Consider the many advisors that families employ. There are attorneys, accountants, consultants, psychologists, life coaches, and various financial advisors from wealth managers, to insurance agents, to financial and estate planners all of whom, presumably in good faith, attempt to help their client families protect, preserve, grow, and sustain their wealth for multiple generations. Despite the collective best efforts of all of these professionals, their net effectiveness has been no more than 10% over three generations. What if Apple sold you a product that failed 90% of the time? Would you buy it? Yet, that’s in effect what families are doing when they continue to use traditional methods to plan for their families’ futures..
We cannot solve problems with same level of thinking that created them
– Albert Einstein
Thinking at a new, different level about the challenges of transitioning wealth, does not mean that the best work of attorneys, accountants, and other professionals isn’t necessary. Families need governance guided by the work of skilled attorneys. They need excellent tax and estate planning, wealth management, business consulting, work on family dynamics, and life coaching. Families need teams of professional service providers. Yet, how might these teams of professionals do things differently, more effectively?
By now, many of you know that we’ve adopted a mindset of Gratitude, “True Wealth”, and Leadership as core beliefs to address the “shirtsleeves to shirtsleeves in 3 generations” issue. It has been our experience that families must accept an attitude and a disciplined practice of Stewardship if we’re to sustain True Wealth over multiple generations. Our roles as advisors are to support our client families in this Stewardship undertaking. In other words, it’s to collaborate with our clients and each other in an endeavor that has historically challenged even the most intentional families. I will elaborate further on this topic of “collaboration” in future newsletters.
