History is littered with the stories of
wealthy dynasties whose assets have rapidly evaporated. A new
comprehensive study looks at ways to ensure inter-generational
wealth remains intact via key principles that can be used to
navigate the maze of wealth handover.

A variation of the sad aphorism ‘from riches to rags in three
generations’ is found in nearly every major civilization and serves
as a reminder of the fall of many of the world’s wealthiest family
dynasties. 

Two thousand years ago in China the proverb ‘fu bu guo san dai,’ or
‘wealth never survives three generations’, was born. In
13th-century Europe, the adage translated into ‘clogs to clogs in
three generations’. In the US the saying became ‘shirtsleeves to
shirtsleeves’, and in Asia ‘paddy field to paddy field’, in the
same three generations.

Specifically, it is traditionally the first generation that makes
the family wealth, the second generation that maintains the family
fortune and the third generation that loses the wealth that had
been carefully created and guarded in the two prior generations,
according to a new book entitled, Strategy for the Wealthy Family.
The author is Mark Haynes Daniell, the founder and chairman of The
Cuscaden Group, an investment and advisory business focused on
ultra high net worth families. 

Daniell, a former director of management consultancy Bain &
Company, notes that history is littered with the names of
once-wealthy families whose tumbles from financial grace are
testament to the fact that beating the odds of family wealth
preservation, and overcoming the gravitational forces of history is
no easy task.

Keeping the money

Despite the universal presence of this repetitive
three-generational pattern, there are wealthy families who have
managed to identify and pursue strategies that have allowed great
fortunes to be built – and to remain intact – across far more than
three generations. 

The enduring prosperity of a select few successfully wealthy
families, over many years and across many generations, proves that
the age-old pattern of riches to rags in three generations can be
mastered, Daniell contends. Family wealth can indeed be protected
and wealthy families can prosper and grow across far more than
three generations.

The history and practices demonstrated by these winning families,
these few who could be called successfully wealthy, show us that it
can be done, Daniell writes. It is indeed possible for a family to
build, preserve and enjoy its wealth in a harmonious and supportive
family environment over time and across many generations.

By harnessing the experiences, approaches and insights of the
world’s most successful and respected ultra high net worth
families, it is possible to provide leaders of other wealthy
families with the tools they need to design and implement the best
possible family strategies. 

In so doing, they will be far more likely to keep their own family
wealth intact and flourishing across many future generations of
their own deserving families.

Family fortunes

Importantly, one of the most common insights from the world’s most
successfully wealthy families is that family wealth is far more
than the sum of the financial assets of the family as a whole.
Although often associated with great financial fortunes, true
family wealth includes, but goes far beyond, pecuniary or other
material resources. 

True family wealth encompasses financial resources, but also
includes family harmony, physical wellbeing, a broader sense of
legacy and reputation, integrity, spiritual growth, intellectual
capital, and the personal happiness of each family member. Not only
do these intrinsic states of being determine the quality of family
wealth in the broader sense of the word, they also provide the
platform from which continuing financial prosperity can best be
pursued. 

Research reports now count nearly 8 million identified millionaires
in the world, and nearly 1,000 billionaires, the number of wealthy
families in the world who could benefit from a more strategic
approach to their family’s future fortune increases daily. The
total value of financial assets in the hands of families with
wealth exceeding $1 million is now estimated to be over $40
trillion. 

So where is all this vast new wealth coming from? The first decade
of the new millennium has been an era of great wealth creation and
great prosperity. For many wealthy families, it has been the
greatest time ever to create or to grow a family fortune. Not only
are there more wealthy individuals and families then ever before,
there have also been more avenues open to create family
fortunes.

World economic growth, rising capital market values, a property
boom in many countries, mergers and acquisitions of unprecedented
proportion are all creating wealth of an extraordinary magnitude
every day of the year.

New wealth

The boom in capital and property markets, accompanied by the
emergence of new geographic markets – notably the markets of
Brazil, Russia, India and China – have created a whole new crop of
families rising swiftly to achieve membership, and even to take
some of the top positions, in the ranks of the world’s
wealthy. 

Nearly $40 trillion of family wealth is expected to be transferred
across generational lines in the next 50 years. According to some
experts, nearly 70 percent of cross-generational transfers of
wealth in the past have failed to achieve the desired objectives of
the transfer.

Despite the enormous wealth built with extraordinary speed and
capability in so many areas, the creators of these fortunes 
share one common characteristic: they all face the challenge of
maintaining their new fortunes and then, later, navigating the
unfamiliar seas of transferring that wealth successfully across
future generational lines.

For many rich families, and for all families creating wealth in a
first generation, there is no precedent or model within their
experience for the transfer and preservation of that wealth to
following generations of the family. This lack of prior experience
can present many challenges, because only those capable of
developing a forward strategy that stretches across multiple
generations are the most likely to preserve and enhance their
family wealth across those same generations.

Despite such an enormous amount of money at stake, and with such
daunting odds, there has been little guidance or information
available on how to respond effectively to the many demands created
by this phenomenon of growing wealth, and the need to transfer that
wealth intact to future generations. 

Among the reasons that so few families are sufficiently prepared in
the most vital areas of family wealth strategy is that relevant
frameworks have been missing, information has been diffuse,
evolving by the year, and hard to pull together into any coherent
and useable model. 

Investment returns

While the costs and efforts required can be higher than expected,
particularly for the newly rich, the returns on such an investment
can be enormous in both financial and non-financial terms, and the
costs of failure to make the same investment can be truly
catastrophic.

Daniell’s book provides a comprehensive strategic framework and a
set of proven approaches within each element of that framework to
guide the wealthy family across multiple generations.

Although each strategy will be as different as the family that
creates it, there are a number of consistent principles, derived
from the most successful strategies, which can be extracted,
analysed and used to further the plans of any wealthy family, he
declares.

The elements of strategy to be integrated into one common strategic
framework embrace all seven principles enunciated (see table above)
and combine to form a coherent, unified approach to a family’s
future. 

Strategies for each of these elements will need to be developed
separately, and then adapted as necessary to fit into the overall
framework which can lead to a fully integrated and aligned approach
to family wealth strategy.

Like a chemical compound, these individual elements can be bonded
together, over time and with the application of energy, to create a
new and unified structure that will be stronger and more enduring
than any individual element on its own.

In addition to embracing these seven principles, a consistent
characteristic of successfully wealthy families is that they
consciously invest time, thought, effort and funds to define and
execute an integrated strategy to create the greatest likelihood of
their wealth surviving long into the future. 

A unique form of strategy

Family wealth strategy is different from any other kind of
approach, Daniell contends. There are unique, complex and
inter-related historical, psychological, social, financial,
commercial, legislative, trust, tax and other issues to consider.
Family strategy requires a long term-view that extends forward
across three generations (at least), at a time when business,
technology and other strategies are often getting shorter in
cycle.

To resolve the problem of family wealth dissipation in a later
generation, the best solution may lie in addressing the full set of
family wealth challenges now, before the problem of wealth
dissipation even arises. Good family strategy needs to look deeply
and honestly into family history, but also needs to gaze forward
with intelligence and realism into the future.

Structure, organisation and integrity are also important components
of an overall solution. A family with a strong set of values and a
shared sense of family unity and purpose is far more likely to
retain its financial wealth than a dissolute and disorganised
family lacking the fundamental insights, wisdom and disciplines
necessary to protect and enhance the family’s future financial
status.

By seeking intelligent solutions to future problems at the various
levels and times where they are most likely to be found, family
leaders will be employing a more measured and more effective
response to the historic challenges of the preservation of family
wealth, Daniell concludes. 

*This article is based on a forthcoming book by Mark Haynes Daniell
entitled Strategy for the Wealthy Family, published by John
Wiley.