It’s a truism in wealth management that families go “from shirtsleeves to shirtsleeves in three generations.” In other words, the first generation works hard to build the wealth and a better life for the family. The second generation, which has known both the frugality required to make a fortune and the advantages wealth confers, either maintains or expands the family's assets.The third generation, which has never struggled, is less likely to see the relationship between work and reward and more likely to spend down the money—so the cycle must begin again.
In their book, Preparing Heirs: Five Steps to the Successful Transition of Family Wealth, Roy Williams and Vic Preisser show that even the best tactical planning is not enough to break this cycle. Their research with more than 3,000 families over twenty‐five years demonstrated that:
Money, rightly considered, can empower an entire family. But an overemphasis on balance sheets and insufficient attention to relationships, talents, roles, and strategic planning, can debilitate the family as its wealth trickles away. Families who focus strictly on their financial assets usually do not sustain wealth over time and enjoy the fruits of their labor. They frequently have deep‐rooted resentments about the uses of money, as well as relationship challenges, values clashes, and arguments about the place of money in their value systems. As a result, the wealth may disappear by the third generation, even if it is well‐managed and invested.
So, if the traditional tools of financial planning are ineffective, what interventions work? R360 posits that the surest way to ensure financial wealth is to build nonfinancial forms of capital as well. In our experience, successful families mine six forms of wealth that, collectively, ensure the growth of the family enterprise. These include:
Financial Capital: A family’s cash, bonds, public and private securities, real estate holdings, commodities, and other assets. Strategically deployed, it is a resource for the building and development of the full array of a family’s wealth.
Intellectual Capital: The knowledge and wisdom you and your family have accumulated, both from formal study and life experience. It’s the reward of being curious and open to new possibilities.
Social Capital: The norms of reciprocity, trustworthiness, and goodwill that arise from your individual and familial interactions within your community, broader society, and the world. It reflects your personal and shared brand.
Human Capital: Your personal and family’s physical health and the value of your skills, competencies, character, and resources for building other forms of capital.
Emotional Capital: The resilience, self-esteem, mental energy, and self-regulation necessary for you and your family to carry out everyday activities, manage your relationships, cope with loss and setbacks, and maintain mental health.
Spiritual Capital: For you and every member of your family, this is the life-enriching power of connection to one’s meaning and purpose. Though often driven by alignment with a personal connection to a higher power or belief system, it can also arise from the practice of one’s religious faith.
Although R360 offers plenty of opportunities for unstructured fun, exploration, and fellowship, the core of the membership experience is the three-year programming designed to increase mastery of these six forms of wealth. In five in-person meetings a year, we will focus on one of the six forms of capital (we cover both emotional and spiritual capital in one session). In addition to assessments, participants hear from renowned guest presenters, including celebrities, who will share insights from their own experience acquiring a featured form of capital.
Disclosure: R360 is not an investment adviser. Information provided within is for educational purposes only and should not be construed, nor is intended to be, investment advice or a recommendation to invest in any types of securities. R360’s views are subject to change at any point without notice. No investment decision should be made based solely on the content herein and only a financial professional should be engaged for providing investment advice and recommendations. Past performance is not an indication of future returns.