Family and Wealth Sustainability:
Integrating Family Virtues with Wealth Planning for a Lasting Legacy
April 1, 2010
Thomas C. Rogerson
Senior Director, Wealth Strategist
BNY Mellon Wealth Management
Normal Family Wealth Situation
A WEALTHY FAMILY’S DILEMMA
Estate Plan
(Death Plan)
Concerns
About Money and
Heirs
Products by Default
and Relationships
Tactics by Interest
(or by Necessity)
Missed Family
Opportunities
Retirement
Plans
Hedge
Funds
Small,
Mid Cap
Real
Estate
Emerg.
Markets
Private
Banking
Private
Equity
Large
Cap
Index Funds
Manager #3
Investment
Broker #1
Fixed
Income
Partnerships
Education
Trusts
Wills
Largely
Funded
at Death
Delaware
Trusts
Family
Retreats
Family
Vision
Ethical
Wills
Foundations
Manager of
Managers #2
Separated Concepts
Separate Advisors
Accountant
Insu.
Pro.
Education
re. $$
Career
Counsel
Family
Mediation
Family
Charities
Insurance
Attorney
Family
Business
Succession
Informally
Discussed
Or Never
Done
A/B/GST
Trusts
International
Consolidated Return??
Risk? Taxes? Fees??
Conflicts of Interest
2
Mental Barriers
Living
Trusts
Mental Barriers
Investments
Consultant
Integrated Family Wealth Solution
A WEALTHY FAMILY’S OPPORTUNITY
Strategic Investment
Management
Wealth
Management
Family Education
And Governance
Protect and Grow
Your Money
Preparing Your
Money for Your Family
Preparing Your
Family for the Money
International
Emerg.
Markets
Hedge
Funds
Private
Equity
Small,
Mid Cap
Large
Cap
Living
Trusts
Fixed
Income
Process
• Risk Tolerance
• Investor Goals
• Asset Allocation
• Invest. Selection
• Oversight
• Reporting
Real
Estate
Partnerships
A/B/GST
Trusts
Delaware
Trusts
Process
• Family Profile
• Wealth Goals
• Jurisdictions
• Structures
• Implement
Asset
Location
CRTs
CLTs
Private
Banking
Insurance
Family
Vision
Foundations
Retirement
Plans
Family
Business
Trustee
Partner
Education
Trusts
Coordinated Advisory Team Helps All of Us
3
Family
Retreats
Process
• $ Education
• Communication
• Family Values
• Philanthropy
• Governance
Charities
Career
Counsel
Family
Mediation
Education
re. $$
Ethical
Wills
Family Dynamics
4
The Three Big Questions
How Much is Enough?
1. When do we tell them?
2. How do we break the paradigm?
• “Shirtsleeves to shirtsleeves in three generations?”
5
Client Study - Wealth
“SHIRTSLEEVES TO SHIRTSLEEVES?”
$
1st
Generation
Creation
2nd
Generation
Assimilation
3rd+
Generation
Enjoyment
70%
4th
Generation
Lamentation
(Genealogy)
?
Generation
Creation
90%
TIME
6
Client Study - Wealth
“SHIRTSLEEVES TO SHIRTSLEEVES?”
$
2nd
1st
Generation Generation
Assimilation
Creation
Careers:
Entrepreneur,
R/E Developer,
CEO, ...
Careers:
Attorneys,
Accountants,
Investment
Advisors, ...
4th
3rd+
Generation Generation
Enjoyment Lamentation
Careers:
(Genealogy)
?
Generation
Creation
Actors,
Musicians,
Park Rangers,
Ski Patrol, ...
TIME
7
Risk Perception
“WHAT DO I THINK WILL BITE ME?”
37% Investment Specific Risks
• Portfolio risk, manager risk, timing risks, style risks, business risks…
26% Economy and Financial Markets Risk
• Economic downturn, inflation, deflation, energy costs, and availability…
16% Political and Tax Risks
• Higher personal income taxes and estate taxes, legal liability risks, government
intervention…
Only 7% of the perceived risk is family dynamics and relationship problems!
• Poor family communication and relationships, educating next generation issues,
governance issues…
Source: Family Office Exchange
8
Risk Perception – “What Bit Me?”
WHY DO 90% FAIL?
60% of the failure is due to a lack of communication and trust.
25% of the failure is due to unprepared heirs.
Only 3% of the failure is due to failures in financial planning, taxes and investments!
Source: Williams and Pressier
9
Risk Perception
“WHAT DO WE THINK WILL BITE US?”
“If that factory burned down, it would be tough, but we’d get through it. However, If the family
fell apart, we wouldn’t get through it. This is important to us; it’s a line item on our business
budget every year. We spend money and time on this every year, just like we do with our
management team!”
Third Generation Business Leader
10
Client Study
“WEALTH”
Net Worth = ?
(Giving the wrong impression can be devastating)
11
Wealth in Families
DEFINITION
1. Human Capital – Me
2. Intellectual Capital – We
3. Social Capital – World
4. Financial Capital – Wealth Wisdom
• Cash, stocks, bonds, real estate, “things”
• Family business?
James E. Hughes Jr.
12
Wealth in Families
DEFINITION
1. Human Capital – Me
2. Intellectual Capital – We
3. Social Capital – World
4. Financial Capital – Wealth Wisdom
Family Annual Report
James E. Hughes Jr.
13
Wealth in Families
MISSION/VISION
1. Human Capital – Love of Self
2. Intellectual Capital – Love of Family
3. Social Capital – Love of Others
4. Spiritual Capital – Love of God
5. Financial Capital* – Love of Creation
*The purpose of financial capital is to enhance human, intellectual, social, and
spiritual capital.
14
Wealth in Families
MISSION/VISION
1. Human Capital – Love of Self
2. Intellectual Capital – Love of Family
3. Social Capital – Love of Others
4. Financial Capital* – Love of Creation
5. Spiritual Capital – Love of God
*The purpose of financial capital is to enhance human, intellectual, social, and
spiritual capital, all based on the family spiritual capital
15
Preserving Wealth in Families
ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT
1. Governance Procedures
• Family bank, family office, good dysfunction?
James E. Hughes Jr.
17
Preserving Wealth in Families
ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT
1. Governance Procedures
• Family bank, family office, good dysfunction?
2. Horizontal vs. Vertical Structures
• Rothschild vs. Vanderbilt
James E. Hughes Jr.
19
Preserving Wealth in Families
ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT
1. Governance Procedures
• Family bank, family office, good dysfunction?
2. Horizontal vs. Vertical Structures
• Rothschild vs. Vanderbilt
3. Family Philanthropy
• Philanthropy day? Aunt adoption?
Charlie Collier
22
Philanthropy
“Paradoxically, families often learn more about long-term wealth preservation through the
process of learning to give away than by the process of learning to accumulate and spend.”
James E. Hughes Jr.
23
Preserving Wealth in Families
ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT
1. Governance Procedures
• Family bank, family office, good dysfunction?
2. Horizontal vs. Vertical Structures
• Rothschild vs. Vanderbilt
3. Family Philanthropy
• Philanthropy day?
4. Caring Motivational vs. Caretaking
• “Invest in you” vs. “Distribute to you”
− Loans vs. gifts?
24
Vision of Family Future
Controlling
Leaders
Sibling Rivalry
Unknown
Cousins
26
Vision of Family Future
Cousin
Consortium
Sibling
Partnership
Enlightened,
Successful
Leaders
27
Five Steps to Healthy Family Governance
5. Healthy Family Governance
4.
3.
2.
1.
• Putting into action, horizontal thinking
Philanthropy
• A test drive with someone else’s money but our values
Family Values and Experiences
• Mission/vision – history and future
Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
28
Five Steps to Healthy Family Governance
5. Healthy Family Governance
• Putting into action, horizontal thinking
4. Philanthropy
• A test drive with someone else’s money but our values
3. Family Values and Experiences
• Mission/vision – history and future
2. Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
1. Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
29
Education
STEP ONE: RESOURCES
Younger Children
• Raising Financially Fit Kids – Joline Godfrey
• www.Allowance-Plus.com – Ned Hentz
• The Financially Intelligent Parent – Gallo & Gallo
Teenagers and Older
• This Presentation to the Family
• The Ultimate Gift – Jim Stovall
• The Born Rich Video – Jamie Johnson
• Outliers and The Tipping Point – Malcolm Gladwell
• Children of Paradise – Lee Hausner
• The Five Dysfunctions Of A Team – Patrick Lencioni
• Family Wars – Gordon & Nicholson – etc.
30
Example of External Expertise Available
Stages
Responsibilities
Actions
Apprenticeship (5-18)
• Develop financial vocabulary
• Establish early financial
habits and values
• Practice saving, spending,
earning, and philanthropy
• Manage allowance
• Hold first job
• Begin community involvement
Starting Out (19-30)
• Establish identity and
independent lifestyle
• Experiment
• Acquire education and/or
life/career experiences
• Establish savings and a good
credit record
Taking Charge (31-50)
• Build assets
• Establish a foundation for self
and/or family
• Acquire assets
• Build career and family
• Explore life interests
Looking Ahead (51-65)
• Take stock
• Mentor
• Contribute to next generation’s
needs
• Reassess life choices/goals
and energize plans
Third Wave (60+)
31
• Relinquish some responsibilities
• Plan for the next generation
• Live and give creatively
Five Steps to Healthy Family Governance
5. Healthy Family Governance
• Putting into action, horizontal thinking
4. Philanthropy
• A test drive with someone else’s money but our values
3. Family Values and Experiences
• Mission/vision – history and future
2. Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
1. Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
32
Family Communication Styles
STEP TWO
Spontaneous
Persuader
Counselor
Challenging
Supporting
Director
Analyzer
Disciplined
Stratton Consulting Group
33
Communication
STEP TWO (USE TESTS CAREFULLY, THEY ARE NOT PERFECT)
1. Stratton Consulting Group – www.strattonconsulting.com
2. Strengths Finder 2.0 – Tom Rath
3. Food For Talk – Great Family Conversation Cards
4. DISC Personality Test or Kolbe Test
5. Financial DNA – Hugh Massie
6. Magnificent Mind at Any Age – Daniel Amen M.D.
7. Family Outward Bound – outwardbound.org
8. Myers Briggs Tests – myersbriggs.org
34
Five Steps to Healthy Family Governance
5. Healthy Family Governance
• Putting into action, horizontal thinking
4. Philanthropy
• A test drive with someone else’s money but our values
3. Family Values and Experiences
• Mission/vision – history and future
2. Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
1. Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
35
Individual and Family Values
Daughter
Mom
Dad
Family
Son
36
Son
Tolerance and
Intolerance?
Mission/Vision
STEP THREE
1. Working With The Ones You Love – Dennis Jaffe
Relative Solutions “Values Cards” – www.relative-solutions.com
2. 21/64 “Values Cards” – www.2164.net
3. Ethical Wills – Susan Turnbull – www.yourethicalwill.com
4. The Ten Lenses – Mark A. Williams
5. Beyond Success – Randall J. Ottinger
6. Individual and Family Mission Statements?
7. www.theheritageinstitute.com
8. Halftime – Bob Buford, etc.
37
Five Steps to Healthy Family Governance
5. Healthy Family Governance
• Putting into action, horizontal thinking
4. Philanthropy
• A test drive with someone else’s money but our values
3. Family Values and Experiences
• Mission/vision – history and future
2. Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
1. Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
38
Philanthropy
STEP FOUR
1. Wealth In Families – Charlie Collier
2. Philanthropy, Heirs and Values – Williams/Pressier
3. Can’t Take It With You – Lewis Cullman
4. New Process of Family Giving vs. Giving to “Past Pets”
5. Social Venture Partners?
6. Micro Finance – kiva.org?, etc.
39
Five Steps to Healthy Family Governance
5. Healthy Family Governance
• Putting into action, horizontal thinking
4. Philanthropy
• A test drive with someone else’s money but our values
3. Family Values and Experiences
• Mission/vision – history and future
2. Communication
• Evaluation and discussion in a safe family setting
– Parents make “The Call”
1. Education
• Giving the family an understanding of the possible problems and solutions - context
− BNY Mellon’s experience
40
Governance
STEP FIVE
1. Family Wealth : Keeping It in the Family – Jay Hughes
2. Family: The Compact Among Generations – Jay Hughes
3. For Love & Money – John Ambrecht, Howard Berens, Richard Goldwater, & Tom Gorman
4. Beyond Success – Randall Ottinger
5. Family Constitution?
6. Empowered Wealth – Brower/Thurber
7. Beating the Midas Curse – Cochell and Zeeb – etc.
41
Extra Resources
For Families in Business
1. Preserving The Legacy of a Family-Owned Business – Bachmeyer & Snyder
2. Perpetuating The Family Business – John L. Ward
3. Working With The Ones You Love – Dennis Jaffe
Other Family Wealth Books
1. CEO Dad – Tom Stern
2. Navigating The Dark Side of Wealth – Thayer Willis
3. The Golden Ghetto – Jessie O’Neill
4. Money Harmony – Olivia Mellan
42
Governance Questions to Answer
STEP FIVE
The Hard Questions – Preparing the Family for the Money
• When does a person become a member of the family?
− Prenuptial agreements; a “gate in,” or a “roadblock out?”
• What does “equal” mean?
• What is an appropriate lifestyle, and when should it start?
− Should trusts pay for “lifestyle?” or: invest into the beneficiaries?
• Should we sell or keep the family business?
• What do we do with the vacation house?
• What consequences should family members be subject to?
− How should WE enforce these consequences?
• What “types” of beneficiaries might we create?
− How should the trust handle each “type?”
• Who should apologize, who’s “right” or who’s “wronged?” …
• How do we create independence AND interdependence?
The Easy Questions – Preparing the Money for the Family
• How do we minimize taxes?
• How do we invest the family money?
43
The Three Big Questions
1. How Much is Enough?
• The amount for which you prepare them. Preparing them for nothing is as hard as
preparing them for millions
2. When Do We Tell Them?
• When they are ready to hear it. Use “little train” opportunities to challenge them.
3. How Do We Break the Paradigm, “Shirtsleeves to Shirtsleeves in Three Generations?”
• Build flexible family teams and empower them.
44
Client Study - Wealth
“SHIRTSLEEVES TO SHIRTSLEEVES?”
$
1st
2nd
Generation Generation
Creation
Assimilation
3rd+
Generation
Enjoyment
4th
Generation
Lamentation
(Genealogy)
?
Generation
Creation
225 Year History
46
TIME
Wealth in Families
DEFINITION
1. Human Capital – Strong Me
2. Intellectual Capital – Strong We
3. Social Capital – World Perspective
4. Financial Capital – Wealth Wisdom
James E. Hughes Jr.
47
Preserving Wealth in Families
ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT
1. Governance Procedures
• Family bank, family office?
2. Horizontal vs. Vertical Structure
• Rothschild vs. Vanderbilt
3. Family Philanthropy
• Philanthropy day?
4. Caring Motivational vs. Caretaking
• “Invest in you” vs. “Distribute to you”
− Loans vs. gifts?
48
Normal Family Wealth Situation
A WEALTHY FAMILY’S DILEMMA
Estate Plan
(Death Plan)
Concerns
About Money and
Heirs
Products by Default
and Relationships
Tactics by Interest
(or by Necessity)
Missed Family
Opportunities
Retirement
Plans
Hedge
Funds
Small,
Mid Cap
Real
Estate
Emerg.
Markets
Private
Banking
Private
Equity
Large
Cap
Index Funds
Manager #3
Investment
Broker #1
Fixed
Income
Partnerships
Education
Trusts
Wills
Largely
Funded
at Death
Delaware
Trusts
Family
Retreats
Family
Vision
Ethical
Wills
Foundations
Manager of
Managers #2
Separated Concepts
Separate Advisors
Accountant
Insu.
Pro.
Education
re. $$
Career
Counsel
Family
Mediation
Family
Charities
Insurance
Attorney
Family
Business
Succession
Informally
Discussed
Or Never
Done
A/B/GST
Trusts
International
Consolidated Return??
Risk? Taxes? Fees??
Conflicts of Interest
49
Mental Barriers
Living
Trusts
Mental Barriers
Investments
Consultant
Integrated Family Wealth Solution
A WEALTHY FAMILY’S OPPORTUNITY
Strategic Investment
Management
Wealth
Management
Family Education
And Governance
Protect and Grow
Your Money
Preparing Your
Money for Your Family
Preparing Your
Family for the Money
International
Emerg.
Markets
Hedge
Funds
Private
Equity
Small,
Mid Cap
Large
Cap
Living
Trusts
Fixed
Income
Process
• Risk Tolerance
• Investor Goals
• Asset Allocation
• Invest. Selection
• Oversight
• Reporting
Real
Estate
Partnerships
A/B/GST
Trusts
Delaware
Trusts
Process
• Family Profile
• Wealth Goals
• Jurisdictions
• Structures
• Implement
Asset
Location
CRTs
CLTs
Private
Banking
Insurance
Family
Vision
Foundations
Retirement
Plans
Family
Business
Trustee
Partner
Education
Trusts
Coordinated Advisory Team Helps All of Us
50
Family
Retreats
Process
• $ Education
• Communication
• Family Values
• Philanthropy
• Governance
Charities
Career
Counsel
Family
Mediation
Education
re. $$
Ethical
Wills
The Bottom Line
Simplifies your life.
• “We sleep better”
Provides better investment results for you and your family.
•
Even with the same investments
This communication is intended to provide general information that is believed to be accurate. It should not be construed as legal
or tax advice. Please consult with your legal and tax advisor to determine whether the information in this communication may be
appropriate for you.
IRS Circular 230 Notice: Any information pertaining to tax related matters contained in this communication including any
attachments is not intended or written to be used, and it cannot be used, by any person or entity for the purpose of (i) avoiding
tax penalties imposed by any governmental taxing authority or agency, or (ii) promoting, marketing or recommending to another
party any tax-related matters addressed herein.
51