What are some of the biggest risks facing high net worth individuals today? Surprisingly, they may not be the risks you expect.
“If you ask high net worth families what the real risks to their wealth might be, they tend to say political or economic risk, but what’s transpired is that the greatest destructor of family wealth is the generational transfer of wealth. The largest proponents of this by far are family dynamics and poor communication,” explains Johan van Zyl, CEO of Stonehage Fleming. “We always start a conversation with clients about the purpose of their family wealth. Some battle with that, but it changes how they manage money.”
Stonehage Fleming’s report ‘Agreeing the Purpose of Family Wealth’ indicates that only 38% of respondents had agreed on a purpose, 32% said there was no such agreement, and 25% said it wasn’t necessary for their family. “But if you look at the trend in business schools, one has to ask what a company’s purpose is. It should be the same with high net worth families,” says van Zyl.
Christelle Louw, Advisory Partner, Citadel Investment Services, says that second-generation wealth can be eroded quite easily, so it’s best for the first generation to determine values. “You don’t want to rule from the grave, but put in place a discretionary yet watertight trust with good trustees and create institutions with continuity,” she advises. “It shouldn’t be so tight that it doesn’t accommodate changes in the environment or legislation, but there should be room to move.”
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