The Elephant in the Room

Written by: Sarah Bradley

In my last blog post, I highlighted the reality of relational risks (the “Why?” behind your financial plan) in your financial portfolio (read more here). In this post, I will discuss the impact of failing to consider those risks.

According to a study conducted by Roy Williams and Vic Preisser, 70% of wealthy families lose their wealth by the second generation. By the third generation, that figure jumps to 90%. That same study found that only 3% of those failed wealth transitions were caused by poor legal, tax, or investment advice. Clearly, this problem goes beyond the technical execution of investment plans, legal documents, and tax strategies.

So what caused the other 97% of failed transfers? A breakdown of family communication and trust, poorly prepared heirs, and a failure to establish a family mission.

That study was published in 2003, and it serves to quantify what philosophers and economists have known for generations: despite sound investment strategies, families struggle to sustain their wealth across multiple generations.

Enter the elephant in the room: many families still don’t recognize the true problem. In a recent study by BNY Mellon’s Pershing, only 7% of individuals correctly identified interpersonal family dynamics as the reason for failed wealth transfer. 80% of those surveyed thought that investments strategies or the markets were to blame.

There is a gap in the professional advice offered and the professional advice required to help families thrive across multiple generations.

Make no mistake – we are the money people. But because we are the money people, we see it as part of our professional duty to our clients to address all the risks to their portfolio – not just the technical ones.


Sources:

Williams, Roy and Vic Preisser. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. San Francisco: Robert D. Reed Publishers, 2003. Print.

https://www.pershing.com/perspectives/the-parent-trap

 

Sarah Bradley serves as a wealth advisor for Archetype Wealth Partners in Houston, TX. Sarah is a graduate of Texas A&M and a Certified Public Accountant. She worked for three years at PricewaterhouseCoopers before joining the Archetype team. Archetype exists to help families thrive across  generations.

 

Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.

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