Preserving Wealth For Generations

When commodities scion Robert Louis-Dreyfus died in 2009, the executives of the French football establishment and Olympique de Marseille team members stood alongside his family at the funeral. The family of the avid football fan pledged to continue his legacy by supporting the team that won league titles under his ownership.

Instead, his widow, Margarita Louis-Dreyfus, sold the football club when its winning streak ended not long after. The sale of the cherished asset is the outcome that every high-net-worth individual dreads after their death, which equates to a failure to maintain their legacy. As the Louis-Dreyfus affair shows, even with the best intentions, as family assets are passed down the generations, change is inevitable. But what we all want is to preserve wealth for generations to come.

It is also a reminder that intergenerational wealth management planning needs to account for the different values, goals, and competencies when navigating the challenges of wealth. As wealth increases challenges grow. Over the next two decades, the affluents will leave behind $1.3 trillion in assets, estimates PWC Asset and Wealth Management.

In contrast to past generations, a growing percentage of today’s wealthy did not inherit their wealth. They are the Dells of the computer industry, the Bezos of the Amazon e-commerce giant, or the Illitches of the Little Caesars pizza chain. These entrepreneurs must newly create the system to steward their intergenerational wealth transfer.

Even the older families that have preserved their wealth over generations confront wealth management challenges. They include the Rockefellers of the oil industry, the Louis-Dreyfuses of agricultural commodities, and the Pritzkers of the hotel chains. All three families have been in high-profile estate battles.

Whether from old or new money, what all of these families have in common is that they have reconciled their different investment and philanthropic objectives under the roof of a family office. The family office was designed to make life easier by streamlining investment, estate, accounting and tax management under one roof. As important additional function has emerged, the family office is top-flight training ground for the next generation.

Asset Protection and Growth

The divergence between generational money management strategies and practices has never been greater. At the same time, the old guard recognizes that “times are a changin’” and new approaches are required. The older generation spent most of their lives in the same industry and business, slowly investing their gains in real estate and other investment markets. But they are now chasing lower investment returns. In 2018, the S&P eked out a modest 3.24 percent, one-third of its historical average, while negative and zero interest rates have dragged down fixed income markets. As for alternative asset classes, the margins on private equity fund investments are shrinking due to rising fees.

While slowly loosening the family purse strings, the current stewards are passing on the family wealth to a more entrepreneurial generation. They have grown their families into global industrial powerhouses. But they recognize that they need to teach them to preserve the wealth for generations. Rather than spend a lifetime growing a commodities, computer, or health services business, they are more likely to take a venture capital approach and spread risk across a portfolio of diverse companies. A family private equity fund is increasingly their investment vehicle of choice.

When placed in a family office structure, these tax-advantaged and cost-saving private investment vehicles are earning higher returns than traditional private equity and hedge funds, whose investment managers often do not have their own capital at risk but charge high fees to invest other people’s money. In 2017, family office portfolio returns more than doubled to a five-year high of 15.5 percent, as 95 percent of portfolio investments met or exceeded expectations, according to the 2018 UBS Global Family Office report.

Lasting Legacies and Reputations

Since families are forming their own investment funds under their own names, they have more at stake if they face reputational damage. If you are in a high-profile estate fight, shareholder proxy war, or messy public divorce, you may not be invited to join the family office. The real root of many estate, succession, and other family spats is often unresolved family issues.

Another potential public relations minefield is investments that are not considered socially responsible. Family investments are becoming more purpose-driven as the next generation embraces social-impact investing. As overall wealth expands, more money is being allocated to environmental, social, health, and other impact-investing sectors. The socially conscious next generation is widely expected to increase the allocation to socially responsible investments.

The successful family office itself has become a brand marketing wealth management services. This brand could easily be eroded by public family disputes. When 200 Rockefeller heirs were recently divided over their commitment to social impact investing, they regrouped under the newly formed Rockefeller Capital Management. In addition to social impact investing, the focus of the Global Family Office is asset management and wealth advisory services. The alternative, a public schism among the heirs, would certainly have deterred future family office clients.

With increasing awareness of the importance of reputation family offices are not only staffed with accountants, lawyers, and tax experts, but increasingly public relations, reputation management, dispute resolution, and social media experts. Family offices are a necessity in order to navigate the reputational challenges of intergenerational wealth management. Taking early proactive measures to maintain peace in the family can prevent costly state and other court battles down the road.

FBO Services—Your Family Office Team

At FBO Services, our multi-disciplinary team closes the intergenerational gaps by meeting your family’s investment management, philanthropic, estate and succession planning, and tax objectives in a collaborative environment. And as new generations take control of the family purse strings, we help reign in risk by maintaining risk management controls. Often overlooked is the fact that due diligence, performance benchmarking of investment and philanthropic performance, and risk management controls and reporting contribute to the superior financial performance of family offices.

Whether it be a tailored wealth or foundation management strategies; accounting tax and administrative support; or regulatory and legal reporting, we not only have the trained and experienced professionals on board but also the proven ability to stretch and go the extra mile for you. Your agile wealth management team at FBO Services can help you grow your assets and preserve your legacy by shifting with the changing economic and regulatory climate. And if you need concierge services to help with your household and other daily living tasks, we can do that too.

The professionals at FBO Services have decades of experience managing the affairs of ultra-high net worth individuals and their business offices on behalf of family offices and major investment banks and accounting firms. We can easily step into your shoes and understand your challenges because we have experience not only managing them for other families but also working directly in family offices.

With the number of family offices estimated to be over 10,000 globally and growing, even if you succeed in finding the basic requisite skills for your team, sourcing professionals with the unique experience of working in a family office environment is the greater challenge. Our experience uniquely qualifies us to train and mentor your next generation in all the nuances of family wealth management.

You will benefit from our experience in client services, tax consultancies, corporate law, estate law, accounting, business administration, personnel management, and wealth management. When you do hand over control of the family purse strings to the next generation, you will have complete peace of mind.