Educating the Next Generation - MyQueens - Home - SESSION VI PowerPoint.pdfand private clients throughout the cycle of wealth creation, transition and preservation in five primary

©2015 Brown Brothers Harriman & Co. Confidential & Proprietary. Not to be reproduced without the explicit consent of BBH & Co. “BBH” and “BBH & Co.” are registered service marks of Brown Brothers Harriman & Co.

Educating the Next GenerationBecause Money Doesn’t Come With Instructions

May 21, 2015

©2015 Brown Brothers Harriman & Co. Confidential & Proprietary. Not to be reproduced without the explicit consent of BBH & Co."BBH" and "BBH & Co." are registered service marks of Brown Brothers Harriman & Co.

Brown Brothers Harriman Snapshot

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BBH is a global financial institution with over 5,000 employees in 17 offices worldwide and expertise in Private

Banking, Investment Management, and Investor Services. Our Private Banking business serves both corporate

and private clients throughout the cycle of wealth creation, transition and preservation in five primary products:

Wealth Management, Corporate Lending, Corporate Advisory, Private Equity, and Trust.

About Wealth Management

Assets under management: $27.1 billion*

Clients we serve:

• Private business owners• Business executives• Inheritors of family wealth• Endowments • Foundations

Client minimum: $10 million

Average client size: $22 million*

Locations: New York, Boston, Charlotte, Chicago, Philadelphia, Wilmington

*As of December 31, 2014


The Way to WealthBenjamin Franklin (1758)

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The Art of Making Money PlentyBenjamin Franklin (1811)

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The Art of Making MoneyBenjamin Franklin (19th Century)

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The Wealth of NationsAdam Smith (1776)

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“In commercial countries,

therefore, riches, in spite of the

most violent regulations of law to

prevent their dissipation, very

seldom remain long in the same

family.”

Wealth of Nations, Book 3


Wealth Creation1954-2014

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Household Net Worth ($ trillions)

0

10

20

30

40

50

60

70

80

90

1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014

$ trillions

Source: Federal Reserve Release Z.1, Table B.100


The Failure of Wealth TransitionSources of Failure

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Poor legal/tax/investment advice 3%

Breakdown of family communication and trust 60%

Inadequately prepared heirs 25%

Failure to establish family mission 12%

Source: Roy Williams, The Williams Group


A Lesson From History

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Henrietta “Hetty” Green

1834-1916


Being Good with MoneyAn Exercise in Balance

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• Being “good with money” is a combination of knowing

how to …– Obtain it.

– Grow it.

– Spend it.

– Give it away.

• If you want the next generation to be responsible, give

them responsibility.

– Experience is the best teacher!

– Create a “safe harbor” in which to make mistakes and learn

from them.


The Welch Family

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• Upon return home, whatever is left from that week’s

allowance is doubled and put in the piggy bank.

– Lesson in the power of saving.

• Young parents with four young children (ages 4-8),

each of whom gets an allowance for certain household

chores.

– Lesson in how money is the result of contribution to the

household.

• Weekly family trip to the store to spend that week’s

allowance.

– Children can buy anything they want with their own money.

– Lesson in how to spend money on what is really wanted.


The Robbins Family“Uncle Louis” Money

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• Parents with two teenage boys (14 and 16), each of

whom received $3,000 from a fictitious “Uncle Louis”

at the age of 13.

– Removes the overtones of parental money.

– Money can be used for whatever purpose the teenager

wants.

– Lesson in how it feels to receive money simply by being

family.

• Allows for mistakes without judgment.

– Temptation is to blow some or even most of the money.

– Leads to introspection in a safe environment and how to

spend wisely.

– Sizeable enough money to consider the role of investing and

philanthropy.


Observations and Implications

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• In both examples, the money alone isn’t the instructor. The

participation of parents or mentors is key.

• Yet the education is driven by the child’s experience, not the parent

telling them what to do.

• In order to create this freedom, the money is given without

restrictions.

Observations

Implications

• Provide the next generation with enough money at an early enough

age to attend class, but not so much that tuition is burdensome.

• Provide the money with no strings attached, so that the child has

enough freedom to learn from his or her mistakes.


The Role of Philanthropy

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• Participation in the philanthropic pursuits of the family at an early

age provides …

– A sense of how the family wealth allows it to express the

family values.

– Awareness of the larger purpose of wealth beyond the

comfort and growth of the family.

– A training ground in family dynamics, how to present,

defend, interact and report.

– An education in financial and legal concepts through

interaction with outside advisors.

– A deeper understanding of how charities work and how to

distribute wealth wisely.


The Failure of Wealth TransitionSources of Failure

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Poor legal/tax/investment advice 3%

Breakdown of family communication and trust 60%

Inadequately prepared heirs 25%

Failure to establish family mission 12%

Source: Roy Williams, The Williams Group


Questions to Ask About Wealth Transitions

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• What do you want your wealth to do for you, your

children and your grandchildren?

• What difference will this wealth make in their lives,

and will it help or harm them?

• How will this wealth impact the community in which

your children and grandchildren will live?

• What are the core values of your family which you

want to see preserved in future generations?

• How does the family define wealth?


Definitions of Family Wealth or Capital

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• Human Capital

– What makes “you” you

– Family health, happiness and

well-being

– Ethics, morality and

character

• Intellectual Capital

– What people know, both

formally and informally

– Experience and learning

– Heritage, tradition, faith,

history and “distinctness”

• Social Capital

– Involvement with

community and others

– Responsibility to greater

good

– Philanthropic or charitable

activities

• Financial Capital

– Cash, stocks, bonds, real

estate

– Art, collectibles and other

tangible assets

– The family business


Definitions of Family Wealth or Capital

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• Most families focus only on managing their financial

capital, to the detriment of the other forms of capital.

• Human, intellectual and social capital need just as

much attention and nurturing as financial capital.

• The highest and best use of financial capital is to

provide growth for a family’s human, intellectual and

social capital.

• Financial wealth is a vehicle for expressing a family’s

core values.


Wealth Transition Checklist

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Source: Williams & Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, 2003.

1. Our family has a mission statement that spells out the

overall purpose of our wealth.

– Defines wealth rather than let it define the family.

– Brings into consideration various types of wealth.

– Provides guidance to outside advisors.

2. Every member of the family participates in important

decision making, such as defining a mission for our

wealth.

– Defines wealth rather than let it define the family.

– Provides guidance to outside advisors.


Family HistoryTraditions and Values

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3. All members of the family have the opportunity of

participating in management.

– Not just financial management, but also philanthropy and the

management of other forms of wealth.

– “Opportunity” the key word.

4. All members of the family understand and accept their

roles, and look forward to performing in those roles.

– Matches individual interests and competencies with family

needs.

– Can lead to trouble if family members are unwillingly pressed

into service.



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5. Heirs have reviewed estate plans and documents.

– Communication and openness are key.

– Establishes expectations and avoids nasty surprises.

– Helps to drive discussion of meaning of future wealth.

6. Documents are designed to transfer wealth based on

readiness rather than arbitrary age.

– Helps to minimize the law of unintended consequences.

– Yet very difficult for a corporate trustee to accept.



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7. The family mission includes creating incentives and

opportunities for heirs to add to the family wealth.

– Human, intellectual, social AND financial wealth.

– The only way that wealth (broadly defined) grows.

8. Younger children are encouraged to participate in the

family’s philanthropic planning and implementation.

– An ideal training ground for the next generation.

– Instills family values and demonstrates that wealth is a means

of expressing those values.



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9. Family cohesion is as important as finances.

– Don’t allow one definition of wealth to overwhelm the other

three.

– Understand and appreciate the contribution of all family

members to all forms of family capital.

– Celebrate family rituals and “rites of passage”.

10. The family communicates openly and meets regularly

to discuss issues.

– Frequent and open communication, whether formal or

informal.

– No hierarchy of authority on raising issues.

– No subjects off limits.


Further Reading

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Cochell, Perry L. Beating the Midas Curse.

Collier, Charles W. Wealth in Families.

Gallo, Eileen. Silver Spoon Kids: How Successful Parents Raise Responsible Children.

Hausner, Lee. Children of Paradise: Successful Parenting for Prosperous Families.

Hughes, James E. Family Wealth – Keeping it in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations.

Hughes, James E. Family: The Compact Among Generations.

Johnson, Jaime. Born Rich. (DVD)

Kinder, George. The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life.

Link, E. G. Family Wealth Counseling: Getting to the Heart of the Matter.

Martel, Judy. The Dilemmas of Family Wealth: Insights on Succession, Cohesion, and Legacy.

Massie, Hugh. Financial DNA: Discovering Your Unique Financial Personality for a Quality Life.

O’Neill, Jessie H. The Golden Ghetto: The Psychology of Affluence.

Turnier, William J. Materials on Family Wealth Management.

Williams, Roy O. Philanthropy, Heirs & Values: How Successful Familes Are Using Philanthropy to Prepare their Heirs for Post-Transition Responsibilities.

Williams, Roy O. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.

Willis, Thayer Cheatham. Navigating the Dark Side of Wealth: A Life Guide for Inheritors.


Further Viewing

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Georgianna BloombergStephanie ErcklentzChristina FloydCody FranchettiJuliet HartfordJosiah HornblowerJaime JohnsonS.I. NewhouseIvanka TrumpLuke WeillCarlo von Zeitschel


Conclusions

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• It is never too young to start educating the next generation

appropriately about how to be “good with money.”

• Experience is the best teacher. Children should be entrusted with

enough money with no strings attached to learn from personal trial

and error.

• Broaden the definition of wealth to include human, intellectual and

social capital.

• Philanthropy provides a wonderful platform for educating the next

generation as to family dynamics, the importance of giving money

away, and the role of outside advisors.

• Educating the next generation is hard work and it never ends.

• But the payoff is enormous, as measured by growth in all definitions

of family capital.

©2015 Brown Brothers Harriman & Co. Confidential & Proprietary. Not to be reproduced without the explicit consent of BBH & Co. “BBH” and “BBH & Co.” are registered service marks of Brown Brothers Harriman & Co.

Educating the Next GenerationBecause Money Doesn’t Come With Instructions

May 21, 2015