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recognizing tipping points

Recognizing Tipping Points to Keep Family Wealth in the Family

Preserve Wealth by Recognizing Tipping Points

Families that have worked extremely hard to build wealth find it even more difficult to preserve that wealth over time. Often, the concern is that a wealthy family could go from shirtsleeves to shirtless in three generations. The first generation creates the wealth. The second generation consumes the wealth and the third generation is starting all over again.

While there are many technical legal, tax and investment strategies that can be put in place to help preserve multi-generational wealth, there are two critical factors that will have a greater influence on this goal than anything else: recognizing tipping points and viewing family wealth as an enterprise.

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The surprising thing is that neither of these are technical strategies, per se. They are both about mindset, about taking a new perspective. A tipping point occurs when the strategies that led to success in the past are no longer effective.

Recognizing Tipping Points Means Thinking Differently, First

Recognizing tipping points requires a new mindset and strategic vision for how to achieve your goals in the future.

When it comes to preserving multi-generational wealth, one of the most important steps in the process is recognizing tipping points. Here are some key tipping points multi-generational families should be aware of:

  • A first-generation wealth creator has accrued a significant amount of wealth outside of the business. The wealth creator is not only responsible for running a business, but now also overseeing significant personal wealth. This dual responsibility has become a burden.
  • There is a transition in leadership between the first and second generation within the family, the family business or both.
  • A successful family business is about to be sold, netting out more liquid wealth than the family has ever had to manage.
  • The structure of the family wealth has become so complex and so ungainly that family leaders no longer have a purview of their entire holdings and feel out of control.
When it comes to preserving multi-generational wealth, one of the most important steps in the process is recognizing tipping points. Click To Tweet

These are the critical tipping points that families with multi-generational wealth should recognize, understanding that the strategies they’ve used in the past to manage their family wealth may not work as well in the future. The risk to these families is that if they keep doing things the way they’ve always done them, their wealth could dissipate significantly, despite their best efforts and intentions.

The Family Enterprise

Families who recognize tipping points like these in their own family business should accept the importance of a mindset change. Rather than viewing their business and personal wealth in isolation, families should view their wealth holistically as a family enterprise. This can seem like a strange concept at first, maybe a bit too formal, but it is very important.

Rather than viewing their business and personal wealth in isolation, families should view their wealth holistically as a family enterprise.

Many multi-generational families realize wealth from a business, often a family business. To their way of thinking, the family enterprise is the family business, not their collective wealth and values that they wish to preserve for generations to come. This is where the shift in mindset needs to take place and here’s why:

Many multi-generational families have so much complexity in their wealth that they need to treat it like a business if they are to preserve their wealth long-term. For instance, when it comes to running the family business, most families recognize the importance of:

  • Having a core mission, vision and values that the business is organized around and expected to follow.
  • Having strategic leaders in key positions, such as a CEO, CFO, COO or other roles.
  • Having independent advisory boards to help set strategic direction
  • Mentoring young people so they mature in their roles and become future leaders.
  • Reporting accurate information so stakeholders can make informed decisions.
  • Having a long-term strategy with milestones and regular meetings with stakeholders.
  • Making course corrections when market changes require them.

Business owners would not think these situations are too formal or restrictive to running a great business. In fact, they are essential. But, when it comes to managing family wealth, which often has the same level of complexity as a traditional enterprise, these formal structures are often missing.

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If your family comes to one of the tipping points, it is best to think of the family’s wealth as an enterprise and put a plan in place to manage the wealth the way you would manage a successful business. This guiding principle could greatly increase the likelihood of preserving wealth for generations to come.

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About Robert Legan

Robert Legan leads Whitnell’s Family Office Services practice, serving as a strategic advisor for families to help preserve, grow, and transfer family wealth. Robert is passionate about helping families navigate the complexities that come with wealth and collaborating with family members and advisors to implement integrated solutions.

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