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A Tale of Two Families

Aug 2, 2016

"Above all, we have realized how courageous we have to be to embark on a family journey that will extend beyond our own lifetimes and thus be a journey whose outcome we will never know. To begin a voyage knowing we will not see its end is a leap of faith of extraordinary proportions. Yet not to try is to accept the verdict of the [shirtsleeves to shirtsleeves in three generations] proverb and consign our families to fulfilling its hopeless prophecy."

– James E. Hughes Jr.
"Family Wealth – Keeping It in the Family"



"A society grows great when old men plant trees in whose shade they know they shall never sit."

– Greek proverb



Confession: I had a different topic teed up for this month, but some conversations over the past few weeks have brought me back to something I had addressed in "Where Will Your Business Be in 100 Years?"

A few of our client families are attempting to put a vision to the idea of family wealth – wealth that comes in various forms and can have a positive, even profound, impact on generations they will never meet.

Our thinking on this has evolved a bit since I last wrote on this topic. Though the business is the engine that typically powers the first generation and possibly even the second or third, the business is not necessarily what needs our focus.

We really need to begin by tackling the idea of seven-generation sustenance. Consider that you could have an impact on the lives of your great-great-great-great-great-grandchildren. If you are like most business owners, you have experienced so many unpredicted changes in your lifetime that it seems impossible, if not futile, to put something in place that will survive to that seventh generation.

To give you some motivation, let’s consider the alternative: What if you do nothing?

If you are the first generation to build the wealth, you have an intimate knowledge of the blood, sweat, tears, unpredicted risk and sleepless nights that have gone into creating what, to others, appears to be a winning of life’s lottery.

Your children were there with a ringside seat to watch you rise each morning with grit and determination to take on the battle again and again. Though they didn’t share your bloody and weary experiences, they witnessed the origin of your scars; they value the cost; they are inspired by the triumph. Even with this perspective, there is a chance they might squander what you have created, but it is more likely that echoes of your life will encourage them to preserve it after you are gone. Wealth survives one generation.

Now for your grandchildren … They enter your life at a time when your battle has been won. You are no longer the pugilist in the ring but are the successful grandparent with time and finances freely available. They listen to the stories their parents share about the struggles you endured, but they are challenged to reconcile that person in the story with the one in front of them that delights in eating ice cream and taking trips to the zoo. It is possible, though increasingly improbable, that this generation will appreciate what went into building the family wealth and will therefore feel an obligation to preserve it, especially when they enter the arena themselves and are faced with the challenges of life. At this point, the financial capital that was mostly kept intact by your children becomes an accessible salve to dress your grandchildren’s wounds, calm their fears, give them a life beyond what they perceive they can achieve on their own. It becomes a dependency. Over their lifetimes, much of what you created will be consumed, leaving little to nothing for your grandchildren’s children. The wealth that was an outgrowth of your life’s work and experiences is but a memory.

For a real-world example of this, let’s consider the Vanderbilt family. The surname lives on through an institution in Nashville, Tennessee, to which Cornelius Vanderbilt gifted $1,000,000 to fund an endowment. You may see a street or two named after him, but beyond that, there is nothing left of the fortune that once was.

How did this happen? The family fortune followed a generational cycle much like the one I described above, though due to the enormity of the Vanderbilt wealth, the money managed to carry forward to the fourth and fifth generations before evaporating.

In 1810 Cornelius Vanderbilt started his company with $100, which he borrowed from his mother to pilot a ferry service to and from Staten Island – as the story is told. From there, he expanded into steamboats, and then went on to build a railroad empire. By the time he passed away in 1877, his reported net worth was $100 million ($200 billion in today’s dollars).

Cornelius’ son William Henry took over the family fortune and, by the time of his death in 1885, had doubled what his father had left him, reportedly passing $200 million to his heirs.

The third generation took over and increased spending at a time when the business was beginning to decline. By the time these heirs passed the fortune to the fourth generation, the wealth had been halved from its peak and was back down to $100 million.

The fourth generation included Reginald (Reggie), described as "a playboy and gambler," and Cornelius II (Neily), who spent vast sums of money to maintain his high-society appearance and was quoted as saying, "Every Vanderbilt son has increased his fortune, except me."

The fifth generation struggled to maintain what remained, with the final demise of the Vanderbilt fortune being the 1970 bankruptcy filing of the family business. Anderson Cooper, CNN anchor and sixth-generation Vanderbilt, was quoted as saying, "My mom’s made clear to me that there’s no trust fund."

It is simple to lounge in the seat of history and see with clarity the missteps that ended the fortune Cornelius built. The greater challenge is to apply those insights to our own situations to preserve wealth to the seventh generation and beyond.

In my previous article, I suggested the course of keeping a business going for more than a century. Instead, let’s shift our focus to the two foundations of preserving financial capital: human capital – a family’s primary capital – the individuals that make up the family; and intellectual capital – what each individual in the family knows.

This tale will continue next month as we look into the Rothschild family and how the family members’ attention to these forms of capital has sustained their family since the 18th century.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is not guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 

My Breakfast With a Cynic

Jun 29, 2016

A family friend (“Mike”) told me the story of one of his family friends (“Joe”) who was contemplating retirement and asked if I would have a conversation with him. Mike also pointed out that Joe was “anti-financial adviser” and not to look at this as a prospecting opportunity. I obliged and suggested a breakfast meeting.

At that meeting, Joe and I covered the...
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The Value of an Introduction

May 25, 2016

The Value of an Introduction. This particular topic has been on my mind for some time now. To explain why, I need to take you through a little personal history.

In 1993, when I was a newbie to this profession, I heard a futurist talk about how things would be 10, 20, 30 years into the future. Believing he was not the owner of a DeLorean equipped with a flux capacitor, I, armed with my twentysomething hubris, dismissed much of what he said.

Two things he said, however, managed to get through and stick with me. The first was his prediction that by the year 2000, the Dow Jones industrial average would reach 12,000. To put this in perspective, during much of 1993 and the years prior, the Dow had been trading only in the 3,000s. His prediction of two doubles in seven years – meaning the market would have to grow at a rate of at least 20 percent a year, year over year, every year – seemed outlandish. Fast-forward to 2000: Though it did not reach 12,000, the Dow Jones did reach a bit higher than 11,700 in January of that year. Chalk one up for the futurist.

The second prediction that he made was that the most valued service our industry would offer in the future would be that of, as he termed it, “knowledge broker.” In those days, though the internet had been around for some time, the web was just being established and becoming simpler for the public to access. His premise was that so much information would eventually be accessible that people would have difficulty discerning what was of value to them and what wasn’t. He offered that our industry would be uniquely positioned to positively impact the lives of our clients if we could effectively serve as their proxy, their filter, their arbiter of knowledge.

Carry that thought forward to today: We see how the pace of people’s lives seems to be continually increasing, and the sheer amount of information to be overwhelming and growing exponentially. On countless occasions, we have heard our clients express their gratitude that we are handling things for them. Be it helping them to understand the best strategies and structures for achieving their goals, managing their tax exposure, or developing and implementing new plans for growing and protecting their enterprises, we have indeed taken on the role of knowledge broker, empowering our clients to make informed decisions about their wealth. One more for the futurist.

So, what does all of that have to do with the value of an introduction? As we have worked with clients over the years and their trust in our being an informed resource has grown, they have come to us for an ever-increasing number of connections. We have been that first call when someone needed a referral for a juvenile counselor, a caregiver for an aging father, a qualified realtor for a hard-to-sell property, an informed and networked business broker, and the list goes on. These introductions have saved them the time and energy, often under challenging circumstances, that they would have otherwise had to expend to find qualified people.

Seeing the value in this for our clients, we have been compiling a list of quality providers – not only those who are the best at what they do, but good people who are a pleasure to work with. We have developed over a hundred categories and have identified many providers, but this is where we could use your help.

Have you had any exceptional experiences with quality professional service providers over the past year or two? If so, we would like to hear about them: Who are they? What problems did they help you to solve? What about them made the experiences exceptional?

If you would, email us their contact information and a brief narrative about your experiences with them. From there, we will reach out to them, informing them of how we came by their names and recommendations, and ask their permission to be included on our list.

As we continue to grow and maintain this list, if you find yourself in need of an introduction for a service, please reach out to us. We would be pleased to connect you with a qualified person that can meet your needs, so that you, too, will experience the value of an introduction.

The opinions voiced in this material are for general information only and are not intended to provide specificadvice or recommendations for any individual. To determine which investment(s) may be appropriate for you,consult your financial advisor prior to investing. All performance referenced is historical and is not guarantee offuture results. All indicies are unmanaged and cannot be invested into directly.

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On the Upside

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One of the more important lessons of my career in regards to advising the families with investable assets occurred in the first quarter of 2011. As the market began righting itself, I was reminded of the emotional journey we had weathered with our clients over the past couple of years.

The morning of September 15th, 2008, the S&P 500 was around 1250 as headlines announced,...
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