Wharton@Work

December 2016 | Wealth Management

Navigating the “Great Wealth Transfer” — Preparing the Next Generation

It is estimated that more than $30 trillion in assets will be transferred between generations over the next several decades. For families, the transfer can engender difficult decisions and family governance challenges. But managed well, it can bring added value not only to investments, but also to the legacy of the family.

Charlotte Beyer, founder of the Institute for Private Investors, says younger generations, once they become well versed in wealth management and investing, bring new viewpoints, ideas, and energy that families are advised to embrace. She works with them twice at year at Wharton’s Private Wealth Management program, which has helped more than 900 members of ultra-high-net-worth families and individuals since its inception in 1999.

“Almost half of the program’s participants are next generation, in their 20s, 30s, and 40s,” says Beyer. “They have a number of important assets that they can bring to the table. First, they often have a broader view of the world of investments. They’re looking at impact investing and other investment classes that their parents might not have considered, and they may have strong opinions about types of investments they want to prohibit.”

Beyer also says next generation family members can look at relationships with advisors with fresh eyes. “The best person for the job,” she notes, “might not be the one who has worked with the family for decades. Just as CEOs don’t just hire friends and family, these families need to evaluate historical relationships and reevaluate them, which can be difficult.”

Wharton finance professor Richard Marston, who serves as academic director of Private Wealth Management, says younger generations are also willing to take some chances. “In the second or third generation, you often find people who are less risk-averse. They can bring a spirit of entrepreneurialism to the family”— not surprising, since it was often an entrepreneur in the family who was responsible for their wealth in the first place.

“Some families set up a ‘family bank’,” he continues, “and members with business ideas go through a formal process of pitching their business idea for seed capital. Families from Latin America often still own operating businesses, so those in the second or third generation find a ready outlet for their entrepreneurial ‘spirits’.” Beyer adds that “many families find it is much more exciting to build a company, or invest in a start-up, than to watch a ticker.”

No matter where the family comes from, though, or how they make investment decisions, their challenges are remarkably similar — which is something Beyer draws out during the week-long program. Small multi-generational teams work on a case study each night that was designed to facilitate discussions about investment decisions, family governance (including dealing with a younger entrepreneur), and personal challenges and successes.

“It’s a very safe environment,” says Beyer. “These families don’t often have the opportunity to speak openly about their wealth and how they deal with it. Here, they have a global group of peers who have shared experiences and a need for knowledge. They don’t have to learn all of the jargon and be able to manage the wealth themselves, but they need to know what they don’t know. They need to understand financial concepts, and the questions they should be asking of their advisors.”

Matthew S. Bradfield, executive chairman of Saviva Capital, agrees. He recently attended the program to determine if it was appropriate for younger generations of his family. “People often feel out of their depth when dealing with wealth, and I think that the program brings a tremendous amount of comfort in understanding that it’s not all just financial speak. It builds a fantastic baseline for understanding financial terms and appraisal metrics, and will allow family members to become more involved and more engaged in our family’s investment strategy long term. I intend on advising several next-gen beneficiaries to attend the program.”