Pitcairn Update, September 2016
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taking-the-wheelYou’re an adult. You can vote, drive, raise children, serve in the military and make your own legal decisions. So why is it that when you walk into your family home, you suddenly feel like a kid again? If this is an experience you can relate to, you are certainly not alone.

Finding your voice as an adult is a difficult process for everyone, but can be especially challenging when you grow up in a family of wealth. Money provides powerful advantages, and as you mature, it also becomes clear how many responsibilities come with those benefits. Perhaps you already control some or all of your inheritance or maybe you soon will. Are you ready for the driver’s seat? Learning the rules of the road can make you more comfortable, confident, and independent as you choose your destination, plan your route, and safeguard yourself and your passengers.

Popular culture offers few role models for being a successful inheritor. Perhaps you can find them in your own life – parents, other family members, a mentor, or a trusted advisor can offer valuable insight as you prepare to take control of your financial legacy. At Pitcairn, we have been supporting successful inheritors for decades. Based on our experience, we encourage you to ask yourself five fundamental questions and we offer advice for finding your own answers.

What are my personal values and goals?

Wherever you are in the process of taking control of your own wealth, it’s important to create a vision for how you want your life (and the lives of your children) to look.

  • Think about what is most important to you.
  • How do you want to spend your life? How do you like to use your time, talent, and treasure?
  • Consider the times you have felt most fulfilled or most content. What were you doing? What had you accomplished?
  • How were your values shaped by your family? How do your values differ?
  • Reflect on the legacy – both material and emotional – you would like to create for your children.
  • Are you motivated to leave your mark on the world? What entrepreneurial and/or philanthropic causes resonate with you? How could you make a difference in these areas?

Knowing what is important to you and then deciding how to pursue your goals are the first steps to truly being the driver of your own life. This can be an intimidating task, but you don’t have to go it alone.

  • Consider joining a group of people in similar circumstances with whom you can share experiences and exchange advice. A network of your peers may provide helpful insight and support.
  • Begin a relationship with a mentor or advisor who can guide you on your journey of discovery. Focus on finding someone you trust, who has either lived through your experience or guided others through it.
  • Tap into existing knowledge. Books and blogs can help with the practical and emotional aspects of inheriting substantial wealth.

Wondering how to find peers or mentors? Start with your family’s advisors. Pitcairn maintains a network of relationships and we often help clients connect with fellow inheritors, other families of wealth, and mentors.

How do I balance my own independence with family wisdom?

“Finding your voice means neither parroting your parents nor always contradicting them. Discovering the balance is a crucial task of the rising generation.”
The Voice of the Rising Generation: Family Wealth and Wisdom, by James E. Hughes, Jr., Susan E. Massenzio, Keith Whitaker.

Creating an identity that’s truly your own, but still values your family ties is challenging for anyone, but especially for inheritors of wealth who sometimes grow up with larger-than-life parents and grandparents and may feel the added pressure of high expectations. Since families of wealth typically have certain wealth structures in place, adult inheritors may also feel like their course is already mapped. How can you find your own place in your family’s grand scheme and gain control of your destiny?

It’s important to recognize that you can be independent and still benefit from the wisdom of plans and structures already in place. Your goal is to find the right balance between your family’s wealth management approach, your personal style, and your life goals.

Don’t underestimate the value of taking time to understand your family’s existing structures. Questions are a powerful learning tool.

  • Ask how and why particular strategies are employed and why certain structures exist. Knowing the rationale behind specific elements of your family’s plan can deepen your overall understanding.
  • Listen to family members and advisors with different perspectives so you can form a thoughtful, independent view supported by a strong knowledge base.
  • Don’t just learn the facts. Learn your family’s stories to better appreciate their values and how they came to the place they are today.

As you enhance your understanding of wealth management strategies, you will also be building stronger relationships with your advisors. One important benefit of a family office is that your primary advisors are all under one roof and can offer you a broad view of your family’s situation and also provide background – not just on how things are done, but why they are done that way.

Think about the kind of partnership you would like to have with the advisors who serve you. Some thoughts to consider:

  • Mutual respect. It goes without saying that your advisors should have a depth and breadth of wealth management knowledge so you will have full confidence in their guidance. You also want advisors to see and treat you as an individual separate from your family. Advisors should show concern for your life goals, take your opinions seriously, and tailor their services and communications to your preferences.
  • Accessible and responsive. Your advisors should be available to answer your questions and to help you be a more knowledgeable, capable decision-maker.
  • Multi-generational philosophy. As a multi-generational family, you want your advisors to build individual relationships with each generation. You want the comfort of knowing that they understand and can support your needs, both individually and collectively.

How will I use my wealth to create the life I want?

As an inheritor of wealth, you probably feel a certain responsibility to steward that wealth and use it well. However, you may be unsure of the necessary steps to fulfill that obligation.

  • Know what you have. No one expects you to be an expert, but the more you know, the better prepared you will be to collaborate with your advisors and make good decisions. Work with your family and advisors until you fully understand every aspect of your current wealth plan, including total holdings, available income, tax situation, and any structures such as trusts that are already in place. Remember, learning takes place over time. Keep asking questions until the answers make sense to you.
  • Get help. Coordinating financial and estate planning, investments, taxes, real estate, education savings, trusts, and other aspects of wealth management requires significant expertise. Even if this were your professional field, you probably wouldn’t want to do it alone. Experienced, knowledgeable advisors who make you feel comfortable and confident are invaluable.
  • Create a plan. To be effective, your plan should align your earnings, spending, saving, investing, and giving with your short and long-term life goals. Figuring out the right components can be complicated. Start by thinking about needs you currently have that aren’t being met today.

What is my investment philosophy?

Preserving and growing your wealth is fundamental to reaching your investment goals and extending the benefits of wealth to future generations. Your investment philosophy guides this effort through prudent, consistent investing. There can be many facets to a personal investment philosophy. A few key considerations include:

  • How accessible should your wealth be at any given time?
  • Do you need income now or can you focus entirely on growth for the future?
  • How do you feel about risk? How do you react to short-term declines in your portfolio?
  • Do you want your money to work for the good of your local and global community as well as the good of your family?
  • Are there particular investments you just don’t feel comfortable with?

While certain elements of an investment philosophy – like those listed above – will vary from person-to-person and family-to-family, our experience tells us there are also universal aspects that are common to the most successful investors. These are:

  1. Long-term perspective. Build a portfolio for the long term and ignore both fads and daily market fluctuations. Don’t let your emotions or market ups and downs steer you off track.
  2. Diversification. Include a broad mix of different investments to be sure you are positioned to benefit from a variety of capital market environments, particularly as conditions change over time.
  3. Taxes and Fees. Keep a close eye on the taxes and fees. What you pay makes a big difference over time. It’s not what you make, but what you keep that matters.

As you work with your advisors to shape your own investment philosophy, start with the universal elements that support long-term success and then incorporate aspects that reflect your temperament and your own life goals.

What’s my plan for learning and sharing knowledge with my children?

Money is not an easy subject for many families to discuss. Parents are frequently unsure when or how to talk to their children about family wealth, sometimes fearing the knowledge will have a negative effect on their work ethic or overall wellbeing. In fact, the opposite is often true: unprepared heirs and breakdowns in family trust are a primary reason why many generational wealth transfers fail.

Think about how your family dealt with the topic of money. Was it taboo or discussed in a forthright manner that promoted openness and inquiry? Was wealth management a core component of your overall education? Did your family’s approach help or hinder your own feelings and understanding of wealth management?

Pitcairn has made financial education and family communication essential elements of our client relationships. Our work in these areas has yielded many wise insights from clients, from academic research, and from education sessions we have conducted. Our experience tells us that:

  • Early education and open dialogue are extremely effective in preparing rising generations for the responsibilities of managing their own wealth.
  • A combined focus on knowledge, values, and behaviors provides a firm foundation for financial education.

As you plan your children’s education, remember to continue your own as well. Consider including other members of your family who will become beneficiaries of your family’s wealth. Financial education should be a lifelong effort that starts with learning the difference between dimes and quarters and continues through budgeting, investing, and planning your legacy. Pitcairn helps families through these many levels of knowledge, using creative methods such as learning games, training sessions, educational reports, and one-on-one mentoring.

We strongly encourage – and facilitate – ongoing dialogue between you and your advisors, between you and your children, and between your advisors and your children. Open communication is the best way to build trust across generations and to prepare heirs for the day when they must take the wheel.

Are you ready to take the wheel?

Being a successful inheritor means taking responsibility for your money – how you spend it, how you invest it, and how you comply with the laws that govern it. While substantial wealth requires a certain amount of tending, it should never dominate your life. Understanding the fundamentals of wealth management and having sufficient knowledge to work effectively with professional advisors can help you both manage your money and enjoy it.

At Pitcairn, we have helped many rising generations take over the driver’s seat of their wealth vehicles. Often, we have had the pleasure of knowing these inheritors from a young age, helping them build their knowledge, aiding them with early planning, and watching them mature into independent adults. Whatever your age or the steps you have taken on the road to your own financial independence, we can support your journey. Just remember, the sooner you begin, the smoother the road will be. There is no better time than the present.

Suggested Resources

  • Beyond Gold: True Wealth for Inheritors by Thayer C. Willis
  • The Cycle of the Gift: Family Wealth and Wisdom by James E. Hughes, Jr., Susan E. Massenzio, and Keith Whitaker
  • The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children by Eileen Gallo, PhD and Jon Gallo, JD
  • Good Fortune: Building a Hundred Year Enterprise by Dennis Jaffe
  • Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation by Richard A. Morris and Jayne A. Pearl
  • The Legacy Family: The Definitive Guide to Creating a Successful Multigenerational Family by Lee Hausner and Douglas K. Freeman
  • Mommy Are We Rich? Talking to Children about Family Money by Barbara R. Hauser and Suzan Peterfriend
  • Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values by Roy Williams and Vic Preisser
  • Raising Happiness: 10 Simple Steps for More Joyful Kids and Happier Parents by Christine Carter
  • Raising Money Smart Kids: What They Need to Know about Money and How to Tell Them by Janet Bodnar
  • The Voice of the Rising Generation: Family Wealth and Wisdom by James E. Hughes, Jr., Susan E. Massenzio, and Keith Whitaker
  • A Wealth of Possibilities: Navigating Family, Money, and Legacy by Ellen Miley Perry
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