Wealthy families urged to talk more about money
To prevent sibling rivalries and disputes from sapping family finances, financial advisers are urging the ultra-wealthy to learn from transparency-driven public companies.Updated: Mar 30, 2006 12:54 IST
Think of it as a family reunion and board meeting all in one.
To prevent sibling rivalries and personal disputes from sapping family finances, financial advisers are urging the ultra-wealthy to learn from transparency-driven public companies and talk more frankly about their money.
Amy Braden, who heads the Family Wealth Centre at JPMorgan Private Bank, recommends that extremely well-to-do families hold regular meetings to discuss their bank balances, investment strategies and longer-term philanthropic and other goals.
"There has to be a place for these issues to be a topic of discussion," Braden said in an interview in Geneva, home to more than 140 banks that cater to the very wealthy.
"You're not going to talk about these issues at a wedding, or a mother's 90th birthday party," she said.
Many family fortunes do not survive to a third generation, partly because relatives struggle over financial issues, according to a JPMorgan study "Beating the Odds".
The report, prepared for the bank's "ultra high net worth" clients -- those who generally have at least $10 million worth of assets to invest -- said many problems arose when one person controlled a family's investment choices.
Sudden illness, disability or death could in this scenario "quickly put the family wealth at risk", the report said.
Marriage, divorce, children, jealousies, misunderstandings and simmering tensions could also wreck a family's finances when there were no clear decision-making processes, it said.
JPMorgan suggests that all family members be given regular updates like the financial reports companies issue to shareholders.
"A simple summary of the family's goals, assets, cash flows and ownership structures will arm members with a fundamental level of information," said the private bank, whose Swiss arm has $21.5 billion in assets under management.
It was normal for families owning businesses or other large assets to squabble over priorities, plans and visions, said Braden, whose centre advises clients worldwide.
"Conflict is not a bad thing. Conflict is natural," she said. "The family's ability to manage those conflicts and arrive at good decisions is absolutely essential."
Sustaining the wealth of the wealthy could be important to more people than the relatives involved, she said.
Citing the example of a wealthy client in Indonesia, Braden said highly prosperous families could often be major providers of local jobs and social services in developing countries.
They could also be economically significant in rich nations, she said, pointing to family-dominated US firms such as Wal-Mart and Cargill that employed huge numbers of people.
"There is a lot at stake," she said.
To instil a sense of responsibility among the children of ultra-wealthy families, JPMorgan runs "Next Generation" workshops to teach financial planning and business principles.
Surveys conducted at such gatherings in Shanghai, St Tropez and Barcelona last year found that European heirs became aware of their families' wealth earlier than most, with more than three-quarters being informed before the age of 18.
The offspring of rich Asian families were least financially conscious, with 45 percent saying they were unaware of their families' total worth.
Youngsters from the Middle East, Latin America and Europe met in Geneva this month for the latest such gathering, organised on the theme of "Sustaining Wealth in the Next Generation," a JPMorgan spokeswoman said.
First Published: Mar 30, 2006 12:54 IST