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April 1, 2010. Family and Wealth Sustainability: Integrating Family Virtues with Wealth Planning for a Lasting Legacy. Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management. Normal Family Wealth Situation A WEALTHY FAMILY’S DILEMMA. Estate Plan (Death Plan).

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slide1

April 1, 2010

Family and Wealth Sustainability:Integrating Family Virtues with Wealth Planning for a Lasting Legacy

Thomas C. Rogerson

Senior Director, Wealth Strategist

BNY Mellon Wealth Management

normal family wealth situation a wealthy family s dilemma
Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA

Estate Plan

(Death Plan)

Concerns

About Money and Heirs

Investments

Products by Default

and Relationships

Tactics by Interest

(or by Necessity)

Missed Family Opportunities

Retire-ment Plans

Living

Trusts

Family Retreats

FamilyBusiness Success-

ion

Investment

Broker #1

Small, Mid Cap

Partner-ships

HedgeFunds

Family

Vision

Wills

Educationre. $$

Mental Barriers

Mental Barriers

Largely

Funded

at Death

FixedIncome

RealEstate

Emerg.Markets

EducationTrusts

DelawareTrusts

Informally

Discussed

Or Never Done

Private

Banking

A/B/GSTTrusts

Inter-national

EthicalWills

Founda-tions

Family

Mediation

LargeCap

Career

Counsel

Manager of Managers #2

PrivateEquity

Separated Concepts

Separate Advisors

Family

Charities

Insurance

Index Funds Manager #3

Insu.

Pro.

Account-ant

Consult- ant

Attorney

Consolidated Return??

Risk? Taxes? Fees??

Conflicts of Interest

integrated family wealth solution a wealthy family s opportunity

Strategic Investment

Management

Protect and Grow

Your Money

Wealth

Management

Preparing Your

Money for Your Family

Family Education

And Governance

Preparing Your

Family for the Money

Living

Trusts

A/B/GSTTrusts

LargeCap

Family

Vision

Small, Mid Cap

Family Retreats

FixedIncome

Partner-ships

Inter-national

DelawareTrusts

FamilyBusiness

  • Process
    • Family Profile
    • Wealth Goals
    • Jurisdictions
    • Structures
    • Implement
  • Process
  • Risk Tolerance
  • Investor Goals
  • Asset Allocation
  • Invest. Selection
  • Oversight
  • Reporting
  • Process
  • $ Education
  • Communication
  • Family Values
  • Philanthropy
  • Governance

Emerg.Markets

Edu-

cationre. $$

TrusteePartner

Asset Location

HedgeFunds

EthicalWills

PrivateEquity

CRTsCLTs

EducationTrusts

Family

Medi-

ation

RealEstate

Charities

Retire-ment Plans

Insu-

rance

Career

Counsel

Founda-tions

Private

Banking

Coordinated Advisory Team Helps All of Us

Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY
the three big questions
The Three Big Questions
  • How Much is Enough?
    • When do we tell them?
    • How do we break the paradigm?
      • “Shirtsleeves to shirtsleeves in three generations?”
slide6

$

1st Generation Creation

2nd

Generation Assimilation

3rd+ Generation Enjoyment

4th Generation Lamentation

(Genealogy)

?

Generation Creation

90%

70%

TIME

Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

slide7

4th Generation Lamentation

(Genealogy)

2nd

Generation Assimilation

3rd+ Generation Enjoyment

?

Generation Creation

1st Generation Creation

$

Careers:

Actors,

Musicians,

Park Rangers,

Ski Patrol, ...

Careers:

Entrepreneur,

R/E Developer,

CEO,...

Careers:

Attorneys,

Accountants,

Investment

Advisors, ...

TIME

Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

slide8

Risk Perception “WHAT DO I THINK WILL BITE ME?”

  • 37% Investment Specific Risks
  • Portfolio risk, manager risk, timing risks, style risks, business risks…
  • 26% Economy and Financial Markets Risk
  • Economic downturn, inflation, deflation, energy costs, and availability…
  • 16% Political and Tax Risks
  • Higher personal income taxes and estate taxes, legal liability risks, government intervention…
  • Only 7% of the perceived risk is family dynamics and relationship problems!
  • Poor family communication and relationships, educating next generation issues,
  • governance issues…

Source: Family Office Exchange

slide9

Risk Perception – “What Bit Me?” WHY DO 90% FAIL?

60% of the failure is due to a lack of communication and trust.

25% of the failure is due to unprepared heirs.

Only 3% of the failure is due to failures in financial planning, taxes and investments!

Source: Williams and Pressier

slide10
“If that factory burned down, it would be tough, but we’d get through it. However, If the family fell apart, we wouldn’t get through it. This is important to us; it’s a line item on our business budget every year. We spend money and time on this every year, just like we do with our management team!”

Third Generation Business Leader

Risk Perception “WHAT DO WE THINK WILL BITE US?”

slide11

Client Study “WEALTH”

Net Worth = ?

(Giving the wrong impression can be devastating)

slide12

Wealth in Families DEFINITION

  • Human Capital – Me
  • Intellectual Capital – We
  • Social Capital – World
  • Financial Capital – Wealth Wisdom
    • Cash, stocks, bonds, real estate, “things”
    • Family business?

James E. Hughes Jr.

slide13

Wealth in Families DEFINITION

  • Human Capital – Me
  • Intellectual Capital – We
  • Social Capital – World
  • Financial Capital – Wealth Wisdom

Family Annual Report

James E. Hughes Jr.

slide14

Wealth in Families MISSION/VISION

  • Human Capital – Love of Self
  • Intellectual Capital – Love of Family
  • Social Capital – Love of Others
  • Spiritual Capital – Love of God
  • Financial Capital* – Love of Creation

*The purpose of financial capital is to enhance human, intellectual, social, and

spiritual capital.

slide15

Wealth in Families MISSION/VISION

  • Human Capital – Love of Self
  • Intellectual Capital – Love of Family
  • Social Capital – Love of Others
  • Financial Capital* – Love of Creation
  • Spiritual Capital – Love of God

*The purpose of financial capital is to enhance human, intellectual, social, and

spiritual capital, all based on the family spiritual capital

slide16

Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

  • Governance Procedures
    • Family bank, family office, good dysfunction?

James E. Hughes Jr.

slide17

Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

  • Governance Procedures
    • Family bank, family office, good dysfunction?
  • Horizontal vs. Vertical Structures
    • Rothschild vs. Vanderbilt

James E. Hughes Jr.

slide18

Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

  • Governance Procedures
    • Family bank, family office, good dysfunction?
  • Horizontal vs. Vertical Structures
    • Rothschild vs. Vanderbilt
  • Family Philanthropy
    • Philanthropy day? Aunt adoption?

Charlie Collier

philanthropy
Philanthropy

“Paradoxically, families often learn more about long-term wealth preservation through the process of learning to give away than by the process of learning to accumulate and spend.”

James E. Hughes Jr.

slide20

Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

  • Governance Procedures
    • Family bank, family office, good dysfunction?
  • Horizontal vs. Vertical Structures
    • Rothschild vs. Vanderbilt
  • Family Philanthropy
    • Philanthropy day?
  • Caring Motivational vs. Caretaking
    • “Invest in you” vs. “Distribute to you”
      • Loans vs. gifts?
vision of family future
Vision of Family Future

Controlling Leaders

Sibling Rivalry

Unknown Cousins

vision of family future1
Vision of Family Future

Cousin Consortium

Sibling Partnership

Enlightened, Successful Leaders

five steps to healthy family governance
Five Steps to Healthy Family Governance
  • 5.Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
five steps to healthy family governance1
Five Steps to Healthy Family Governance
  • 5. Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
slide25

Education STEP ONE: RESOURCES

  • Younger Children
    • RaisingFinancially Fit Kids – Joline Godfrey
    • www.Allowance-Plus.com – Ned Hentz
    • The Financially Intelligent Parent – Gallo & Gallo

Teenagers and Older

    • This Presentation to the Family
    • The Ultimate Gift – Jim Stovall
    • The Born Rich Video – Jamie Johnson
    • Outliers and The Tipping Point – Malcolm Gladwell
    • Children of Paradise – Lee Hausner
    • The Five Dysfunctions Of A Team – Patrick Lencioni
    • Family Wars – Gordon & Nicholson – etc.
slide26

Stages

Responsibilities

Actions

Apprenticeship (5-18)

• Develop financial vocabulary

• Manage allowance

• Establish early financial

• Hold first job

habits and values

• Begin community involvement

• Practice saving, spending,

earning, and philanthropy

Starting Out (19-30)

• Establish identity and

• Acquire education and/or

independent lifestyle

life/career experiences

• Experiment

• Establish savings and a good

credit record

Taking Charge (31-50)

• Build assets

• Acquire assets

• Establish a foundation for self

• Build career and family

and/or family

• Explore life interests

Looking Ahead (51-65)

• Take stock

• Reassess life choices/goals

• Mentor

and energize plans

• Contribute to next generation’s

needs

Third Wave (60+)

• Relinquish some responsibilities

• Live and give creatively

• Plan for the next generation

Example of External Expertise Available

five steps to healthy family governance2
Five Steps to Healthy Family Governance
  • 5. Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
slide28

Family Communication Styles STEP TWO

Spontaneous

Persuader

Counselor

Challenging

Supporting

Director

Analyzer

Disciplined

Stratton Consulting Group

slide29

Communication STEP TWO (USE TESTS CAREFULLY, THEY ARE NOT PERFECT)

1. Stratton Consulting Group – www.strattonconsulting.com

  • 2. Strengths Finder 2.0 – Tom Rath
  • 3. Food For Talk – Great Family Conversation Cards
  • 4. DISC Personality Test or Kolbe Test
  • 5. Financial DNA – Hugh Massie
  • 6. Magnificent Mind at Any Age – Daniel Amen M.D.
  • 7. Family Outward Bound – outwardbound.org
  • 8. Myers Briggs Tests – myersbriggs.org
five steps to healthy family governance3
Five Steps to Healthy Family Governance
  • 5. Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
individual and family values
Individual and Family Values

Daughter

Mom

Dad

Family

Son

Son

Tolerance and

Intolerance?

slide32

Mission/Vision STEP THREE

    • 1. Working With The Ones You Love – Dennis Jaffe
    • Relative Solutions “Values Cards” – www.relative-solutions.com
  • 21/64 “Values Cards” – www.2164.net
  • Ethical Wills – Susan Turnbull – www.yourethicalwill.com
  • The Ten Lenses – Mark A. Williams
  • Beyond Success – Randall J. Ottinger
  • Individual and Family Mission Statements?
  • www.theheritageinstitute.com
  • Halftime – Bob Buford, etc.
five steps to healthy family governance4
Five Steps to Healthy Family Governance
  • 5. Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
slide34

PhilanthropySTEP FOUR

  • Wealth In Families – Charlie Collier
  • Philanthropy, Heirs and Values – Williams/Pressier
  • Can’t Take It With You – Lewis Cullman
  • New Process of Family Giving vs. Giving to “Past Pets”
  • Social Venture Partners?
  • Micro Finance – kiva.org?, etc.
five steps to healthy family governance5
Five Steps to Healthy Family Governance
  • 5. Healthy Family Governance
      • Putting into action, horizontal thinking
  • 4. Philanthropy
      • A test drive with someone else’s money but our values
  • 3. Family Values and Experiences
      • Mission/vision – history and future
  • 2. Communication
      • Evaluation and discussion in a safe family setting
        • Parents make “The Call”
  • 1. Education
      • Giving the family an understanding of the possible problems and solutions - context
        • BNY Mellon’s experience
slide36

GovernanceSTEP FIVE

1. Family Wealth : Keeping It in the Family – Jay Hughes

  • 2. Family: The Compact Among Generations – Jay Hughes
  • 3. For Love & Money – John Ambrecht, Howard Berens, Richard Goldwater, & Tom Gorman

4. Beyond Success – Randall Ottinger

5. Family Constitution?

6. Empowered Wealth – Brower/Thurber

7. Beating the Midas Curse – Cochell and Zeeb – etc.

slide37

Extra Resources

  • For Families in Business
  • 1. Preserving The Legacy of a Family-Owned Business– Bachmeyer & Snyder
  • 2. Perpetuating The Family Business– John L. Ward
  • 3. Working With The Ones You Love–Dennis Jaffe
  • Other Family Wealth Books
  • CEO Dad– Tom Stern
  • Navigating The Dark Side of Wealth– Thayer Willis
  • The Golden Ghetto– Jessie O’Neill
  • Money Harmony– Olivia Mellan
slide38
The Hard Questions – Preparing the Family for the Money

When does a person become a member of the family?

Prenuptial agreements; a “gate in,” or a “roadblock out?”

What does “equal” mean?

What is an appropriate lifestyle, and when should it start?

Should trusts pay for “lifestyle?” or: invest into the beneficiaries?

Should we sell or keep the family business?

What do we do with the vacation house?

What consequences should family members be subject to?

How should WE enforce these consequences?

What “types” of beneficiaries might we create?

How should the trust handle each “type?”

Who should apologize, who’s “right” or who’s “wronged?” …

How do we create independence AND interdependence?

The Easy Questions – Preparing the Money for the Family

How do we minimize taxes?

How do we invest the family money?

Governance Questions to AnswerSTEP FIVE

the three big questions1
The Three Big Questions
  • How Much is Enough?
    • The amount for which you prepare them. Preparing them for nothing is as hard as preparing them for millions
  • When Do We Tell Them?
    • When they are ready to hear it. Use “little train” opportunities to challenge them.
  • How Do We Break the Paradigm, “Shirtsleeves to Shirtsleeves in Three Generations?”
    • Build flexible family teams and empower them.
slide40

1st Generation Creation

2nd

Generation Assimilation

3rd+ Generation Enjoyment

4th Generation Lamentation

(Genealogy)

?

Generation Creation

$

225 Year History

TIME

Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

slide41

Wealth in Families DEFINITION

  • Human Capital – Strong Me
  • Intellectual Capital – Strong We
  • Social Capital – World Perspective
  • Financial Capital – Wealth Wisdom

James E. Hughes Jr.

slide42

Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

  • Governance Procedures
    • Family bank, family office?
  • Horizontal vs. Vertical Structure
    • Rothschild vs. Vanderbilt
  • Family Philanthropy
    • Philanthropy day?
  • Caring Motivational vs. Caretaking
    • “Invest in you” vs. “Distribute to you”
      • Loans vs. gifts?
normal family wealth situation a wealthy family s dilemma1
Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA

Estate Plan

(Death Plan)

Concerns

About Money and Heirs

Investments

Products by Default

and Relationships

Tactics by Interest

(or by Necessity)

Missed Family Opportunities

Retire-ment Plans

Living

Trusts

Family Retreats

FamilyBusiness Success-

ion

Investment

Broker #1

Small, Mid Cap

Partner-ships

HedgeFunds

Family

Vision

Wills

Educationre. $$

Mental Barriers

Mental Barriers

Largely

Funded

at Death

FixedIncome

RealEstate

Emerg.Markets

EducationTrusts

DelawareTrusts

Informally

Discussed

Or Never Done

Private

Banking

A/B/GSTTrusts

Inter-national

EthicalWills

Founda-tions

Family

Mediation

LargeCap

Career

Counsel

Manager of Managers #2

PrivateEquity

Separated Concepts

Separate Advisors

Family

Charities

Insurance

Index Funds Manager #3

Insu.

Pro.

Account-ant

Consult- ant

Attorney

Consolidated Return??

Risk? Taxes? Fees??

Conflicts of Interest

integrated family wealth solution a wealthy family s opportunity1

Strategic Investment

Management

Protect and Grow

Your Money

Wealth

Management

Preparing Your

Money for Your Family

Family Education

And Governance

Preparing Your

Family for the Money

Living

Trusts

A/B/GSTTrusts

LargeCap

Family

Vision

Small, Mid Cap

Family Retreats

FixedIncome

Partner-ships

Inter-national

DelawareTrusts

FamilyBusiness

  • Process
    • Family Profile
    • Wealth Goals
    • Jurisdictions
    • Structures
    • Implement
  • Process
  • Risk Tolerance
  • Investor Goals
  • Asset Allocation
  • Invest. Selection
  • Oversight
  • Reporting
  • Process
  • $ Education
  • Communication
  • Family Values
  • Philanthropy
  • Governance

Emerg.Markets

Edu-

cationre. $$

TrusteePartner

Asset Location

HedgeFunds

EthicalWills

PrivateEquity

CRTsCLTs

EducationTrusts

Family

Medi-

ation

RealEstate

Charities

Retire-ment Plans

Insu-

rance

Career

Counsel

Founda-tions

Private

Banking

Coordinated Advisory Team Helps All of Us

Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY
the bottom line
The Bottom Line
  • Simplifies your life.
    • “We sleep better”
    • Provides better investment results for you and your family.
          • Even with the same investments

This communication is intended to provide general information that is believed to be accurate. It should not be construed as legal or tax advice. Please consult with your legal and tax advisor to determine whether the information in this communication may be appropriate for you.IRS Circular 230 Notice: Any information pertaining to tax related matters contained in this communication including any attachments is not intended or written to be used, and it cannot be used, by any person or entity for the purpose of (i) avoiding tax penalties imposed by any governmental taxing authority or agency, or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.