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Case Study 2

Let us imagine a family, which has a visible point of contact, and yet has several different individuals with vastly different needs and aspirations.  The family’s $150 million wealth came from the sale of a consumer product business, which had been started by the matriarch and her husband.  Though the business was a well-recognized product leader in its industry, it was not financially very successful until two of the children, a son and a daughter, both of whom had had successful careers respectively in the investment banking and legal worlds, were brought into the management of the company, ostensibly to ready it for a sale.  The remaining member of the second generation is a son whose principal interest is in the arts, although he has so far failed to be successful in the selling of his sculptures.  Once the business was sold, the two managing members of the second generation started to look for an advisor to help the family in the management of its now liquid financial wealth.

The problem was originally presented to the advisor as the management of one pool of wealth (albeit admittedly in different structures that broke the actual ownership of the assets into three living and one as of yet unborn generations).  Yet, as the advisor developed a strategic asset allocation for the family, it quickly became apparent that his recommendations were not actionable.  In large measure, this reflected the fact that the family did not exist as a financial entity.  Each member had different needs and different aspirations.

  • The first generation had been used to a very conservative lifestyle, focused as it was on building the business and unable for the longest time to draw enough compensation from it to engage in any form of spending pattern that might have been consistent with their latent net worth.  Their primary concern still revolved around transferring wealth to future generations, but their lack of experience with financial markets made them fearful of any form of sudden downward price move.  Further, both parents harbored a desire to continue research in the industry in which they had participated, still fascinated by product design, and were thankful for their good fortunes and hoped to start “giving back to society.”
  • The two business members of the second generation, who in effect genuinely hoped to get back to their original passions, felt they had no need for any form of income as their professional endeavors were compensated in a way which exceeded their spending needs.  They were interested in the idea of providing for their children, but were also concerned with the risk of spoiling them: they valued very highly the fact that they had been able to achieve their own success independently of their parents and wanted the same luxury for their children.
  • The artist son discovered in the family’s wealth a means to achieve spending levels for his household that matched those of his siblings, despite the fact that neither he nor his wife had been able to generate anywhere near the level of income which the other two achieved.  This caused the need for substantial income production within the portfolio, the aversion to the idea of certain philanthropic suggestions (which he perceived as dissipating the wealth unless it was directed to the purchase of art!), a disconnect as to the fears that his siblings had with respect to the future success of their own children and some family tension as he started to be perceived by his siblings as over-spending.

The advisor clearly needed to consider each member of the family as a different client and might have reached an actionable point earlier had the focus been placed at the outset on identifying whether this was a case of one rather than several clients.  How different might the outcome have been had the advisor initially insisted on talking to all members of the family and ascertaining the needs and goals of each before assuming that the two “business siblings” really spoke for the whole family?

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