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Case Study 3

Let us imagine a family currently comprising three generations.  The first generation, which created the wealth, is led by an iron-willed patriarch who just retired as the CEO of the company he started.  His son succeeded him in that post, and achieved that position entirely on merit, being recognized by the rest of the management team as a fabulous organizer and an inspired leader.  The patriarch’s other two children, two daughters, both married individuals who have proven to be equally unusually successful in different business ventures.  Thus, though the first generation currently holds the bulk of the family’s $250 million wealth, the members of the second generation do not really feel they need any of that wealth, having become independently wealthy in their own rights.  Upon retiring from the family business, the patriarch appointed himself the head of the newly created family office and set out to achieve prudent diversification and foster further growth in the family’s already substantial wealth.

When confronted with the situation, the advisor the family originally hired was somewhat puzzled by the surprising dichotomy she found in the family.  At one level, the family appeared very loving and well-adjusted, while it seemed totally dysfunctional when it came to financial conversations.  Helping the group formulate a strategic asset allocation for its assets proved virtually impossible, as there was a conflict between a seemingly all-powerful patriarch who could very effectively organize his thoughts and goals and worked well with the male members of the family, and an inability to achieve any sort of consensus among the whole group as to needs, issues and even areas of focus.

In the end, the most critical issue seemed to be the advisor’s inability to reconcile the various roles each of the members of the family were actually playing with the roles they would need to play to have a constructive process.  In particular, the patriarch was running the family office just as he had run the company, assuming that financial success was the only reasonable goal for all members of the family and that nothing short of total commitment to that cause on the part of all would be acceptable.  By contrast, several of the members of the family, feeling that they did not need most of that wealth, were in fact hoping that the money could be used primarily for philanthropic purposes—rather than for the accumulation of more wealth—and thinking that their primary duties were related to their own, more narrowly-defined households, with a particular focus on the education of their children.

Imagine how different the scenario might have been if the advisor had been able to get the patriarch, who was, in fact, genuinely concerned for the welfare of his grandchildren, to define a different role for himself.  Could he have been convinced that he could serve as a role model, as the keeper and transferor of the family’s Midwestern values or as a leader of the family’s philanthropic endeavors?  Could the disaffected members of the family have been convinced to play an active role in the process if at least some of the wealth had been dedicated to their concerns, i.e. philanthropy?  Should there have been a more active discussion as to the need to create permanent wealth transfer structures to allow each of the branches of the second generation to begin to associate more directly with the wealth?

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