A family’s wealth is much more than money. It represents effort, love, and legacy: a tangible gift for future generations. It is intended to last a long time and to be used in ways that benefit not only the family itself but also the society in which it is inserted.
The perpetuation of the family’s capital depends on the professional and efficient administration of four assets: intellectual capital, human capital, social capital, and financial capital. Each of these has its own objectives, which must be aligned with the family’s goals, as you will see below. The mission is ultimately to promote the personal fulfillment of its members and to ensure the long-term preservation of wealth. Professionalizing wealth management is the most effective way to fulfill this mission. Understand.
The Human Capital
Human capital is, without a doubt, the most valuable asset for a family. It represents the people who make up the family group and measuring it is practically impossible. It is also about the contribution that each member can give to the group, through relationships, which must be affectionate and non-conflictual.
The family’s mission should be the pursuit of personal fulfillment by each family member. This helps to preserve, in the long term, the family heritage.
To manage the human capital is to seek the personal development of people so that they become whole, according to the values perpetuated by the family itself. The goal is, inclusive, the perpetuation of these values, which permeate the human, ethical, and moral formation. The management of human capital is based on the family’s coexistence and the common good.
For the perpetuation of the human capital, it is necessary to pay attention to some points, such as:
- What is the value of each family member?
- How can they be called upon to contribute?
- How to develop strong and lasting family relationships, reducing conflicts between heirs?
- How to consolidate the family virtuous circle?
The Intellectual Capital
Intellectual capital is the capital that no one can take away from us, in other words, it is knowledge. Everyone in the family should be able to acquire knowledge, both of the desired education and management. The intellectual capital is the greatest legacy that parents leave to their children, and that will help them maintain the financial capital, perpetuating and increasing the patrimony.
The idea is that the heirs can manage their wealth independently, contributing with the family to the management of the patrimony. The search for intellectual capital must be continuous and seen by family members as something fundamental to the success of future generations.
For the perpetuation of intellectual capital, attention to some points is necessary, such as:
- What can and should each member learn?
- How to communicate better in order to intensify the exchange of information within the family?
- How can this help in the decision-making process?
- How to pass on the legacy and prepare the younger members?
The Financial Estate
The family’s financial assets can be divided between two types:
- Liquid Assets: All cash flow, i.e., the money that circulates through the family accounts, as well as investments, fund shares, etc.
- Gross assets: These are real estate, land, artwork, etc.
Wealth management also depends on the good management of a family’s financial capital. And, when thinking about the management of the financial capital, it is necessary to outline a strategy to better allocate the assets and properties, adjusting them to the family’s conduct and risk profile. It is necessary to keep in mind that the purpose of managing the financial capital is to increase it over generations and to ensure the distribution of dividends periodically. In this way, the quality of life of the family members is also guaranteed.
The objectives linked to financial capital can be: to ensure the growth and preservation of wealth for children, grandchildren, and other heirs, or to ensure income for current and future generations by maintaining a high standard of living. Although the two objectives can be similar, the first guarantees the expansion of wealth through investments, while the second is directly linked to spending.
The Social Capital
Social capital is the family’s concern for people in general, whether they are family members or not. It is the social responsibility that a well-structured and financially successful family usually has towards society. Social capital management includes philanthropy, support for cultural activities, sports, or education. It is up to the family to decide what it would like most in terms of social actions.
Families with large fortunes usually contribute to society, firstly because they believe they can help bring about social change, and also because they feel a duty to give back the success they have achieved through their businesses.
For the perpetuation of social capital, attention to some points is necessary, such as:
- Social Responsibility: interaction of family members with society.
- Philanthropy as an important leverage tool.
- Concern with the disadvantaged inside and outside the family circle.
Wealth management and concern with legacy
The major concerns of families when it comes to their assets are:
- organizing the patrimony,
- optimize their financial return, and
- provide more tranquility and efficiency in the succession.
However, when we think about the legacy they can leave, we come across some important issues that must be well worked out.
Family ownership evolves over time and, consequently, the objectives aimed at each stage also evolve. In the Entrepreneurship phase, the main concern is with Survival. In the Prosperity phase, the goal is Success. Finally, in the Care/Maintenance phase the goal is Significance.
Assets are usually built up over a single generation, and research shows that, on average, they disappear completely over the following two to three generations. The transfer through an inheritance usually implies the division of the estate among several people and the impact of taxes that can consume a large part of the resources. Furthermore, asset freezing can occur in the event of death, matrimonial disputes, or disputes regarding inheritance.
Therefore, when thinking about the legacy that will be left, some points should not be neglected, such as:
- Families grow faster than companies.
- What to do to avoid the old saying: “Father-rich, son-noble, grandson-poor.
- Challenge: What must be done to perpetuate a successful family business and protect the wealth and well-being of business-owning families?
- The goal is that the legacy is not only money, property, and business, but also the prepared opportunity, history, reputation, beliefs. Values and virtues.
- Family should be treated as a family and business as a business.
To help perpetuate wealth, it is essential to professionalize wealth management. Wealth Management, also known as Management of Wealth, is a branch of the financial market that offers, in a combined manner, investment consulting, planning, and management services to individuals and companies.
This management must be carried out by a professional or institution qualified and accredited by the Securities and Exchange Commission – SEC, which will help with:
- Cost dilution and access to the best investment alternatives;
- Investment policy developed in a personalized way for the client;
- Professional advisory in all aspects related to the assets – such as legal, fiscal, accounting, and financial areas;
- Administration of resources and assets more adequate for each situation;
- Continuous re-evaluation of the results, with re-balancing of assets, risk monitoring, and changes in the allocation of resources.
With professional Wealth Management, families delegate the management of their wealth according to their objectives and the risks they are prepared to accept, benefiting from a management, based on fundamentals, active and reactive.
In the past, wealth management was only used by wealthy individuals with large fortunes, over hundreds of millions of dollars. However, in recent years, this has changed. Today, families with a wealth of more than 10 million dollars already have access to the same benefits that were previously inaccessible, and the tendency is for more and more Wealth Management to become:
You have understood the importance of investing in professional wealth management, and how this investment can make a difference in all aspects of the family estate. Be sure to seek advice to ensure a more advantageous succession of your family’s wealth.