FAMILY WEALTH: Beware of pitfalls
BY PHAKAMISA NDZAMELA, 19 FEBRUARY 2015
THE belief that wills and trusts are enough to sustain the legacy of wealthy families is misguided: poor family governance structures can pose a risk to preserving and building wealth for future generations.
With the emergence of first-generation wealth after 1994, there is a need for families to confront the risks that could jeopardise their legacy and the wealth that is intended for future generations.
More and more South Africans are looking for advice, says Eddy Oblowitz, executive chairman of Stonehage, a wealth management firm for “ultra-high net worth families”. But the figures of those seeking help should be higher, judging by the amount of wealth that has been created, especially for previously disadvantaged groups.
Family governance can easily go wrong. “There are plenty of families that don’t talk to each other. Others talk via lawyers and trustees. [Parents] and children sue each other, putting the entire family’s wealth at risk. The only people who are not unhappy are the lawyers.”
The Vanderbilts, one of the richest families in the US, made their fortune in transport in the 19th century, but their descendants later declared bankruptcy.
Oblowitz says wealthy families are frequently unable to articulate what the purpose of wealth is.
“The biggest problem is the culture of entitlement, greed, and jealousy. When you apply these traits with money the worst comes out,” says Oblowitz.
Without a good management plan for wealth, families can squander what they have within three generations.
Oblowitz says some of SA’s wealthiest families, whose wealth spans more than three generations, maintain internal family offices to deal with governance and legacy issues. However, independent multifamily offices are often consulted to deal with more sophisticated challenges.
Marc Lubner, a businessman whose grandfather was behind Plate Glass (PG), says a “family office” has played a role in preserving the Lubner family wealth to the third generation.
Lubner says through the family office they have been able to create single cost structures for all the beneficiaries. The Lubner family created a family office made up of professionals who are not members of the family.
“We have regular family meetings. We have a formal structure where investment decisions are discussed. We have the input of outside advisers. We make decisions by consensus. There is never a vote. The family office allows that to happen. It keeps the family together.
“One of my brothers decided we should not be investing in socially unethical areas (tobacco). That was discussed and debated. We came to a compromise and we decided we would not invest.”
Through their family office, Lubner says family members are able to invest independently and through the family structures. He says by investing together the family bond is strengthened.
Family offices look deeper than traditional financial services institutions which offer fiduciary and trust services to wealthy families. They help families deal with risks to the sustainability of the estate. And they advise on the best solutions to sustain the legacy and wealth for future generations.
Oblowitz says first-generation-wealth families need to understand that there are various ways of preserving wealth and creating lasting legacies. He says these families have an opportunity to come together as a group through trusts and entrepreneurial funds and help create solid future businesses and talented entrepreneurs.
The other way of creating a lasting legacy is by bequeathing wealth to charitable causes or using it to create scholarships.
The Vanderbilts may have lost their wealth, but their legacy does live on, primarily in the form of the Vanderbilt University in Nashville, Tennessee.
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