The families that have managed to preserve their wealth throughout history are not those that achieve the best returns or succeed in every opportunity the market gives them, but rather those that are united under a clear vision and broad consensus, where the financial education of the following is promoted in line within a well-defined structure or set of rules.

There are different studies on the challenges of generational transition. Although the themes vary, the most recurring theme is the destruction of value in each generational transfer.

According to Williams Group Wealth Consultancy, 70% of families lose their wealth in the second generation and 90% in the third generation. The main causes of this wealth erosion are lack of planning, lack of financial education and family conflicts.

In the Campden Wealth & UBS Family Offices survey, 58% of Family Offices globally expect a generational transfer in the next ten years. However, less than 40% have a structured transition strategy.

Family legacy

The founders of each family tend to postpone a succession strategy for too long, generating uncertainty and disputes among their relatives at the time of succession. In this sense, the main challenges that we can find are:

1. Differences in investment vision. Essentially in risk tolerance, as younger generations tend to seek better returns in strategies with higher risk or lower track record, while their ancestry tends to be more cautious.
   a. Investments in venture capital, technology or biotech stocks to cryptocurrencies vs. more traditional investments in fixed income and equities indexed to a global index.
2. Lack of financial planning and education. One of the most common mistakes is to assume that the new generation will naturally learn how to manage wealth. The reality is that without a structured financial education strategy and well-defined estate planning, wealth management can become messy and highly inefficient.
   Some of the most recurring problems include:
   a. Disorderly asset management and confusion about tax and legal aspects of estate planning.
   b. Difficulties in reaching consensus in decision making.
   c. Lack of understanding of investment strategies and associated risks.
3. Family conflicts and lack of leadership. When there are no clear rules, differences of opinion can turn into family disputes or even legal conflicts. In this context, leadership is the key.
   a. In some cases, it arises naturally within the family.
   b. In others, it is necessary to establish formal mechanisms, such as a family council or a Family Office, for the tranquility of patrimonial continuity with less internal friction.

So, what to do?

While there is no single solution for a successful handover, it is clear that it is easier to navigate the transition process when the waters are calm than when they are choppy, meaning that preparation is key.

Thus, generating habits and developing different internal capacities -or looking for them outside the family- are aspects that will reduce the probabilities of shipwrecking in the attempt. For this reason, we have identified three key issues that families should work on:

1. Closing the generation gap in wealth management
2. Family governance and structure
3. Financial education and continuing education

In upcoming issues, we will continue to explore various aspects of intergenerational wealth management. Wealth transition is not an easy road, but with proper planning and a shared vision, families can overcome the challenges and ensure a successful transfer of their wealth for generations to come.

Nelson Haase

MFO Senior Advisor Fynsa