In the first first part of our series on wealth managementwe addressed the challenges for families, highlighting that the key to a successful transfer is proper planning and a shared vision, as well as financial education. This time, we will delve into generational differences in investing and how these can impact the dynamics of wealth transfers.

More and more often at investment family gatherings, an image repeats itself: the grandfather, who built the family's wealth from scratch, calmly talks about the Treasury bonds and properties that have ensured the family's stability for decades. On the other side, his grandson, a 28-year-old, shows off from his phone his investments in startupscryptocurrencies and technology stocks. Between them, the parent tries to mediate, seeking a balance between tradition and innovation.

This scene reflects a common reality: generational differences in risk perception and investment strategies, which can become a point of friction or, on the contrary, an opportunity for evolution.

Intergenerational radiography

Intergenerational wealth management is a crucial issue for families seeking to preserve and grow their wealth over time. As generations pass the baton, challenges arise related to differences in risk perception, investment strategies and financial values. In this context, it is critical to understand how each generation approaches wealth management.

The founders and their aversion to losing what they have builtThe generations that created the family wealth have lived through periods of political and economic instability, facing inflationary crises, devaluations and bank failures. Their investment approach reflects a mentality of preservation and stability.

A study by UBS Global Family Office Report reveals that, in Latin America, first-generation business families allocate a significant percentage of their portfolio to traditional assets, with 70% of investment concentrated in real estate and fixed income.

The middle generation, balancing tradition and growthThe children of the founders have grown up with the stability of family wealth, but have also gone through crises such as that of 2008 and the rise of financial globalization. This generation tends to diversify their portfolio more, seeking a balance between inherited security and new opportunities.

The new heirs and the quest for disruptionFor many, their first crisis was the pandemic. Younger generations have grown up in an interconnected world, with instant access to financial information. They not only seek returns, but also prioritize social impact and disruption, investing in technology, sustainability and emerging trends such as venture capital and cryptocurrencies.

According to UBS, 67% of millionaires under 40 prefer to invest in technology and alternative assets, while 72% of those over 60 still prioritize fixed income and dividend stocks.

Between classic and innovative

Is it possible to bridge the generation gap in wealth management? Yes, but it requires a structured approach and a space where each member can express their opinions and be heard. This facilitates the transfer of experience between generations and prepares future leaders. To achieve this, various family initiatives can be implemented:

1. Family investment policyEstablish a clear policy that defines common expectations and objectives for all members, helping to focus efforts on working as a group towards shared goals.
2. Family Investment CommitteeCreate a committee to evaluate investment opportunities and analyze how each one contributes to the objectives established in the investment policy. This will also be a space for new generations to learn from the experiences of more experienced members.
3. Core and satellite portfolio strategies fund: Where a percentage of the portfolio is allocated to riskier or innovative investments, driven by younger generations, as a way to encourage exploration within the overall wealth management framework.

The key to a successful wealth transition lies in the ability of each generation to learn from the last, balancing legacy with innovation. By fostering a collaborative environment, families can overcome generational barriers and create strong wealth management that endures over time, adapting to new market challenges..

Nelson Haase

MFO Senior Advisor Fynsa