John E. Hughes’ book “Family Wealth: Keeping It in the Family” (published by Bloomberg Press) is a wonderful book intended for readers who are from families of wealth and for advisers to these families.
Jay Hughes (as he likes to be called) is a 6th generation attorney who has helped hundreds of wealthy families over the past few decades. By families I mean the 1st, 2nd, and 3rd generation as well as families now into their 5th generation and beyond. This includes the parents, the adult children, the grandkids, the aunts, uncles and cousins.
Jay Hughes (as he likes to be called) is a 6th generation attorney who has helped hundreds of wealthy families over the past few decades. By families I mean the 1st, 2nd, and 3rd generation as well as families now into their 5th generation and beyond. This includes the parents, the adult children, the grandkids, the aunts, uncles and cousins.
What Hughes speaks so well about is getting families to think of their wealth as not just financial capital, but also human capital and intellectual capital. If families can use their human capital and intellectual capital to their fuller potential, then the financial capital has a vastly better chance of still being their – and growing- for generations to come. He also advocates that families think of time in terms of generations when they are doing their planning and decision making. In the family context think of short term wealth preservation as 20 years (one generation), intermediate term as 50 years (two generations) and long term as 100 years (three generations). That’s so unlike how we typically view investing as short term being 1-3 years on out to long term being 10 years out. Just think how investment decisions can be different with the mindset Hughes talks about!
The whole book lays out how-to steps for families to overcome the cultural proverb of “shirtsleeves to shirtsleeves in three generations”. That is, the first generation being the wealth creators – those who make the family fortune. The 2nd generation follows in the parents’ footsteps, but typically the family fortune is dissipated – squandered by the end of the third generation. The second generation is many times the generation that is frustrated because they have been asked to “dream the dream” of their parents without striking out on their own. The children may end up being in the family business because that was expected of them or because they grew up into a family where the parent was mostly absent for them, busy building up the family business. The adult children can come to feel lost and without their own personal mission in life. The 3rd generation is typically the “Trust babies”. They have no direct connection with the work that it took by their grandparents to create the original wealth. The grandchildren have grown up with wealth, often times in a life of entitlement.
Hughes’ writing is to show families how to overcome all that entropy. He advocates that “Successful long-term wealth preservation requires the creation and maintenance of a system of governance or joint decision making, to the end of making slightly more positive decisions than negative ones over a period of at least one hundred years.”
Additional steps families of wealth can take are: having regular family meetings; creating a family’s mission statement; reporting the family’s human capital and intellectual capital on the Family Balance Sheet and Family Income Statement (in addition to the regular reports of the family’s Financial Capital); how to define the roles and responsibilities of both beneficiaries and Trustees; how professional advisers to the family can add to successful governance; and using philanthropy as a way to get started and learning how to implement all these family governance ideas.
In summary, every family of wealth can put Hughes’ ideas into practice and increase the happiness of the family members. And since the time frame he talks about consists of 100 years, there’s really no further time to waste!
To discover more about Jay Hughes visit his website at www.jamesehughes.com.
