I have written this series of articles because wealth, its accumulation, and how it is deployed is important. New Zealand as a nation doesn’t respect wealth, nor does it celebrate the successes of wealth’s effective deployment.
Wealth concentration is seen as a bad thing and NZ has one of the highest rates of wealth disparity in the world, yet in global terms, our extremely wealthy remain puny.
Families with wealth spanning more than four generations, say 120 years, are almost non-existent, and mostly those families run pension funds to feed squawking chicks, which often don’t perform that well.
In short, our wealth pool is both shallow and immature, and thus we are dependent on government or foreign investment to tackle major projects. Governments elected in three-year cycles struggle to think long term and spend at least a third of their time thinking about how to get re-elected. Foreign investment has the issues concerning sovereignty. Such investors ultimately ensure that the returns from investment are taken home with them, and thus reinvestment in our economy is curtailed.
In most developed economies there is a pool of wealth controlled by wealthy families with maturity and scale to counterbalance foreign investment activity. It does however mean that wealth concentration continues, which isn’t necessarily a problem if the wealthy families are purposefully innovating and building capacity both within their families and in the community.
Absent concentrated and mature family wealth, economies progressively become government controlled or hollowed out by foreign investment, and eventually the intelligent children leave and follow the innovative and dynamic money of the more mature economies.
This has been NZ’s story to date. NZ is now at a turning point. Our tech sector has birthed a number of substantial new wealthy, and our economy is beginning to show signs of dynamism. But it won’t last, unless wealth is retained, succession of it is planned and the attitude to wealth matures. This maturing should start with the wealthy and spread through their deeds and successes to the whole of the population.
The series so far:
- The first was to define wealth more widely than just money. But don’t underestimate the importance of resources in getting innovation and change funded. [read this article here]
- The second explored the emotional evolution of new wealth and how many fail to retain it let alone grow it. [read this article here]
- The third explored common mistakes in families trying to prepare for a change in the leadership of the family unit. [read this article here]
- The fourth talked about understanding how much is enough and talked about managing and setting family expectations of wealth. [read this article here]
- The final article was a discussion on the journey to purpose. [read this article here]
A core to much of this, is telling a family’s story and sharing it with those that need to hear it. Certainly, with first generation wealth, creating in the second generation a sense of pride in what their parents have achieved is a challenge, and this often requires facilitated family dialogue over a long period of time. Telling the story is fundamental to this.
Setting expectations and getting full family buy-in to some greater endeavour, is the best way to keep family wealth together. This is a sensitive, emotion charged negotiation in most cases and almost always so in G1 to G2 transitions. Getting help understanding the aspiration of all, and the emotional barriers to cohesion is important as the participants rarely can do this unaided. Continual partitioning as generations die and move on, is the path to ultimate penury.
Working out how much is enough is an economic and actuarial exercise, most won’t be able to do that unassisted.
As tends to happen when a massive wealth transference is about to occur and as the baby boomers prepare to transition to their children, the sharks circle.
The immediate challenges are:
- Assist with family wealth succession
- Help families find purpose and a sense of worth, beyond money
- Connect likeminded families with each other to build international scale in private wealth deployment not to mention a community to support knowledge and skills
What have we been doing beyond writing this stuff?
For some time, GS has been working to identify independent, free willed, like minded, wealthy in their own right advisors to help with this.
Why are these characteristics in the ‘hired help’ important? Firstly, they will give you their honest opinion because they don’t need to have your money continually flowing to them. In short, they are fellow fish swimming with you, rather than sharks.
In this quest for such persons, what have I found? Such people are more commonly in charge of their own enterprises and can make decisions without undue corporate nonsense, and they are generally smaller organisations (sub 50 head counts).
This advisory team of people that trust each other, we are calling internally the Circle of Wagons.
The skills covered in this group are these:
- Story telling
- Family facilitators
- Actuaries and investment advisors
- Cost effective core capital management
- Exotic product origination
- Family governance
- Family and trust administration
- Networking and aggregation facilitation
Envisage an old western movie…
The pioneering families are heading into the unknown to find new wealth and opportunity. They are safer traveling together. Their wagons group and they proceed into the unknown. There are scouts in the front. There is protection at the back. They are all together in a wagon train.
When threatened or at rest, the wagons are circled to protect the whole and each other, from the predators that seek to destroy them.
They travel, eat and explore and dream together.