Building wealth across generations – the four pillars of capital

Building up great wealth is one thing; holding onto it through multiple generations is another.

Research shows that the rich lists are changing fast around the world. Take the UK’s latest Sunday Times Rich List. It shows that Britain’s very rich are a changing cast of characters with two thirds having only entered the list since 2000.

“This debunks the popular idea that great wealth is largely inherited, and gives credence an old English saying “from clogs to clogs in three generations”, says Johan van Zyl, CEO of Stonehage Fleming in South Africa.

“It takes great energy and ability to raise a person’s material wealth status; however these two traits are often not continued further down the generational line.

“In our experience, one reason for this phenomenon is that many wealthy families focus only on building up financial capital, while ignoring other forms of capital which, together, will help them to break free from the mould that a family could potentially lose its wealth status in the span of three generations.”

Van Zyl says that it takes four primary pillars to support the successful transfer of wealth through many generations.

Financial Capital 
Financial capital is the tangible assets, business and intellectual property of the family that have quantifiable financial value.

Having weathered the financial crisis, very wealthy families are now focused on growing their wealth in addition to preserving it.  As these families grow and the numbers of people these assets need to provide for increases, they are becoming more entrepreneurial and are increasingly willing to shoulder a greater degree of risk in order to achieve capital growth.

Intellectual Capital
This is the accumulated skill, knowledge, experience and wisdom that the family can apply to the management of its wealth, its contribution to society, the individual fulfilment of family members and the collective wellbeing of the family.

To ensure the management of intellectual capital within a family is handled successfully, strong leadership and carefully considered succession planning are required.  It is also important to spread the intellectual capital a family has amassed to far wider than just the family unit.  Some families achieve this through mentorship, while others see it as part of their philanthropic efforts, particularly those in families unable to give as much financially to causes as they would like due to a sense of being ‘asset rich’ but ‘cash poor’.

Social Capital 
How the family engages with the communities in which it lives and operates and how it uses its wealth and other assets to the benefit of society comprises social capital. It includes social positions and the networks that help the family to use its wealth and other assets to the benefit of society and the good of the family.

A significant portion of the social contribution of UHNW families and the way in which they engage with communities comes through their business interests.  As many have family businesses, they are able to contribute to society through job creation and providing services to customers.

Cultural Capital 

A family culture brings a family together by identifying shared perspectives and themes in the way family members conduct their lives, their approach to business, the way they treat others, the way they contribute to society, their attitude to wealth and the things they value.

As the lack of a common mindset or shared values bridging the generations is the most common reason that many wealthy families fail to preserve their wealth over three generations, cultural capital is an extremely important pillar. Agreeing a purpose for the family’s wealth and defining it clearly are key.

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