Ubers and Assets [Six Strategies for Generational Wealth Management]

Written by Josh Reidinger, CPA on June 4, 2019

Warren Averett Generational Wealth Management Imgae

A recent Nasdaq article estimates that “70% of families will lose their wealth by the second generation and 90% will lose it by the third.” For multi-generational families looking to protect their legacies, it’s an alarming statistic. How can you implement effective generational wealth management to protect your family for the long term?

Ubers and Assets

Like many other good Alabama Football fans, a few weeks ago, I watched the first round of the NFL Draft. The morning following, I dropped my truck off at the shop, and I needed a ride to the office, so I used Uber. My Uber driver, Andrew*, and I quickly made the Alabama Football connection (Roll Tide!), and since I was going to work, he also asked about my profession. I told Andrew that our Firm helps multi-generational families with their wealth and also helps prepare future generations to be good stewards of their financial resources.

I loved Andrew’s next question: “How well do you think these NFL draft picks will do with all the money they are about to receive?”

The Common Concern behind Generational Wealth Management

Andrew and I had a great conversation that I found to be so similar to the conversations we have with our multi-generational wealth management clients. Uber was Andrew’s “side hustle,” but don’t let that slang confuse you. He was very serious. His car was meticulously clean, he was an excellent host, his Uber rating was 4.96 and he knew everything about the car-driving business. I also learned that he had worked in steel mills for over 30 years. When I suggested that steel mills were hard work, he said “Oh, not that bad.” (We both knew he was lying!) Andrew went on to tell me how his mother had worked multiple jobs and taught him the value of hard work and to waste nothing.

Considering everything I had just learned about Andrew, I found his question about the sudden wealth of NFL draft picks intriguing. Here was a guy who would know exactly how to handle a large windfall of money, but he was really interested in understanding why so many people who come into wealth are not set for their lifetime and even beyond for their families.

What I learned was that Andrew wasn’t actually concerned if he came into sudden wealth; he was concerned if his children would know how to deal with wealth. Not surprisingly, Andrew and his wife had sacrificed greatly, and all of their children had completed college and were well along their way to becoming very successful. It seemed that Andrew was really wondering if his children would know how to handle success and worldly possessions far greater than he and his wife had ever experienced.

How can you govern your wealth for the financial wellbeing of yourself and your family, not just for today, but for years into the future?

The answer: generational wealth management.

The State of Generational Wealth Management Today

Frequently, as financial advisors, we hear these same concerns from our multi-generational wealth clients as those that Andrew expressed in my Uber ride. That’s why we seek to educate and communicate with members of each generation of a family, reinforce the family values that are most important to them and help them to guide their decision making and legacy for years to come. But, unfortunately, this process hasn’t been an organic event in our nation.

While the United States is one of the most prosperous countries in the world, there is little to no financial literacy skill being taught to children and young adults. As a society, we must do a better job teaching future generations about how to responsibly handle their finances. Some wealth and financial issues can be complex, but the majority of the issues are not overwhelming, as long as there is a willingness to understand and take necessary steps.

Six Strategies for Successful Generational Wealth Management

Here are a few things that I shared with Andrew that we advise our clients to do when their family has  come into wealth rather suddenly:

  1. Prepare in advance. It isn’t necessary to be an expert in all things financial. However, a general curiosity and willingness to learn about financial planning is important. We will often meet with younger generations in a family over the course of a summer or throughout a semester. We find that it is best to meet at least four to five times for some foundational, tailored learning, followed by more informal meetings concerning financial goals and how to reach them. Quite simply, you should not be learning on the fly when it comes to finances.
  2. Seek wise counsel. I think the most important word here is “wise.” There are plenty of people out there who will provide you with advice—financial and otherwise. Unfortunately, very little of that advice is often truly wise. This is not an easy process, but FINRA and the SEC have great resources online where you can review advisors’ backgrounds. A great place to start is https://brokercheck.finra.org/. This should not serve as your only source to evaluate prospective advisors, but you can learn a lot very quickly.
  3. Slow down! When discussing generational wealth management, we strongly encourage all of our clients to move slowly and methodically. We have all heard the stories of the long-lost cousins who come out of the woodwork when they learn about a family member coming into wealth. Whether it is an opportunity to invest in a once-in-a-lifetime deal or a request for a personal loan or gift, these requests could come early and often. By slowing down the decision-making process and seeking wise counsel, it’s easier to separate the wheat from the chaff.
  4. Avoid ratcheting up your lifestyle. One simple way to do this is to create a realistic budget and then stick to it. There are several high-profile examples of NFL players living on a tight budget, including the much-publicized chronicles of Kirk Cousins who drove an old, dented van and shared an apartment. There are other NFL players who have held to a tight budget, including Rob Gronkowski, Ryan Broyles and Marshawn Lynch to name a few. Allow your daily budget and short-term activities to reflect your long-term goals.
  5. Pay attention to taxes. Major windfalls generally come along with major tax bills at the federal and state level. Of course, state taxes can vary greatly based upon your state of residence and where the earnings occur.
  6. To protect your wealth for the long-term, the majority of your portfolio should be boring. Whether it is establishing an emergency fund (everyone should have one) or investing in the public markets, most of an investor’s portfolio should be in low-cost and tax-efficient investments. There are an untold number of nightmare stories of investing in a friend’s restaurant, a cousin’s car wash or a random business. We believe there is a place for private equity in some clients’ portfolios. However, your trusted advisors (i.e., wise counsel) should help you closely evaluate private equity opportunities with the expectation that very few alternatives will ever be worthy of making an investment.

I wished that my Uber ride with Andrew had been a little longer. What a great guy! I have to admit that at the start of our drive, I was basking in the glory of yet three more players from the University of Alabama being drafted in the first round of the NFL Draft. I enjoyed talking football with Andrew, but I also enjoyed the important conversation about how to be effective in managing generational wealth. By all accounts, these three young men who were drafted seem to be not only outstanding athletes, but also very mature and level headed.  We hope that these young men, and Andrew’s children one day, will make great use of and protect their legacies through successful generational wealth management.

(*Name changed)

Josh Reidinger is president of Warren Averett Asset Management and advises high-net-worth individuals and families about successfully managing, growing and protecting their wealth. Click here to learn more about him or to contact him directly.

Click here to learn about protecting your family’s wealth and legacy through comprehensive financial planning and wealth management.

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