Wealth study reveals need for education
Wealthy people say they want to preserve their money for the long term, but most don’t know how much they can afford to spend each year without risking depletion of their assets. So reports Merrill Lynch’s Private Banking & Investment Group, which recently released a study of 171 U.S. consumers with $5 million or more in investable assets.
Nearly four of ten (39%) respondents to the survey—entitled “Can You Make the Money Last? The Road to Sustainable Wealth”—said wealth could be preserved forever with annual distribution rates of 6% or higher. According to Merrill Lynch, wealth distribution rates should be held to the 2%-3% range in order to sustain the value of assets in today’s dollars.
One-fifth of those queried said they didn’t know what would constitute an appropriate distribution rate. According to study co-author Michael Liersch, Ph.D., head of behavioral finance at Merrill Lynch, “‘I don’t know’ could be the right answer.” An acknowledgment of ignorance, Liersch points out, can be a motivating factor that drives families to institute educational programs and develop a wealth-preservation strategy. “Asking questions and saying things like ‘I don’t know’ can actually be extremely important to the conversation,” Liersch says.
Important family conversations
More than a third (39%) of respondents said it’s never too early to begin talking to their children about responsible financial behavior. Eleven percent said these discussions should begin when the kids are ages ten to 13; 18% cited 14-17 as the right age range; 19% said ages 18-24; 10% preferred to wait until their children were 25 or older; and 3% said “never.”
Yet the study revealed a discrepancy between when respondents thought they should talk to their kids about fiscal responsibility and when they actually had such conversations. Only 14% reported having conversations about money with children at age nine or younger. Twenty-seven percent said they waited until their children were 18-24, and 21% procrastinated until their kids were 25 or older.
Why are these families procrastinating? Liersch says it might be because of a mistaken belief that transition plans and all the necessary documentation must be in place before a conversation can start. “All that needs to happen is for the family to get together and have an open and vulnerable dialogue,” Liersch stresses. Parents could start a dialogue by discussing values and their desire to have the family’s wealth last for generations, Liersch suggests.
Senior-generation members might ask each family member for a written answer to the questions, “Do we have just enough, not enough or more than enough?” and “What does ‘enough’ mean?” Elder family members who started a business from scratch might have one definition of “enough,” while their kids who were raised in prosperity might have a different one, he notes.
While the survey respondents believe—at least in theory—that conversations about wealth should take place early, they are not in a hurry to tell their kids exactly how wealthy their families are. Most study participants (61%) said discussions with heirs about the amount of the family’s wealth should not be held until children have reached age 18. In this case, respondents are practicing what they preach; 70% said they refrained from discussing dollar amounts until their kids were over 18.
Liersch agrees that waiting to reveal the specifics is wise. “Dollar amounts can be distracting,” and discussing specific figures can overshadow key points such as what constitutes good financial decision making and what the family values are, he says. Parents should be cautious about presenting “the right amount of information at the right time,” Liersch says.
Families who are prominent in their community face extra challenges because their children’s classmates are likely to ask them if their parents are rich or tease them about the family’s wealth. “That’s a motivation to start the conversation as early as possible, so you’re the one framing it,” Liersch says. He suggests that parents coach children on questions they might encounter and how to respond.
When to distribute
Opinions about when and under what circumstances heirs should have access to their share of the family fortune varied according to the survey respondents’ age. More than eight in ten (83%) participants aged 55 or younger said heirs should receive their wealth as they achieve specific goals (education, career, marriage), compared with 64% of respondents aged 56 and older. And 84% of respondents aged 55 or younger said the heirs’ share should be earmarked to help with specific goals (education, first home, etc.), compared with 62% of the older cohort.
Liersch believes these findings are significant and demonstrate that, when it comes to receiving their inheritance, young people are not clamoring for full autonomy and full discretion, contrary to popular belief. “In fact, advice and guidance can actually be extremely empowering to younger generations,” Liersch says. “Understanding [senior generations’] intent and having parameters around [when funds are distributed] makes wealth feel less like a burden and more like an opportunity.”
Liersch recommends that families create videos starring the patriarch and matriarch, who might discuss the growth of the family business from the first idea, store or widget and emphasize how their values influenced their decisions. It is beneficial for the elders to talk about what they started with as well as what they risked, and why, Liersch notes.
Risk factors
When asked what constituted the greatest threats to their wealth, most participants in the study named factors largely beyond their control. For example, 55% said performance of the markets was a risk to wealth sustainability, 52% cited investment returns and 44% identified government actions as a risk. By contrast, only 9% of respondents said lack of communication among family members posed a risk. Yet the other survey findings show that communication and education are needed to correct spending patterns that can deplete the family fortune.
Liersch speculates that respondents might not have identified communication issues as a risk because they believe their family is already talking about wealth. But too few of these conversations are taking place “on a systematic and explicit level,” he cautions.
“Set aside a two- to three-hour period as a family unit and literally get explicit, at least on an annual basis,” Liersch advises. 


TAB survey of small-business owners finds families share a vision for their companies
A recent study conducted by The Alternative Board (TAB), an organization that provides peer advisory boards and executive coaching services to small businesses, found that family business owners like being in business with their relatives. Of the family business respondents to TAB’s Small Business Pulse Survey, a whopping 91% said they support the decision to have family directly involved in their companies.
What’s more, the family business respondents said their family members are more likely than their non-family employees to agree with them on their vision for the business (49% vs. 25%).
Allen Fishman, founder and executive chairman of TAB, which has more than 140 franchises in five countries, says the findings show that families are deeply committed to their companies. “That business is feeding the family; it’s not just a job,” Fishman says. “They’re rallying around the same vision.”
Fishman notes that to many family business owners, “The value of the family dynamics is actually more important than the pure material success of the business.” Family involvement “has its challenges,” he says, “but it clearly is a major motivating factor for many of the [TAB] members to grow their businesses.”
The challenges of working with family were confirmed in the survey, which was conducted in March. Family business owners who participated in the study reported that they are more likely to have conflicts with family members than with non-family employees over matters affecting the business (32% vs. 27%). Yet the family business owners aren’t convinced that an outsider can help them settle family disputes. More than two-thirds (68%) said it would not be valuable to have a third-party arbitrator resolve family conflicts.
TAB received responses from 380 business owners; 232 of them were owners of family businesses. Of the family business respondents, 47% were founders, 39% were second-generation owners and 12% represented the third generation.
Succession planning: A weak spot
Less than half (43%) of the family business owners who participated in the TAB study said they are satisfied with their succession plan. About a quarter (24%) admitted to being dissatisfied with their plan, and 33% said they don’t have a succession plan.
Interestingly, only 38% of the family business respondents said it is likely that their business would remain in the family when they exit. Perhaps these business owners plan to sell because they doubt their family members are viable successors. Forty-two percent of the family business owners surveyed by TAB said their non-family employees were the most qualified in their respective positions, while 37% said family members involved in the business were the most qualified. Other groups identified as the most qualified included “my business partners (non-family)” and “my vendors.”
Fishman says he’s not surprised by the respondents’ assessment of their family members’ qualifications. “They are very tuned into areas that are not perfect,” he says. “They are looking with more attention than maybe an outsider would.”
Fishman adds, however, that a frank assessment of family talent may not result in a separation of the wheat from the chaff. “Even if [some family members] weren’t the most qualified, they might still have the position, as long as they could do a good enough job,” Fishman observes.
He notes that intangible factors, beyond bullet points on a résumé, come into play when families work together. “Family members in business bring a different level of passion and purpose to the business; they don’t view it as just a job,” Fishman observes. “There’s an emotional connection [of the business] to who they are; it’s not just what they do.”


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