PNC CENTER FOR FINANCIAL INSIGHT

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1 PNC CENTER FOR FINANCIAL INSIGHT The PNC Center for Financial Insight SM builds bridges from thought to action, creating practical, applicable strategies to help benefit you and your family. Discovering Family Values: A Key to Successful Wealth Transfer The ability to identify common family values and align them with long-term goals is a key characteristic of many families that successfully transfer wealth through the generations. Below we explore ways to clarify shared values and integrate them with four common principles that support successful multigenerational succession. All happy families are alike; each unhappy family is unhappy in its own way. Leo Tolstoy s observations are as relevant today as they were nearly 140 years ago, particularly when looking at the ingredients that make multigenerational families successful. In our experience, there is often one clear characteristic shared by many who have successfully transferred wealth, be it in the form of a business, a financial family, or a combination of both. What makes families successful? Or, as Tolstoy said, What is it about all happy families that is alike? Successful multigenerational business-owning and financial families often cite their own family values as mainstays of company and family direction and longevity. The ability to clearly articulate what is important to them and associating those values with long-term goals help underpin their success. Why So Many Fail Close to 75% of business-owning families would like to pass their businesses on to a family member, 1 and in our experience a large majority of financial families would like their wealth to sustain future generations. Yet a staggering 70% of all intergenerational wealth transfers fail. 2 Roy Williams and Vic Pressier, co-founders of the Institute for Preparing Heirs, studied wealth transfer over a 20-year span and discovered that wealth can be a source of friction and dispute among family members, often causing inherited wealth to be dissipated. But even seemingly harmonious families fail because they too often do not prepare their next generation for a number of reasons, including: They are not sure how to initiate the needed discussions surrounding wealth the when do I start sharing and how much do I share questions. They are concerned that integrating the next generation into the wealth planning process could have a demotivating impact on their heirs and that wealth could be a negative driver of behaviors divergent from the family s core values. Sometimes families do not think about the downstream implications of not integrating the next generation. This is particularly true for wealth 1 PwC, Up Close and Professional: The Family Factor, Global Family Business Survey, The Williams Group,

2 May Steps for Successful Transition Families who successfully transition their financial wealth and businesses share a number of best practices, including: There are a number of ways you can work with your advisors to help you better identify and understand your values and those of your family members. These include values exercises and explorations. Identifying shared family values and how individual family members express those values; Clarifying what they as a family would like to achieve with their wealth; Creating wealth management plans that align with the family s values and goals; Educating family members on the purpose and structure of wealth plans; Crafting pathways for next-generation engagement; and Building enduring relationships between advisors and family members. creators who may have little or no experience with wealth transfer and may take a more paternalistic or maternalistic approach. It may be heirs do not show interest in engaging in the wealth management or business aspects of the family. Secrets to Success Though the statistics may seem daunting, families can take many steps to increase the likelihood of successfully transferring their wealth, says Robin Petty, Hawthorn, PNC Family Wealth SM managing director of wealth strategy. In our work with families, she notes, we have identified the following four common principles that support successful transition. Successful Families Articulate Goals in Words and Numbers In our experience, these families often have a definition of mission, vision, and values that is clearly communicated, understood, and adopted. Together, they provide the roadmap and direction for the family. The mission is the statement of purpose for the family, the what we stand for. The vision provides direction over time, the how do we live out our mission. Values clarify identity and intent, the who we are. Shared values help a family navigate the emotional landscape between generations. These values are also a key component of the legacy left to future generations and should be shared across generations. Wealthy Families See Wealth as More than Money Many wealthy families have a commitment to a multigenerational legacy of shared purpose. Their families believe the definition of wealth goes beyond the numbers on a balance sheet to include a family s social, intellectual, and philanthropic capital. They Work to Ease the Complexities of Wealth The greater the wealth, the greater the complexity. Successful families work to simplify the complexity of wealth both in creating wealth management plans and in educating family members on the structure and purpose of the plans.

3 May Identifying Family Values We know that understanding values is important for laying the foundation for successful multigenerational wealth transfer. But how do you identify your values and find shared values? There are a number of ways you can work with your advisors to help better identify and understand your values and those of your family members. These include values exercises and explorations. A family history that includes how wealth was created can be a foundation for building family values. Histories can be encapsulated in books, albums, and/or videos that include interviews with matriarchs and patriarchs as well as other family members, friends, and key associates, offering different perspectives. Many families craft values statements that illuminate the family identity, the who we are and what we stand for. Inclusivity is crucial when creating these statements because they should reflect the full shared values of the family. It is important to note that family values statements are different than corporate values statements, which are often created by founders and a small team and are nonnegotiable with employees. Companies can and do fire employees for acting against the values of the company. You cannot, however, fire your family. When the family doesn t share the values, they can drift apart and view their differences as bigger than they actually are. Once you have identified your values, the next step is to explore if you are truly living your values and, if so, how they are affecting you, your relationships with family members, and plans for the future. The following questions can help do this: How does this value serve you? How does this value impair you? How do you react when this value is challenged by others? What blind spots do you have because these values are important to you? As you learn how your values affect your behavior, it is equally important to recognize how different generations and family members interpret shared values. Differences will have an impact on future planning considerations. Education of the next generation is central to successful wealth transfer, as is the creation of pathways for engaging in various family entities and efforts, such as the family business and philanthropic efforts. Engagement strategies should include clearly articulated steps and expectations for the next generation, if they are to be involved. Education does not have to mean divulging granular details about the family assets and what the next generation may or may not inherit. Every child is different, and how each child reacts to the knowledge of his or her family s wealth will also be different. There are age- and demeanor-appropriate ways to educate children about the responsibilities

4 May of wealth and to build the necessary level of financial literacy surrounding the family holdings. In this age of the internet, the next generation likely knows quite a bit about their family s wealth. Therefore, families who choose not to discuss a family s wealth may discover the next generation has learned details about it anyway. They Build Enduring Relationships with Their Families and Advisors Successful families work hard on communication. Also, those families with businesses will likely discover communication doesn t solely revolve around the business if it is still in existence. Many multigenerational families hold family retreats to reinforce the family values and legacy. These retreats can be an opportunity to discuss the family s wealth management plan as well as a chance to have some fun. As a best practice, these gatherings may be funded by the matriarchs and patriarchs, or a single-family office if the family has one, so no family member has to worry about the cost or balance attendance with another event or commitment. These retreats are inclusive, with roles for all family members regardless of age or wealth. They often include roles for advisors and invited experts as well, bringing all participants together at certain points and smaller groups together at other times. A hallmark of successful multigenerational families is the attainment of peace of mind. That peace of mind comes from their ability to understand what their wealth means to them and what they wish to achieve with it, said Ms. Petty. They have strong relationships within the family and with their advisors. And they understand how their plans will help them achieve their goals. Transferring wealth across generations can have its challenges. There are, however, steps you can take that may enhance the likelihood of success in realizing your goals. We encourage you to work with your family and trusted advisors to understand what you are truly trying to achieve with your wealth and how your wealth plans will help you accomplish those goals. For more information, please contact your Hawthorn advisor.

5 May The PNC Financial Services Group, Inc. ( PNC ) uses the marketing name Hawthorn, PNC Family Wealth to provide investment, wealth management, and fiduciary services and the marketing name PNC Center for Financial Insight SM to provide wealth planning education to individual clients through its subsidiary, PNC Bank, National Association ( PNC Bank ), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. Standalone custody, escrow, and directed trustee services; FDIC-insured banking products and services; and lending of funds are also provided through PNC Bank. This report is furnished for the use of PNC and its clients and does not constitute the provision of investment advice to any person. It is not prepared with respect to the specific investment objectives, financial situation, or particular needs of any specific person. Use of this report is dependent upon the judgment and analysis applied by duly authorized investment personnel who consider a client s individual account circumstances. Persons reading this report should consult with their PNC account representative regarding the appropriateness of investing in any securities or adopting any investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. The information contained in this report was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy, timeliness, or completeness by PNC. The information contained in this report and the opinions expressed herein are subject to change without notice. Past performance is no guarantee of future results. Neither the information in this report nor any opinion expressed herein constitutes an offer to buy or sell, nor a recommendation to buy or sell, any security or financial instrument. Accounts managed by PNC and its affiliates may take positions from time to time in securities recommended and followed by PNC affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Act ). Investment management and related products and services provided to a municipal entity or obligated person regarding proceeds of municipal securities (as such terms are defined in the Act) will be provided by PNC Capital Advisors. Securities are not bank deposits, nor are they backed or guaranteed by PNC or any of its affiliates, and are not issued by, insured by, guaranteed by, or obligations of the FDIC, the Federal Reserve Board, or any government agency. Securities involve investment risks, including possible loss of principal. Hawthorn, PNC Family Wealth is a registered service mark and PNC Center for Financial Insight is a service mark of The PNC Financial Services Group, Inc The PNC Financial Services Group, Inc. All rights reserved.