Blind Spot

Blind Spot: Preserving Wealth Across Generations

A recent Business Times article highlighted a concerning trend among high-net-worth families: despite the privileges that come with significant wealth accumulation, many see their fortunes diminish over generations. This is often due to a combination of business complexities, family dynamics, lifestyle choices, sub-optimal investment decisions, and other systemic risk factors. History has shown that maintaining or growing wealth beyond a few generations presents significant challenges. For wealthy families in the Philippines, addressing these challenges often involves seeking solutions offshore due to the limitations of local services in meeting their needs.

I have seen firsthand how critical financial advice and the transmission of values are for preserving wealth across decades. Here are three common "blind spots" that affluent families must address, along with ways to navigate these pitfalls effectively.

Blind Spot 1: Family Dynamics and Succession Planning

Family dynamics can be one of the most significant challenges to wealth preservation. Conflicts often arise from a lack of clear succession planning, differing visions for the family's future, and interpersonal disputes. Without a well-defined plan, transitions can lead to fragmentation and mismanagement of assets.

Implementing a robust succession plan is essential. This involves:

Clear Communication: Regular family meetings to discuss the family's vision and values.

Professional Mediation: Engaging third-party mediators to facilitate discussions and resolve conflicts.

Education: Preparing the next generation through financial education and leadership training.

A prominent Philippine family with substantial real estate holdings faced internal disputes upon the patriarch’s death. By establishing a family council and a detailed succession plan, they not only resolved conflicts but also streamlined decision-making, ensuring the family business continued to thrive.

Blind Spot 2: Sub-Optimal Investment Decisions

Wealthy families often fall prey to sub-optimal investment decisions due to inadequate diversification, reliance on outdated strategies, or lack of access to global investment opportunities. These issues can lead to significant financial losses and erosion of wealth.

Adopting a more well thought-out investment strategy involves:

Diversification: Spreading investments across various asset classes and geographies to mitigate risk.

Professional Management: Engaging with global investment advisors who can provide insights and access to diverse markets.

Continuous Review: Regularly reviewing and adjusting investment portfolios to align with changing market conditions and family objectives.

A high-net-worth individual in the Philippines heavily invested in local stocks, which suffered during an economic downturn. By seeking the expertise of a wealth manager who has access to offshore solutions, he not only recovered losses but also ring-fenced his wealth portfolio and achieved steady growth.

Blind Spot 3: Lifestyle Choices and Financial Discipline

The lifestyle choices of high-net-worth individuals can lead to excessive spending and poor financial discipline, which gradually depletes wealth. This is particularly true when successive generations do not value or understand the efforts required to build the family fortune.

Encouraging financial discipline and sustainable lifestyle choices includes:

Budgeting: Establishing clear budgets and spending limits for family members.

Philanthropy: Promoting a culture of giving, which instills values of responsibility and community support.

Financial Education: Continuously educating family members about financial management and the importance of maintaining wealth.

A wealthy family in Manila observed a rapid decline in their fortune due to the lavish lifestyle of the younger generation. By incorporating financial education programs and setting up a family foundation for charitable activities, they were able to instil a sense of responsibility and curb excessive spending.

Wealth preservation across generations is a multifaceted endeavour that requires addressing several blind spots, including family dynamics, investment strategies, and lifestyle choices.

For high-net-worth families in the Philippines, seeking solutions offshore can often provide the necessary expertise and resources to effectively manage their ever-changing needs and grow their wealth. By implementing clear succession plans, adopting sophisticated investment strategies, and promoting financial discipline, families can overcome these challenges and ensure the longevity of their wealth.

Barbara Gonzales has a proven track record of delivering exceptional service to High Net Worth and Ultra-High Net Worth clients. A Singapore resident for more than 2 decades, she holds esteemed Financial Planning qualifications from the Institute of Banking & Finance in Singapore.

With a bachelor's degree in Organizational Communications from De La Salle University and executive education in Customer Analytics & Engagement from the Imperial College Business School and AIML from the Singapore Management University, Barbara brings a unique blend of strategic thinking and interpersonal skills to her role.

A master relationship builder with a deep understanding of client needs, Barbara's expertise lies in business development, driving engagement and fostering client loyalty, backed by a strong foundation in data-driven strategies.