Dealing effectively with money is a central theme of wealth management, but, as most of us know, effective wealth management is about a lot more than dealing with money. This point underscores a recent interview I conducted with Richard Orlando, the founder and CEO of Legacy Capitals, a consulting firm that offers education, facilitation and training to affluent families and their advisors as they navigate the complex decisions that surround wealth management. Orlando, who has a doctorate in family counseling, published his first book, Legacy: The Hidden Keys to Optimizing Your Family Wealth Decisions, earlier this year. In it, he explores how values, purpose and faith can be aligned to help families prepare and plan for a happier and more fulfilled future.
Grove: The idea of using wealth to leave a mark on the world is getting a lot of traction. Why is having a legacy so important?
Orlando: There are three primary reasons why intentionally planning for one’s legacy is important. The first reason is that we are all creating a legacy whether we are trying to or not. So if we want to leave a legacy, then we should ensure that the way we live and steward our wealth best reflects our intended goals. Which leads to the second reason: Too many people are misinformed about legacy planning. Too much focus is placed on what assets we leave to others when we are no longer here. A legacy doesn’t begin when wills and estate plans are executed—it starts well before that point. One’s legacy is really about how we live, not just what we leave behind. And finally, living a legacy based on our values and life’s purpose will significantly increase our sense of fulfillment and happiness, which in turn will positively contribute to one’s legacy and the mark we want to leave on the world.
Grove: What are the common challenges families face pertaining to their wealth?
Orlando: Family money is often an emotionally charged area because significant wealth creates unique opportunities and challenges. In my experience, the greatest challenge is the least discussed: the place where money, values and family intersect. As the level of our wealth increases, our decisions become more complex. The majority of planning, whether it’s financial planning, estate planning or tax planning, is about preparing the assets for the family. Yet research clearly shows that in order to successfully transfer wealth across generations, the family must be prepared for the assets.
Grove: How can advisors help their clients be better prepared for wealth transfer and legacy planning?
Orlando: I recommend that advisors start with the following five questions. What are the shared values, goals and wishes of the family? Are there any concerns about the impact of the family’s wealth on children and grandchildren? Is the next generation getting education and support around life IQ, not just financial IQ? How well does the family communicate and make decisions together? What role can the family’s wealth serve in living out the intended legacy of the patriarch or matriarch? There’s obviously much more to it, but this is a good starting point that can lead to more robust conversations.
Grove: What in your background and experience has contributed to the advice in your new book?
Orlando: A number of key resources have informed my work. My education, especially my Ph.D. research on self-managed family work teams, and my global work in the fields of business, financial services, counseling, theology, coaching, sports psychology and family systems, have all been influential. The diversity of my experiences means I no longer see things through a single lens. Another important source of inspiration is my own family, whether it’s the extended family I grew up with or my wife and children. These relationships and unique dynamics help me understand what it means to be part of a multigenerational family. And, finally, some of the greatest wisdom and advice I have to share is the direct result of the hands-on work I do with individuals, families and advisors. I always learn from them and, in a way, I consider them my co-authors.
Grove: You introduce the idea of spiritual capital as a core component of a person’s wealth. How does spiritual capital differ from personal values or religion?
Orlando: I help broaden my clients’ understanding of their wealth by sharing the FISHS framework. It’s an acronym for the five capitals we all possess: financial, intellectual, social, human and spiritual. Wealth has traditionally been defined as financial capital or net worth, but that is a limiting perspective that can impact our ability to positively contribute to our intended legacy. Whether we are deciding how to invest, share or give our various forms of capital, it is our spiritual capital that provides the “why” behind our actions and serves as our personal GPS. Although it may be informed by a person’s religious orientation, it’s really about the intangible feelings and priorities that matter most, the things that reside in our hearts and minds but may never be manifested in the world in a tangible way. In my book I use an equation—values plus purpose times faith [SC = (V + P) x F]—to define spiritual capital. When spiritual capital is factored into our legacy planning, it helps the planning process transcend the technical activities to become something much greater and more reflective of the individuals.
Grove: What do you mean when you say preparing the next generation is a two-way street?
Orlando: Preparing the next generation is one of the most important family wealth decisions because of the potential it has to impact everyone within an extended family unit, regardless of age. Typically, there is a tremendous focus on developing financial IQ, which is certainly important, but by itself is not enough to equip family members to navigate the many issues and opportunities they will face together. When the next generation is very young, they rely on their parents and grandparents to shoulder most of the responsibility in helping them prepare. As they move into young adulthood, the responsibility for their readiness and development needs to begin transitioning to them. Getting it right calls for a delicate balance that is achieved only when both parties are fully engaged and take ownership for their roles, which is why I refer to it as a two-way street.
Grove: What can parents and children do to navigate this process more smoothly?
Orlando: In Chapter 5 of the book, I’ve outlined 10 principles and practices for parents and another 10 for children to use as guidelines throughout the process. One of the most critical questions to consider is what the preparation is designed to do. Is it to raise financially astute children who can manage their own wealth? Is it to prepare the next CEO of the family business? Is it to create global citizens who will change the world through philanthropy or social entrepreneurship? Is it to do everything possible to help the children lead happy, passionate and productive lives? The answers will vary depending on the people involved, but how a family responds will determine what needs to be involved in the next generation’s preparation.
Grove: Can you share an example of how you’ve worked with a family to tackle legacy planning?
Orlando: I recently worked with Mr. and Mrs. Stein (a pseudonym), a couple with three adult children ranging in age from 21 to 32. The Steins knew they wanted to gift some of their wealth to the kids while they were living, but were uncertain of the best approach given the varying degrees of responsibility and fiscal sophistication exhibited by the kids. I worked with the Steins for several months, helping them to inventory their values and beliefs. When that work was complete, I asked them to focus on what they wanted to accomplish by transferring their wealth, rather than on the specific amount they would give. At the end of the process, they made several decisions:
• They would proceed with a wealth transfer while they were living so they could witness and enjoy the benefits of the money in their children’s lives. But they would wait another year before taking action so they could prepare their children appropriately.
• They would not give an equal amount to each child, considering the unique situations and maturity levels, and planned to place different terms and conditions on how and when each child would have access to the corpus and the income it produced.
• They would set up a family foundation and invite all of their children to be involved in the charitable giving.
• They would take these three decisions to attorneys and financial advisors to work out on paper in the most strategically tax efficient and asset protective manner possible.