(Dow Jones) Advisors to the very wealthy are adding a new chapter to the primer they use to teach the next generation how to handle the family's fortune. Its title: Avoiding the mistakes of 2008.
Stung by the downturn's impact on their fortunes, ultra-wealthy families-think $50 million and up-want their future leaders to have a firm grasp of governance and to fully understand investment risk.
"For the first time in my experience, prospects are coming to us and asking, unsolicited, about family governance," says asset manager Glenmede's wealth-service chief Susan Mucciarone. A family wealth manager for 30 years, she says that was a concern "we used to have bring to our clients over time."
Mucciarone sees education as core to family governance, along with other aspects of family management like mission statements, councils and regular, business-oriented get-togethers.
U.S. millionaires shed 30% of their financial wealth in 2008, according to an early-2009 study by Spectrem Group. Though the S&P 500 has nearly doubled since those dark days, advisors say families remain eager to equip younger members to withstand future downturns.
Lessons from the downturn now underpin next-generation education on wealth, and give senior family members "an easier way to talk about the future" with those younger family members, says Daisy Medici, head of family governance for GenSpring Family Offices.
Before the recession, family elders often avoided talking money to their children-even grown-up offspring-for fear of dulling their ambition. "But now they're able to say, 'We're worried the wealth may not be there,'" says Medici. This approach can draw next-generation family members into governance structures and promote thinking aimed at preserving wealth.
One important element of education for scions of the wealthy is something Medici calls "the impact of generational mathematics"-that is, the erosion of wealth as a family grows larger but no more productive over the years. "Given time, there is no amount of wealth that can't be spent through," says Medici.
Some families are looking to mold entrepreneurs--even if it calls for instilling skills quite different from those that make for good investors. "Building a business is about taking control, being in charge; investing in financial markets is really about letting others take control," says Jennifer Pendergast, a senior consultant with the Family Business Consulting Group.
Still, Medici says family members should be encouraged to follow, and educated to make the most of, their go-it-alone instincts, both for the sake of their personal fulfillment and because it can help keep the family coffers filled.