Most family wealth is fleeting, lasting only a handful of generations, but advisors can be the key to stopping that trend, a UBS advisor said.

To help families retain their wealth, financial advisors have to initiate sometimes challenging conversations around a family’s history, it’s values and philanthropy, said Bill Sutton, UBS senior strategist for family and philanthropy advisory, on Monday at the Investment and Wealth Institute’s 2019 Annual Conference Experience in Las Vegas.

Sutton said that UBS’s research supports the commonly held view that family wealth tends to dissipate in three generations: The first generation earns it, a second generation has it but depletes the wealth, and the third generation doesn’t have the wealth at all.

“Only about 9 percent of families are able to go from generation one to generation three and increase their assets,” said Sutton. One of the main reasons so much wealth is depleted through three generations is that approximately 70 percent of estate transactions, where wealth transitions from one generation to another, fail."

While many families have issues with taxation and financial rules, and some failures can be linked to declining family businesses, the most common cause of failure in estate planning is the inability of a first generation of wealth earners to pass down their values to their children and grandchildren, he said.  Around 60 percent of failed wealth transfers are caused by the failure to transmit values.

Another 25 percent of transfers fail because heirs are inadequately prepared.

“The children are never trained to receive that money, and the first generation has never had a conversation with the family about that wealth,” said Sutton. “Many people never want to talk about the money with their kids because they’re afraid it will mess them up.”

Sutton recommended that wealthy families bridge this impasse by adopting a glide path for their family money conversation, where early talks about the wealth are more values-driven and gradually heirs are exposed to dollar amounts.

Families who successfully transfer, maintain and grow their wealth across generations share a few common traits. One, they establish plans for the transfer and discuss those plans with each other, said Sutton.

“They don’t just fill out forms and put them in a vault. They actually have conversations with their family,” says Sutton. “The end result is, if they squabble, it won’t be because of the valuable stuff, it will be because of an heirloom that mom didn’t assign to someone in her will.”

Regular family meetings can be an effective conduit through which generational values can be shared, said Sutton.

Also, families who successfully transfer wealth are able to share their family stories across generations. Children and grandchildren learn about the living conditions of their ancestors before the family’s wealth was built, and also learn the work and decision-making that generated the family’s money.

Sutton told part of his family story. At age 12, his grandfather ran away from home and enrolled in a boarding school in northern Georgia for impoverished children. After graduating, he hitchhiked to Florida, where he met Sutton’s grandmother, who was a school teacher. Sutton’s grandfather was eventually appointed to a judgeship, but died before he could complete his term, so the governor of Florida offered the seat to his grandmother.

“She was not a lawyer. She was a teacher with three kids to support, but she thought, ‘I could do that,’” said Sutton. After serving out her term, Sutton’s grandmother sought out higher office as a judge, which would require running for election. At that time there were no elected women judges in Florida.

Sutton’s grandmother won soundly and continued to serve as a judge well into her 60s.

“I was speaking in Florida and an elderly woman took me aside and asked ‘Are you Ruth Sutton’s grandson? I have to talk to you,’” he said. The woman told him, “’first, your grandmother was the first woman that I voted for. Second, she was the first woman that I could vote for.’"

"That really got me thinking about my family’s story ... about my daughter and the risks she will have to take to succeed. When I think about the values I subscribe to, I think about my grandfather running away, hitchhiking down the road, and all the hard work he had to put in. Then my grandmother seeing things and asking ‘why do they have to be the way they are?’

“All of you have these stories in your families. You have to draw them out.”

Finally, families who successfully transfer wealth actively engage with each other in philanthropy.

Philanthropy is effective because it helps families communicate shared values across generations, said Sutton. “If you can weave philanthropy into a lot of what you’re doing already, it becomes truly powerful to rising generations.”

Sutton noted that philanthropic planning makes sense for financial advisors, as many clients, especially high-net-worth families, are already charitably inclined, with 91 percent of families with $1 million or more in net worth giving to charity. In 2017 alone, over $410 billion was given to charity.

Yet advisors have yet to take full advantage of philanthropic planning, Sutton said, citing UBS research that shows that 80 percent of high-net-worth clients are not satisfied with the impact of their giving.

“The were worried that their money is not being used wisely,” he said. “In surveys of advisors, advisors believed that their clients wouldn’t be interested in giving because they’re  worried about wealth preservation. Clients actually want to give, but they’re not sure if their organization of choice is a good one, and they’re not sure if they’re giving in the right way. About 60 percent of your clients really want you to bring it up in the first, second or third meeting about their plan. This is in your wheelhouse—and it’s a nice way to differentiate yourself from the competition.”

Sutton urged advisors to work with their clients on a concrete philanthropic plan, citing UBS research that showed approximately 50 percent of clients increasing in satisfaction when engaged in a philanthropic plan.

Foundations, charitable trusts and donor-advised funds provide opportunity for families to work together and help make sure that values are transferred and wealth is successfully transitioned in the future, he said.