“Because I care about my family"
How has advising wealthy families changed in recent years? An interview with Jorge Frey.
Jorge Frey is Senior Partner at Marcuard Family Office in Zurich. He and his team have been supporting wealthy families for years, helping them to create sustainable values-based family governance. Jorge and I wrote a book about the topic of Family Governance (in German).
Are discussions about money in wealthy families different today?
Yes, there is a more open conversation about a family’s financial situation today than there was in the past. Today’s older generation deals with the issue more transparently than their parents did, and the next-gen descendants are often well educated and less shy about expressing their interest in the family’s assets. In addition, the old patriarchal family structure is fading away. Once they become adults, regardless of their gender, family members are increasingly given responsible roles related to the family’s assets.
What are the prerequisites for the intergenerational discussion?
I would say having some basic empathy for the other generation is a good start, as is not taking oneself too seriously. Having a sense of humor also helps. To varying degrees, most people still freeze in awe when it comes to talking about money. So, empathy and a sense of humor form a good basis for discussions, but please don’t take that to mean that we shouldn't address this important topic responsibly. We should and we do.
How has advising wealthy families changed?
In very simple terms, there used to be one primary relationship, the one between the patriarch and the advisor. The father held all the strings of the family fortune and the advisor talked exclusively to him. Although this relationship was understandable, it rarely produced the best results. I am of the opinion that this model has had its day.
Why do you say that?
In the past, family members often only learned how much wealth they possessed and how it was structured after the death of the surviving parent. Many times this led to descendants being overwhelmed by their inheritance since they had not been prepared for what was coming. And matters were often made even worse when a parent’s will, their testament, was used as an instrument to raise their children. Secondly, our experience has taught us that a single advisor rarely has the best answers to all of a client’s questions. We prefer the team approach, which also ensures continuity and smooth succession in rendering our services. Today we often advise the whole family as a team. Generations advising generations, so to say.
So, it takes selfless fathers and mothers to make family governance work?
If one can call having a healthy distance to one’s assets and a willingness to let them go “selfless,” then I suppose it does. But I believe that there is more to it than that. When I asked a matriarch why she initiated the family governance process with us, she replied simply and firmly, “Because I care about my family.” She wanted to approach this process with a clear head, her full strength, and a positive attitude towards all family members. This was for her own peace of mind so it was also not really selfless, but for her own benefit.
Do Millennials, those born after 1980 or so, represent a new wave in your business?
They will be the most sought-after demographic cohort in the coming decades. As a group, they will inherit more money than any previous generation. In addition, they will live longer, have different views than their parents, and a different relationship to money and to advisors. And they will work differently than the generations before them. A generational leap is nothing new, but this one will be more extensive than any before it.
What do you mean by that?
Today’s younger generation are multitaskers. They interact and operate at different levels simultaneously; they work with each other rather than for someone else; they are mobile; they question everything; using technology is second nature for them, and they give a lot of thought to how they want to live and what the intergenerational contract means for them. This can overwhelm the baby boomers, with their maxim of “first work, then play”. The Millennials are just as hard-working but they simply work differently from the generations before them.
Family offices and banks promote their skills at asset preservation. But it’s the wealthy who can afford to take greater risks in order to build up new wealth. Isn’t that a contradiction?
The higher you fly the further you can fall. This is a well-known phenomenon. You first try to preserve what you have, of course. Depending on how the children have grown up, they will be willing to invest in venture capital or even get involved personally in investments—often supported by their parents and in the beginning investing only a modest amount of money.
How should an advisor approach this new generation in wealthy families?
If a 50-year-old advisor believes that s/he can work with his client’s Millennial offspring in the same way he did with the parents, then he’s appealing mainly to their loyalty. That rarely works. Contact with the next generation should begin much earlier, in any case. It is also desirable that the new generation has access to consultants their own age. After all, they speak the same language.
How does the younger generation differ from the older generation when it comes to investments?
The younger generation thinks and acts in more complex ways. In addition to risk and return, they are also concerned with questions of sustainability and meaningfulness in making investment decisions. There are also cases of heirs who, out of personal conviction, do not want to inherit anything and reject the property. On the other hand, there are those who think and act more as social Darwinians. In fact, it is not rare to encounter both attitudes in descendants of the same family.
How important are investments in young companies for your customers?
Our clients usually focus on somewhat more mature companies (Growth Stage/Later Stage). Generally, we recommend that they pursue private market investments through funds, in this way gaining a degree of diversification in this investment category as well.
Bonds hardly yield any interest these days and shares are expensive. Where can one still invest money sensibly today?
The market gives what it can. If assets are broadly diversified, the risk in any particular asset class is reduced. We emphasize that the costs of asset management should be closely monitored. Participations and investments in unlisted companies can be part of a good diversification strategy.
When do wealthy families seek you out?
In many cases, this happens when they need independent, comprehensive advice and they want to make long-term plans for managing their assets. They often look to work with a group of people whose skills and services support other families facing similar challenges and who can devise effective solutions. It’s important to note that the starting point of our collaboration is usually a status assessment.
Can you give an example?
Yes, of course. I’m thinking of a family that recently sold their company. They looked at various potential advisors, including banks and family offices. In the end they chose Marcuard Family Office because they felt we understood their challenges best. In the first three months, all relevant legal and tax structures were reviewed and some initial steps were taken on the investment side. Soon thereafter, the family began to develop a framework for family governance, which in turn had an impact on all subsequent activities.
What do families expect from you?
They expect us to be open to their situation now and to their aspirations for the future. They look to us to come up with intelligent solutions to their particular set of challenges. They don't expect us to do everything ourselves, but they do want access to a solid network of professionals. And they certainly want to be able to rely on a stable team, one that can take over the tasks they don’t want to, or cannot, do themselves. Returns on their investments must be right, of course, although for most families minimizing risks to their total wealth it is more important.
What one piece of advice would you offer wealthy families?
I have to give you two. First, get your adult children on board early so that they can learn to row the boat before they actually own it. And second, use neutral advisors, like us, who are independent, unaligned with, and unbeholden to any bank or other financial institution. An experienced family wealth advisor can bring some valuable calm and rationality to the sometimes emotional process of setting the ground rules for the generational transfer of a family’s wealth.