Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management

Family and Wealth Sustainability:Integrating Family Virtues with Wealth Planning for a Lasting Legacy

April 1, 2010

Thomas C. RogersonSenior Director, Wealth StrategistBNY Mellon Wealth Management

2

Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA

Estate Plan(Death Plan)

Partner-ships

A/B/GSTTrusts

DelawareTrusts

EducationTrusts

Founda-tions

Wills

LivingTrusts

Retire-ment Plans

Tactics by Interest(or by Necessity)

Inter-national

FixedIncome

Small, Mid Cap

RealEstate

PrivateEquity

Emerg.Markets

Private Banking

LargeCap

Insurance

Products by Defaultand Relationships

Index Funds Manager #3

Investment Broker #1

Manager of Managers #2

HedgeFunds

Consult- ant

Account-ant

Insu.Pro.

Men

tal B

arri

ers

Men

tal B

arri

ers

Concerns About Money and

Heirs

Family Charities

Family Retreats

EthicalWills Family

Mediation

Family Vision

Educationre. $$

FamilyBusiness Success-

ion

Career Counsel

Missed Family Opportunities

Attorney

Consolidated Return??Risk? Taxes? Fees??

Conflicts of Interest

Largely Funded at Death

Separated ConceptsSeparate Advisors

Informally Discussed Or Never

Done

Investments

3

Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY

Process • Risk Tolerance• Investor Goals• Asset Allocation• Invest. Selection• Oversight• Reporting

Process• $ Education• Communication• Family Values• Philanthropy• Governance

Charities

Family RetreatsInter-

national

FixedIncome

Small, Mid Cap

RealEstate

Family Medi-ation

Family Vision

FamilyBusiness

Career Counsel

PrivateEquity

Private Banking

LargeCap

Insu-rance

Process • Family Profile• Wealth Goals• Jurisdictions• Structures • Implement

Partner-ships

A/B/GSTTrusts

DelawareTrusts

EducationTrusts

Founda-tions

CRTsCLTs

LivingTrusts

Retire-ment Plans

TrusteePartner

Coordinated Advisory Team Helps All of Us

WealthManagement

Preparing Your Money for Your Family

Strategic Investment Management

Protect and Grow Your Money

Family Education And Governance

Preparing Your Family for the Money

Asset Location

EthicalWills

Edu-cationre. $$Hedge

Funds

Emerg.Markets

4

Family Dynamics

5

The Three Big Questions

How Much is Enough? 1. When do we tell them?

2. How do we break the paradigm?

• “Shirtsleeves to shirtsleeves in three generations?”

6

Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

$

TIME

1st Generation Creation

2nd Generation Assimilation

3rd+ Generation Enjoyment

4th Generation Lamentation(Genealogy)

?Generation Creation

70% 90%

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Careers: Entrepreneur,R/E Developer,CEO, ...

Careers: Attorneys, Accountants, Investment Advisors, ...

Careers: Actors, Musicians, Park Rangers,Ski Patrol, ...

$

TIME






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37% Investment Specific Risks

• Portfolio risk, manager risk, timing risks, style risks, business risks…

26% Economy and Financial Markets Risk

• Economic downturn, inflation, deflation, energy costs, and availability…

16% Political and Tax Risks

• Higher personal income taxes and estate taxes, legal liability risks, government

intervention…

Only 7% of the perceived risk is family dynamics and relationship problems!

• Poor family communication and relationships, educating next generation issues,

governance issues…

Source: Family Office Exchange

Risk Perception “WHAT DO I THINK WILL BITE ME?”

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60% of the failure is due to a lack of communication and trust.

25% of the failure is due to unprepared heirs.

Only 3% of the failure is due to failures in financial planning, taxes and investments!

Risk Perception – “What Bit Me?” WHY DO 90% FAIL?

Source: Williams and Pressier

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“If that factory burned down, it would be tough, but we’d get through it. However, If the family

fell apart, we wouldn’t get through it. This is important to us; it’s a line item on our business

budget every year. We spend money and time on this every year, just like we do with our

management team!”

Third Generation Business Leader

Risk Perception “WHAT DO WE THINK WILL BITE US?”

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Net Worth = ? (Giving the wrong impression can be devastating)

Client Study “WEALTH”

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Wealth in Families DEFINITION

1. Human Capital – Me

2. Intellectual Capital – We

3. Social Capital – World

4. Financial Capital – Wealth Wisdom

• Cash, stocks, bonds, real estate, “things”

• Family business?

James E. Hughes Jr.

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James E. Hughes Jr.

1. Human Capital – Me

2. Intellectual Capital – We

3. Social Capital – World


Family Annual Report

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Wealth in Families MISSION/VISION

1. Human Capital – Love of Self

2. Intellectual Capital – Love of Family

3. Social Capital – Love of Others

4. Spiritual Capital – Love of God

5. Financial Capital* – Love of Creation

*The purpose of financial capital is to enhance human, intellectual, social, and

spiritual capital.

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Wealth in Families MISSION/VISION

1. Human Capital – Love of Self

2. Intellectual Capital – Love of Family

3. Social Capital – Love of Others

4. Financial Capital* – Love of Creation

5. Spiritual Capital – Love of God

*The purpose of financial capital is to enhance human, intellectual, social, and

spiritual capital, all based on the family spiritual capital

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Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT

1. Governance Procedures

• Family bank, family office, good dysfunction?

James E. Hughes Jr.

19


James E. Hughes Jr.



2. Horizontal vs. Vertical Structures

• Rothschild vs. Vanderbilt

22


Charlie Collier





3. Family Philanthropy

• Philanthropy day? Aunt adoption?

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Philanthropy

“Paradoxically, families often learn more about long-term wealth preservation through the

process of learning to give away than by the process of learning to accumulate and spend.”

James E. Hughes Jr.

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• Philanthropy day?

4. Caring Motivational vs. Caretaking

• “Invest in you” vs. “Distribute to you”

− Loans vs. gifts?

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Vision of Family Future

Controlling Leaders

Sibling Rivalry

Unknown Cousins

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Vision of Family Future

Enlightened, Successful

Leaders

Sibling Partnership

Cousin Consortium

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Five Steps to Healthy Family Governance

5. Healthy Family Governance

• Putting into action, horizontal thinking

4. Philanthropy• A test drive with someone else’s money but our values

3. Family Values and Experiences• Mission/vision – history and future

2. Communication • Evaluation and discussion in a safe family setting

– Parents make “The Call”

1. Education • Giving the family an understanding of the possible problems and solutions - context

− BNY Mellon’s experience

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5. Healthy Family Governance• Putting into action, horizontal thinking

4. Philanthropy• A test drive with someone else’s money but our values

3. Family Values and Experiences• Mission/vision – history and future

2. Communication • Evaluation and discussion in a safe family setting


1. Education • Giving the family an understanding of the possible problems and solutions - context


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Education STEP ONE: RESOURCES

Younger Children

• Raising Financially Fit Kids – Joline Godfrey

• www.Allowance-Plus.com – Ned Hentz

• The Financially Intelligent Parent – Gallo & Gallo

Teenagers and Older

• This Presentation to the Family

• The Ultimate Gift – Jim Stovall

• The Born Rich Video – Jamie Johnson

• Outliers and The Tipping Point – Malcolm Gladwell

• Children of Paradise – Lee Hausner

• The Five Dysfunctions Of A Team – Patrick Lencioni

• Family Wars – Gordon & Nicholson – etc.

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Example of External Expertise Available

Stages Responsibilities Actions

Apprenticeship (5-18) • Develop financial vocabulary • Establish early financial habits and values • Practice saving, spending, earning, and philanthropy

• Manage allowance • Hold first job • Begin community involvement

Starting Out (19-30) • Establish identity and independent lifestyle • Experiment

• Acquire education and/or life/career experiences • Establish savings and a good credit record

Taking Charge (31-50) • Build assets • Establish a foundation for self and/or family

• Acquire assets • Build career and family • Explore life interests

Looking Ahead (51-65) • Take stock • Mentor • Contribute to next generation’s needs

• Reassess life choices/goals and energize plans

Third Wave (60+) • Relinquish some responsibilities • Plan for the next generation

• Live and give creatively

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4. Philanthropy

• A test drive with someone else’s money but our values

3. Family Values and Experiences

• Mission/vision – history and future

2. Communication

• Evaluation and discussion in a safe family setting


1. Education

• Giving the family an understanding of the possible problems and solutions - context


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Spontaneous

Disciplined

Challenging Supporting

Persuader Counselor

Director Analyzer

Family Communication Styles STEP TWO

Stratton Consulting Group

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Communication STEP TWO (USE TESTS CAREFULLY, THEY ARE NOT PERFECT)

1. Stratton Consulting Group – www.strattonconsulting.com

2. Strengths Finder 2.0 – Tom Rath

3. Food For Talk – Great Family Conversation Cards

4. DISC Personality Test or Kolbe Test

5. Financial DNA – Hugh Massie

6. Magnificent Mind at Any Age – Daniel Amen M.D.

7. Family Outward Bound – outwardbound.org

8. Myers Briggs Tests – myersbriggs.org

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4. Philanthropy




2. Communication



1. Education



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Individual and Family Values

Daughter

Family

Tolerance and Intolerance?

Mom

SonSon

Dad

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Mission/Vision STEP THREE

1. Working With The Ones You Love – Dennis Jaffe

Relative Solutions “Values Cards” – www.relative-solutions.com

2. 21/64 “Values Cards” – www.2164.net

3. Ethical Wills – Susan Turnbull – www.yourethicalwill.com

4. The Ten Lenses – Mark A. Williams

5. Beyond Success – Randall J. Ottinger

6. Individual and Family Mission Statements?

7. www.theheritageinstitute.com

8. Halftime – Bob Buford, etc.

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4. Philanthropy




2. Communication



1. Education



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PhilanthropySTEP FOUR

1. Wealth In Families – Charlie Collier

2. Philanthropy, Heirs and Values – Williams/Pressier

3. Can’t Take It With You – Lewis Cullman

4. New Process of Family Giving vs. Giving to “Past Pets”

5. Social Venture Partners?

6. Micro Finance – kiva.org?, etc.

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4. Philanthropy




2. Communication



1. Education



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GovernanceSTEP FIVE

1. Family Wealth : Keeping It in the Family – Jay Hughes

2. Family: The Compact Among Generations – Jay Hughes

3. For Love & Money – John Ambrecht, Howard Berens, Richard Goldwater, & Tom Gorman

4. Beyond Success – Randall Ottinger

5. Family Constitution?

6. Empowered Wealth – Brower/Thurber

7. Beating the Midas Curse – Cochell and Zeeb – etc.

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Extra Resources

For Families in Business

1. Preserving The Legacy of a Family-Owned Business – Bachmeyer & Snyder

2. Perpetuating The Family Business – John L. Ward

3. Working With The Ones You Love – Dennis Jaffe

Other Family Wealth Books

1. CEO Dad – Tom Stern

2. Navigating The Dark Side of Wealth – Thayer Willis

3. The Golden Ghetto – Jessie O’Neill

4. Money Harmony – Olivia Mellan

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The Hard Questions – Preparing the Family for the Money• When does a person become a member of the family?

− Prenuptial agreements; a “gate in,” or a “roadblock out?”• What does “equal” mean?• What is an appropriate lifestyle, and when should it start?

− Should trusts pay for “lifestyle?” or: invest into the beneficiaries?• Should we sell or keep the family business?• What do we do with the vacation house?• What consequences should family members be subject to?

− How should WE enforce these consequences?• What “types” of beneficiaries might we create?

− How should the trust handle each “type?”• Who should apologize, who’s “right” or who’s “wronged?” …• How do we create independence AND interdependence?

The Easy Questions – Preparing the Money for the Family• How do we minimize taxes?• How do we invest the family money?

Governance Questions to AnswerSTEP FIVE

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The Three Big Questions

1. How Much is Enough?

• The amount for which you prepare them. Preparing them for nothing is as hard as

preparing them for millions

2. When Do We Tell Them?

• When they are ready to hear it. Use “little train” opportunities to challenge them.

3. How Do We Break the Paradigm, “Shirtsleeves to Shirtsleeves in Three Generations?”

• Build flexible family teams and empower them.

46


$

TIME






225 Year History

47


1. Human Capital – Strong Me

2. Intellectual Capital – Strong We

3. Social Capital – World Perspective


James E. Hughes Jr.

48



• Family bank, family office?

2. Horizontal vs. Vertical Structure



• Philanthropy day?

4. Caring Motivational vs. Caretaking

• “Invest in you” vs. “Distribute to you”

− Loans vs. gifts?

49

Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA

Estate Plan(Death Plan)

Partner-ships

A/B/GSTTrusts

DelawareTrusts

EducationTrusts

Founda-tions

Wills

LivingTrusts

Retire-ment Plans

Tactics by Interest(or by Necessity)

Inter-national

FixedIncome

Small, Mid Cap

RealEstate

PrivateEquity

Emerg.Markets

Private Banking

LargeCap

Insurance

Products by Defaultand Relationships

Index Funds Manager #3

Investment Broker #1

Manager of Managers #2

HedgeFunds

Consult- ant

Account-ant

Insu.Pro.

Men

tal B

arri

ers

Men

tal B

arri

ers

Concerns About Money and

Heirs

Family Charities

Family Retreats

EthicalWills Family

Mediation

Family Vision

Educationre. $$

FamilyBusiness Success-

ion

Career Counsel

Missed Family Opportunities

Attorney

Consolidated Return??Risk? Taxes? Fees??

Conflicts of Interest

Largely Funded at Death

Separated ConceptsSeparate Advisors

Informally Discussed Or Never

Done

Investments

50

Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY

Process • Risk Tolerance• Investor Goals• Asset Allocation• Invest. Selection• Oversight• Reporting

Process• $ Education• Communication• Family Values• Philanthropy• Governance

Charities

Family RetreatsInter-

national

FixedIncome

HedgeFunds

Small, Mid Cap

RealEstate

EthicalWills

Family Medi-ation

Family Vision

Edu-cationre. $$

FamilyBusiness

Career Counsel

PrivateEquity

Emerg.Markets

Private Banking

LargeCap

Insu-rance

Process • Family Profile• Wealth Goals• Jurisdictions• Structures • Implement

Partner-ships

A/B/GSTTrusts

DelawareTrusts

EducationTrusts

Founda-tions

CRTsCLTs

LivingTrusts

Retire-ment Plans

TrusteePartner

Coordinated Advisory Team Helps All of Us

WealthManagement

Preparing Your Money for Your Family

Strategic Investment Management

Protect and Grow Your Money

Family Education And Governance

Preparing Your Family for the Money

Asset Location

51

The Bottom Line

Simplifies your life.

• “We sleep better”

Provides better investment results for you and your family.

• Even with the same investments

This communication is intended to provide general information that is believed to be accurate. It should not be construed as legal or tax advice. Please consult with your legal and tax advisor to determine whether the information in this communication may be appropriate for you.

IRS Circular 230 Notice: Any information pertaining to tax related matters contained in this communication including any attachments is not intended or written to be used, and it cannot be used, by any person or entity for the purpose of (i) avoiding tax penalties imposed by any governmental taxing authority or agency, or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Documents

Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management