Challenges of managing wealth through generations

With wealth comes responsibility, and for many Qatari families a key priority is putting in place a strategy based on a vision that will benefit future generations in a fruitful and meaningful way. This kind of planning often calls for expert guidance and is at the heart of the specialised service offered by Coutts, the private bank and wealth manager, which has been looking after wealthy families for all of its 321-year history.

When Coutts is dealing with its clients from Qatar and across the Gulf region the team sees the same patterns that affect families everywhere in the world. Often there is a reluctance to discuss sensitive issues around money. The topic is all too frequently seen as ‘too difficult’ or potentially ‘divisive’ to risk open and frank conversation.

But when there is a family business to consider, or private wealth to divide and hand on, those discussions are vital. Maya Prabhu, managing director, Coutts Institute, explained that typically clients fall into one of the four ‘archetypes’ when it comes to dealing with wealth management and succession planning.

First, there are those who see their children as ‘custodians’ or ‘stewards’ of the family wealth. They encourage their children to see themselves not as mere beneficiaries of money, but as individuals who have a responsibility to look after and preferably enhance the family wealth with a view to passing it on down the family line. A great deal of thought is put into preparing the next generation to develop within this custodial vision.

Second, are those who are categorised as ‘realists’. The realists take the view that their children must find their own path and consciously choose not to make everything too easy for their children. They prioritise giving their children the very best education but they expect them to forge their own career paths and show initiative before assuming their inheritance.

Third are the so called ‘spenders’. These take a relaxed view to how their children behave with money. Their attitude is: ‘I’ve worked hard and what is it all for at the end of the day? It’s for the kids — so let them enjoy it!’ Holidays in St Tropez?  Another skiing trip?  A luxury car? The message is invariably, ‘go ahead’.  As for whether their children will manage the wealth with a view to benefitting future generations down the line, the parents’ attitude is: “If they decide they want to pass it on to their children it’s up to them — after all I won’t be around anyway.”

The fourth category is the ‘philanthropists’. These people have a keen awareness of what they want to do with their money, in terms of giving purpose to their lives and sharing their good fortune with others.

These are broad categories and some clients can display a mix of attitudes, but it is important for the adviser to understand how the heads of individual families view their wealth before developing a wealth management strategy.

Prabhu noted that it is often very difficult for children born into money to understand the experiences of the wealth creators. One Gulf client whose fortune has been made in the construction business took pride in describing the tough journey that he had taken, remarking: ‘Do you know that I mixed the cement with my own hands in the early days?’ For his sons who are growing up amidst the fruits of his labours within a conglomerate worth billions that kind of experience cannot be truly understood.

Indeed, some young men and women find it difficult to envisage how they will ever be able to match the achievements of their parents. One young man  advised by the Coutts team has pondered this question of his role in depth. He wants to find an area separate from but complementary to his father’s key activities where he can prove himself and make a difference. He has chosen to set up and run with his sisters a family foundation that will form part of the family’s legacy.

The team sometimes encounter resistance to the up and coming generations from the patriarch’s trusted ‘right hand man’. “We have seen in some cases that the adviser has a great sense of power from their position and they almost don’t want the next generation to know too much,” explained Prabhu.

Conversely, there are family advisers who work hard to ensure that the young generation are carefully guided into the family business and kept fully abreast of all key developments. Sometimes it is the adviser who seeks the guidance of the Coutts team. On occasions, the adviser might, for example, find that he is caught as a ‘go-between’ between brothers who have fallen out. In these cases he will be listening to instructions from one brother that he has to relay to the other — always beginning, “Tell my brother ........” Clearly this kind of communication breakdown is not conducive to effective management.

Above all says Prabhu, it is important that all family members sit down and agree the way forward with detailed understandings of their individual roles. This is especially true when there are many children to consider in families where, for example, there are second wives. Naturally, the mothers want their children to be treated fairly and to grow up with their values. But ‘fair’ may not always be ‘equal’ when it comes to allocating roles to the offspring as ability and personality inevitably come into play. This adds a layer of complexity in the third generation, where typically you might see several cousins working together, that needs careful handling.

Prabhu drew some interesting sports analogies to illustrate how roles evolve down the generations. “For the patriarchs it’s like playing golf — they make all their own decisions. In the next generation you will have siblings working together: it’s a bit like Doubles tennis — you need more coordination but you still have a lot in common. But when cousins work together it’s more like a football team. Some will compete for the role of striker; others need to play mid-field, defence or goalkeeper. All are important but they need to be coordinated and to play as a team,” she said.

She emphasised that it is vitally important that everyone should agree their role and understand precisely their place within the family business, commenting: “When a lot of informality exists it can create intrigue; people can have their own expectations and make assumptions, whereas if you have a governance plan in place for the family it clarifies the terms and conditions, right down to job specification and remuneration.”

Some families like to draw up their own constitutions, putting the governance in place and committing to paper a detailed and carefully worked through description of their vision and values. Preparing such a document, said Prabhu, helps the family to focus on the key issues that are often difficult to discuss outside of a formal context, and to create a close cooperative bond.

The most important attribute that the Coutts team must have in guiding families in this sensitive area of wealth management is trustworthiness. The access to first rate financial planning, products and instruments is a given but for Prabhu it is the ability to earn the trust of the client and to empathise with the client’s perspective that is crucial.

“We see families over generations and it is our blend of experience and modern wealth management services offered within our culture of respecting and valuing relationships that sets us apart,” she concluded.