“Shirtsleeves to shirtsleeves in three generations”—this reality challenges many ultra-high-net-worth (UHNW) families, even those who recognise the pattern. While the first generation creates substantial wealth through calculated risks and innovation, subsequent generations often face a unique paradox in wealth preservation.
As family wealth grows, so does the natural inclination to protect it. Yet this heightened focus on preservation can overshadow crucial opportunities for growth and adaptation. The subtle impact of this mindset shift affects not just investment strategies but the entire framework of integrated wealth management across generations.
A family’s enduring prosperity depends on how each generation approaches wealth planning. Finding an equilibrium between preservation and strategic growth creates the foundation for lasting legacies and successful intergenerational transitions.
The Creator's Risk: First Generation's Calculated Gambles
Think back to the wealth creator in your family. What sets them apart? It wasn’t just hard work or intelligence, though these certainly played a role. The distinguishing factor was often their approach to risk.
Wealth creators typically share certain characteristics. They possess a keen ability to spot opportunities where others see only obstacles. They’re willing to step into uncertainty, backed by thorough research and analysis. Most importantly, they understand that significant rewards often require proportional risks.
This calculated risk-taking is the engine of substantial wealth accumulation. It’s not about recklessness or gambling, but rather about making informed decisions in the face of uncertainty. The wealth creator views risk not as something to be avoided at all costs but as a tool to be wielded with skill and precision.
The Guardian's Dilemma: Second Generation's Balancing Act
As wealth passes to the second generation, a shift occurs. You’re no longer building wealth from scratch but inheriting a substantial legacy. This transition often brings a change in mindset—from wealth creation to wealth preservation.
This shift is understandable and, to some extent, necessary. You feel responsible for protecting what your parents or grandparents worked so hard to build. However, this is where the balancing act begins. How do you honour the wealth creator’s legacy while still positioning your family for future opportunities?
The challenge lies in finding the middle ground between prudence and stagnation. On one hand, reckless risk-taking could jeopardise the family’s financial security. On the other hand, a too-cautious approach can diminish family wealth as bolder peers capture emerging opportunities.
You might find yourself walking a tightrope, constantly questioning whether your decisions are too conservative or too risky. This dilemma can be paralysing, leading to a preference for the status quo even when change is necessary for growth.
The Inheritor's Paralysis: Third Generation's Risk Aversion Trap
By the time wealth reaches the third generation, the mindset often shifts even further towards preservation. You might grapple with a deep-seated fear of losing the wealth that has defined your family for two generations.
This fear can profoundly impact your decision-making. You might prioritise ‘safe’ investments that barely keep pace with inflation. Business opportunities that the wealth creator would have pounced on might seem too risky to you. The focus becomes maintaining what you have rather than growing it.
Here’s the thing: protecting existing wealth shouldn’t mean missing tomorrow’s opportunities. Markets evolve, industries transform, and families who focus solely on preservation risk watch their legacy diminish. Strategic growth remains essential to securing multi-generational prosperity.
Consider the cautionary tale of Nokia. Once the world’s leading mobile phone manufacturer, Nokia’s downfall serves as a stark reminder of the risks of complacency. In the early 2000s, Nokia held a dominant position in the mobile phone market. However, as smartphones emerged, Nokia was slow to adapt, clinging to its existing successful models rather than fully embracing the smartphone revolution—a potentially risky move away from the status quo. This risk aversion and failure to innovate ultimately led Nokia to lose its market leadership to more dynamic competitors like Apple and Samsung.
This risk aversion can lead to a relative decline in wealth. While your portfolio may not be shrinking in absolute terms, it may be losing ground compared to more dynamic wealth management strategies. Over time, this can result in the very outcome you’re trying to avoid—the erosion of your family’s financial legacy.
Breaking the Cycle: Cultivating Intergenerational Risk Intelligence
The key to breaking this cycle lies in cultivating what we might call ‘intergenerational risk intelligence’—a balanced approach to risk that draws on the strengths of each generation’s perspective.
Start by reconnecting with the wealth creator’s mindset. This doesn’t mean taking on the same level of risk, but rather understanding and applying the principles that led to success. Study the decisions that built your family’s wealth. What calculated risks paid off? What was the reasoning behind them?
Next, work on balancing preservation with necessary risk-taking for growth. This might involve diversifying your portfolio to include a mix of stable investments and carefully chosen higher-risk, higher-reward opportunities. Remember, the goal is not to eliminate risk but to manage it intelligently.
Perhaps most importantly, focus on educating and empowering future generations. Teach them to be stewards of wealth, not just guardians. This involves financial literacy and cultivating an entrepreneurial mindset and the ability to analyse and take calculated risks.
Consider setting aside a portion of family wealth as a ‘risk capital’ fund, where younger family members can propose and manage investments or new business ventures. This provides a controlled environment for learning about risk and reward, ensuring the family’s risk intelligence evolves with each generation.
Legacy wealth requires a thoughtful balance of preservation and strategic growth. Your family’s prosperity was built through calculated action and clear vision. Cultivating this same mindset across generations while adapting to new opportunities strengthens your family’s capacity for enduring success.
ABOUT THE AUTHOR
As the Senior Wealth Advisor at Beacon Family Office at Assante, Cory Gagnon has supported successful family enterprises to preserve, protect and transition their wealth since 2011.
Cory’s personal objective as a Wealth Advisor is simple. He is committed to supporting families to take control of the areas of their lives that truly matter to them. This commitment revolves around using specific tools and strategies that enable families to take action with confidence which will support them through life’s critical transitions.
ABOUT THE AUTHOR
As the Senior Wealth Advisor at Beacon Family Office at Assante, Cory Gagnon has supported successful family enterprises to preserve, protect and transition their wealth since 2011.
Cory’s personal objective as a Wealth Advisor is simple. He is committed to supporting families to take control of the areas of their lives that truly matter to them. This commitment revolves around using specific tools and strategies that enable families to take action with confidence which will support them through life’s critical transitions.
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Beacon Family Office at
Assante Financial Management Ltd.
Suite 519, 10333 Southport Road S.W.,
Calgary, AB T2W 3X6
