Questions from the second generation

Founders ask about outcomes. Their successors ask about method. That single difference reorganises a private-wealth relationship more than any change in market conditions, and institutions that fail to notice it lose the relationship at the transition rather than in a bad quarter. Our private-wealth practice has been rebuilt around the observation, and the practical consequence is that far more of what we do is written down and far less of it is said in a meeting.

The most common question from a successor is why a position is held rather than how it performed. Answering that requires a record of the decision: who took it, on what evidence, against which alternative, and what would cause it to be reversed. Where the record exists, an inherited portfolio can be reviewed in a week. Where it does not, the successor is left to judge holdings by their recent returns, which is the least informative fact available about any of them.

The second question concerns who decides. In an arrangement built by a founder the answer is usually the founder, with advisers consulted informally and no written mandate. In the next arrangement there are three or four principals with different residences, different tax positions and different appetites, and the absence of a decision rule produces paralysis rather than compromise. We ask families to settle the rule before the assets are discussed, and to record it.

The third concerns the alignment of the adviser. Successors ask directly how the firm is paid, what it earns from a transaction it recommends, and where its interests differ from theirs. Those are reasonable questions and they deserve a document rather than an assurance. Our conflicts position is written, disclosed at onboarding and revisited when a mandate changes, and principals are told which decisions are taken by a person and which are supported by a model.

The fourth is about continuity of people. A family relationship that depends on one adviser is a risk to the family rather than a service to it. Each private-wealth relationship at the firm has a named lead and a named deputy who has met the principals, attends the annual review and can answer without preparation. That arrangement costs more to run than a single point of contact. It is the difference between a relationship and a dependency.

Performance appears in none of these four questions, and that is the point worth taking from them. The generation now inheriting has grown up with disclosure as a default and treats an unexplained recommendation as a defect rather than as expertise. An institution that answers method questions well will be given the outcome questions in due course. One that answers only outcome questions will be given a smaller mandate each year until there is nothing left to review.

Published 2021-12-15 by the Private Wealth & UHNW division. Research is prepared for eligible counterparties and does not constitute advice.