1. Financial capital: The family’s tangible assets and intellectual property that have quantifiable financial value.
2. Cultural capital: That which brings a family together by identifying shared perspectives and themes including their approach to business, treatment of others, contribution to society, attitude to wealth and values.
3. Intellectual capital: A family’s accumulated skill, knowledge, experience and wisdom.
4. Social capital: The way in which a family relates to and engages with society and the communities in which it lives and operates.
Response to change
Stonehage Fleming’s latest report, “Four Pillars of Capital: The Next Chapter”, surveyed about 150 multigenerational families across the world. It highlights the issues facing wealthy families today and how they are responding. These include:
* Rate of change. The rate of technological, social and political change is probably greater today than it has been for any generation in living memory, the report says, and the gulf in perceptions and values between the generations “is significantly greater than in the past, which has an impact on long-term planning objectives”.
* Relationships among generations. “Intergenerational relationships are often less hierarchical than before, facilitating the discussion and resolution of any issues,” the report says.
* Leadership and succession planning. The report says traditional means of succession planning, such as the principle of primogeniture (the right of succession belonging to the first-born child) are being challenged. Although some families favour traditional approaches to passing on their legacy, “it seems likely that more sophisticated governance and communications will become the norm
Families are concerned about having leaders in place who will see the family through the uncertainties of a changing environment”.
* Risk management. The report says many families realise that it is of little use investing resources in managing the financial risks to their assets, while neglecting the management of non-financial risks, such as inter-family conflict.
Commenting on the report, Matthew Fleming, the global partner and head of family governance and succession, says families are also more aware of the political risks that accompany inequality in society, and as such look to use their wealth to good purpose (see below).
* Contribution to the community and reputation. There appears to be a greater desire to make a positive contribution to the community. There is also recognition of increasing risks to reputation, particularly from social media.
* Socially responsible investing. “Most families surveyed - particularly the younger generation - expressed a view that investments should be more socially responsible. Defining this strategy is a key component of effective family leadership for the 21st century,” the report says. It says 51% of respondents said they actively undertook investments that were in keeping with their values.
* Asset classes. Real estate remains the favoured asset class, the report says, with listed equities close behind. “Private equity remains popular, and there has been a significant increase in those prepared to consider alternative investments There was a notably limited interest in cryptocurrency,” the report says.