Securing Wealth for Future Generations: Why Education, Governance, and Planning Matter

Wealth, while often hard-earned, can be surprisingly easy to lose. In fact, research shows that as much as 70% of wealthy families lose their wealth by the second generation, and by the third generation, nearly 90% of the wealth is often completely gone. This pattern, seen across cultures and countries, reveals a fundamental truth: wealth, without the right framework, governance, and education, rarely sustains itself.

Why does this happen? The reasons are varied, but commonly include a lack of financial education for successors, the absence of a clear family governance structure, lifestyle inflation, and poor communication among family members. Many inheritors of wealth are simply unprepared to manage it, and without the right guidance, they may struggle to preserve and grow the assets they've inherited. As a result, wealth that was built through decades of hard work can quickly dissipate through mismanagement or poor investment decisions.

At Pharos, we recognize the importance of safeguarding family wealth for future generations. Our approach centers on addressing the key factors that contribute to wealth loss by fostering financial education, establishing strong governance, and providing comprehensive planning. By taking these proactive steps, families can significantly reduce the risks of wealth dissipation.

A critical part of wealth preservation lies in educating the next generation. Many wealth management challenges arise when successors are ill-equipped to handle the financial complexities that come with wealth. At Pharos, we offer tailored financial literacy programs designed to empower younger generations with the skills and understanding they need to manage and grow the family’s assets. These programs cover essential areas such as investment strategies, budgeting, and the importance of long-term planning. By giving heirs the tools they need to make informed decisions, we help ensure that they are prepared to carry the family legacy forward.

Beyond education, establishing clear family governance is essential to maintaining wealth over the long term. Too often, families lack a well-defined governance structure, leading to conflicts, mismanagement, or unclear roles and responsibilities. At Pharos, we help families build a robust governance framework, often beginning with the creation of a family constitution. This document outlines decision-making processes, clarifies family values, and helps set boundaries that can prevent disputes. With proper governance, family members remain aligned, and wealth management is approached with a unified vision.

Another important aspect of our strategy is succession planning. Proper planning is crucial to ensuring a smooth transfer of wealth and leadership across generations. Without it, wealth can be lost to taxes, legal disputes, or ineffective estate planning. Pharos works closely with families to develop comprehensive succession plans, designed to minimize these risks and ensure that wealth passes seamlessly to future generations. We integrate estate planning and tax optimization into this process, preserving wealth and ensuring that families maintain control over their assets as they transition from one generation to the next.

Of course, wealth management is about more than just protecting assets—it is about growing them. At Pharos, we employ a total portfolio approach that aligns with each family’s goals and risk appetite. This allows us to preserve wealth while strategically growing it through diversified investments. Our bespoke wealth management solutions, combined with our expertise in tax efficiency and estate planning, ensure that family wealth is protected, grown, and passed down efficiently.

Perhaps just as important as managing financial assets is the task of preserving a family’s legacy. At Pharos, we believe that wealth and legacy are deeply intertwined, and we work with families to define and protect both. We help our clients ensure that the values, traditions, and vision that helped build their wealth continue to shape their family’s future. For some, this involves creating philanthropy plans that reflect their mission and commitment to making a positive impact on the world. For others, it means guiding the family’s business or investments in ways that support the broader legacy.

By focusing on education, governance, and comprehensive wealth management, Pharos helps families overcome the challenges that lead to wealth dissipation. The truth is that wealth doesn’t preserve itself—it requires a deliberate and strategic approach. At Pharos, we are committed to helping families create a lasting legacy by providing the guidance and expertise needed to secure wealth for future generations.

References:

1. Williams Group Wealth Consultancy. (2010). Study on Wealth Transfer and Family Wealth Dissipation.

2. PBS. (2015). The 60% Rule: Why Family Wealth Fails to Transfer Across Generations.