Avoiding the Fate of a Lost Legacy

A recent Wall Street Journal article hit home for me. “Lost Inheritance” tells the story of Tom Rogerson, whose great-grandfather created substantial wealth as a banking titan. Subsequent generations, including Tom’s father, squandered the wealth through expensive hobbies and poor business decisions. The sad ending was a forced liquidation auction. Today, Tom’s profession is helping families retain their wealth, even though it once seemed that he would never have to work. Wealthy families who wish to avoid the economic fate of the Rogerson family would be wise to listen to him.

My family’s experience is similar – and today I am proud to work at Truepoint, a firm committed to helping families practice good wealth stewardship across generations. In 1887, my great-great grandfather, George P. Huffman, founded a company that would eventually become Huffy Bicycles. Nearly eighty years later, my grandfather, Horace M. Huffman, Jr. (“Chief” to all the grandkids), took the company public. By the late 1970s, Huffy was the largest producer of bicycles in the United States and, the year I passed my driving test, it was named to the Fortune 500 list. “Chief” was motivated to build on the legacy that was entrusted to him, strengthening the community and sharing his love of cycling and fitness along the way.

I grew up understanding how this prosperous business provided us many wonderful opportunities – meeting Olympic cyclists, famous basketball players and sometimes traveling on the company’s private plane. To say that my identity was tied up with the family business is an understatement.

But shifting economics, the forces of globalization, and a failure to diversify washed away much of that identity (and a great deal of wealth) in a relatively short time. The Huffman family remained majority shareholders until the early 2000s. By 2004, the company filed bankruptcy.

I share this story because it is at the root of my passion for working with generations of families.  The odds are stacked against us – 70 percent of a family’s wealth is depleted by the second generation and 90 percent by the third. The most common reason for the depletion is that subsequent generations are simply not prepared to serve as good stewards of the family’s wealth. By the third generation, family members are far removed from the wealth creator and his or her inspiration and values. If they don’t share the founder’s original ambition and feel a motivation to preserve the wealth, it really isn’t surprising that the wealth dissipates so easily.

Whether macroeconomic forces or financial illiteracy are the cause of wealth depletion, the end result is the same – something that had great meaning and took a long time to build is no longer available to provide opportunities for future generations. What would “Chief” think? And, more importantly, what can families do to avoid falling victim to this cycle?

Parents passing along any level of inheritance must think in terms of “opportunity creation” and not “enablement.” Too often families want to keep their wealth quiet from their children, as they fear full disclosure will spoil them and undercut their motivation. It is our experience that the opposite is true. Full transparency leads to greater education, which leads to the ability to practice prudent financial management when the time arises.

Most investment professionals are hired to preserve and grow liquid wealth so that it may benefit current and future generations. However, the fundamental issue of wealth preservation is qualitative, not quantitative. It’s not just about accounting for all the wealth and analyzing the numbers; it’s about articulating and understanding the values and motivations that were behind the wealth creation and recognizing the opportunities it provides. Further, families that stress the idea that wealth is a privilege, not a right, also have a better chance to preserve it.

We encourage clients to hold family meetings, discussing items such as the history of the wealth creation, the responsibilities that come with prosperity, the shared purpose for their resources and the timing and expectations for inheriting wealth. These actions help younger generations internalize the values of the original wealth creator and instill a sense of responsibility.

I am extremely grateful that “Chief” believed in such open dialogue. It was clear to all of us that wealth came with great responsibility, which ironically was motivation for each of us to seek success in our own right. As heartbreaking as the bankruptcy of Huffy was for my family, we are fortunate to have the skills to create wealth and success across the generations. In my view, the most valuable legacy we have is the closeness and shared values that grew from the open communication about our family’s history and the history of the family business. I see now it was not my family’s wealth that shaped my identity, but the values “Chief” was so careful to instill in his family.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training nor an endorsement by the SEC. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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