How to Build an Enduring Legacy and Secure Long-Lasting Wealth

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

Who are you besides your money? How do you want your grandchildren to remember you? And what ultimately will be your legacy? Welcome to Barron's The Way Forward. I'm Greg Bartalus, and my guest today is Robert Ballantine. He's a 3-time entrepreneur, chairman of the eponymous Atlanta-based RIA, and a Barron's top 10 ranked independent advisor. Today we will discuss the guiding principles for building long-lasting wealth and examine how families can create an enduring legacy that spans generations. Robert, welcome.

Welcome. Thank you, Greg.

I want to start by asking, well, really talking about a book you published called First Generation Wealth. And, you know, it's very interesting because your family has a long history in business. Your current firm you established in 1987, but you spoke in a book that in 1900, your great-grandfather established a company, the Ballantine Packing Company. And by 1933, it was a great success. He had passed away 6 years previous, but then over time, by 1960, things, you know, slowly went awry. And by 1962, the firm was sold for a million. 2 years later, it was bankrupt. And this had a profound impact on every aspect of your life. And I was very curious to hear about how that affected you, your career, the path you chose, et cetera.

Well, my grandfather died a long time before I was born, but having counseled wealthy families over the last 40 years, what I saw was that the business that he built that grew to become the largest employer in the city during the time of the Depression and then was bankrupt 30 years later was really a classic example of what we've heard referred to over the years as the shirt sleeves to shirt sleeves phenomenon where An entrepreneur builds a company, it grows, typically the second generation enjoys the fruits of the founding father or mother's legacy. And by the time the third generation comes around, they're typically spoiled and the business is no longer viable and the wealth goes away. And we've seen that play out again and again and again. And the reason my partner Adrian Cronje and I wrote the book last fall on first-generation wealth was really to share with readers, advisors, and clients some of the lessons that we've learned over our career about how to avoid the shirt sleeves to shirt sleeves phenomenon.

Yeah, I mean, just speaking on that, what was striking in your book is how this is really the 3-generation, it transcends cultures and time and era as well. It's almost a universal rule. And, you know, putting hard numbers to it, you cited a statistic that only about 30% of that wealth endures to the second generation, 12% makes it to the third generation, and only 3% makes it to the fourth generation or beyond.

The concept, as you point out, is not new. In fact, it dates back to an Islamic scholar named Ibn Khaldun in the 14th century who wrote about the Bedouins hewing a life out of the desert, the second generation knowing nothing of the splendor, but the splendors of the palace, and then the third generation growing lazy and slovenly and really with no work ethic. And when I think about kind of some of the literature that's been written on wealth that we've all read over the years, it starts with kind of America's dynastic fortunes like the Vanderbilts and the Astors and the Rockefellers. And then there was a body of literature that came about in the '80s that was basically putting the fear of God in wealthy families about how do you raise children without them turning out spoiled. And today, Dr. Jim Grubman, a wealth psychologist that we work closely with in Boston, has coined the term Wealth 3.0, where he talks about the positive benefits of wealth and the importance of modeling gratitude. And I think back, Greg, when I started in the business, it was all about managing somebody's money. And then in the '80s, we started getting into financial planning and tax planning, estate planning. And I think today clients are clamoring for trying to create some meaning and purpose around the wealth that they've created to answer the question, who are you besides your money?

And what's driven the change in culture or just on a personal level, what's been behind that?

For me, I have 6 grandchildren now. I am delighted to spend time with them.. And I start thinking about how do I want my children to remember me? Because we all grew up wanting to make our parents proud. But I think at the end of the day, the important thing is to make our children proud. And I've seen, and I'm sure other listeners have seen working with families over the years, that we've kind of become desensitized to wealth. Again, when I started in the business, if somebody had $1 million, that was, you know, more money than I could have possibly imagine. And today we're dealing with clients that have tremendous amounts of money. And oftentimes it's tied up in their operating company, and then it's liquid, and they sit back and think, my goodness, that's more money than I ever dreamed possible. And after they bought the second or third home and satisfied whatever consumption needs they have, they're realizing, oh my goodness, now what? And so, part of it, I think, is just my own personal journey thinking about my legacy, but it's also helping clients think through issues around legacy and meaning for their lives and how do they want to be remembered and how do they want to pass down the values that they've developed over the years to their family.

One of the guiding principles, there are 3 that you highlight in the book, one of them was about not mistaking wealth for legacy.

Can you speak to that? Wealth typically is thought of as money, but I tend to think of wealth as relationships. The relationships that we have with our families, the relationships we have with those with whom we work, and the relationships that we have with our clients, because we're charged with doing something really important. We're charged with helping families and their money. And there's an old saying, the money line runs close to the heart line. But when we start thinking about beyond asset allocation and beyond tax planning and financial planning and security selection, all the things that we were taught in the industry growing up, I think there comes a time where people are seeking really more meaning and purpose around their legacy. And that to me is really the difference between wealth and legacy. It's how do I want to be remembered? As I said earlier, how do I want my grandchildren to remember me?

And let me ask you this, and let's say you have a client and you're— the client is, is on the same page with you that agrees this is something important. Do, do they typically need a little assistance in framing this, or do they often directionally have a sense of what that'll be? Like, tell me a little about the process, how that unfolds. I'm just curious.

Well, the second principle in our book is to really understand the difference between the family business and the business of the family. And a lot of times, first-generation wealth creators approach conversations around their wealth with their family like they would a business issue. We have a client, as a matter of fact, that likes to do family meetings where he gives each family member a performance review. But clearly, you can't run your family like you run your company because generally, you're not able to fire your family. And I think the number one thing that we try to work with first-generation wealth creators to think about is how do they create good, clear, transparent communication? Dr. Dennis Jaffe, who is a colleague of Jim Grubman's out in California, has recently done a lot of work around What are the common characteristics that cause families of significant wealth to be able to keep that wealth in the family for generations? And the number one thing that he says is important is the transparency around communication. And we've seen wealth creators often say, I'm not going to talk to my children about this. They're going to learn about my estate plan when they read the will in the lawyer's office after I'm dead. Or I'm not going to give them a thing. My parents didn't give me a thing. I gave them a good name and a good education. But we're not equipping them with the tools they need to be good stewards of wealth for successive generations. And I like to think about the analogy of if I'm teaching my 16-year-old daughter how to drive, I don't take her out on the interstate the first day she's behind the wheel. I start maybe with some lessons. I take her maybe to a church parking lot or a quiet neighborhood street before taking her out onto surface streets and onto a busy interstate highway. And I think about that as it relates to conversations that we help clients have with their children around their wealth and what is age appropriate and how transparent are we and how much do we share. Right.

And acknowledging that the responses will be different for each family, I mean, are there any general approaches that you embrace or recommend? I mean, it sounds like starting with, you know, incrementally or baby steps, if you will, to use your analogy about, you know, not going on the highway. You know, how do you— how much do you reveal when, things like that?

Yeah, I think, again, it depends on each family, but I'm a big proponent of starting early, whether it's things we've all read about, about teaching children the importance of saving, about the importance of helping others through philanthropy. Things as they get a little bit older, like matching funds that they might earn on their own or distributions from a donor-advised fund or a family foundation that match areas of the child's interest. It doesn't have to be necessarily formal structured family meetings at a younger age, but I think at an older age, it's important for families to be very transparent around how they communicate about money. I mean, as Warren Buffett says, you want to give your children enough so they can do anything but not so much they can do nothing. And I think that's probably the number one fear of our clients is, how do I raise my children in an affluent family without depriving them of the joy that comes from earning a living?

Now, you mentioned having more communication and transparency is important. Now, can you share a client situation, let's say, that you remember that, you know, that really illustrates this dynamic, or maybe it helped avert what could have been a sticky situation?

Well, my goodness, I mean, there are dozens if not hundreds, but one I can think about recently is a client who'd sold his business and was really doing some deep work on his estate plan. Had two adult children, one of whom had a chronic illness, and he was worried about the expenses of long-term medical care. And in his estate plan, he had decided that he was going to give two-thirds of his money to the son that had the chronic illness and a third of the money to the daughter who just happened to be adopted, not his biological child. And I said to him, don't you think it might be good to broach this conversation with your children while they're living? While you're living, and you can explain the context, rather than creating animosity potentially between this daughter who wants to understand, "Did my father love me? I was adopted. Why am I only receiving a third of his estate?" And he said to me, and I quote exactly, "I'm not going to worry about it. They'll learn about it when they read the will." And I thought to myself, well, if you approached your daughter and explained to her that you're concerned about the healthcare expense for this chronic illness, she might actually think it's a good idea for her brother to have more. But if she doesn't, at least you will have the benefit to give the context, which is not going to be coming through when the will is read. And I was so pleased that after a few months later, he came back to me and said, actually, I think you're right and decided to talk to his daughter and have the conversation. But the other thing, Greg, that we see often is the way that parents weaponize wealth. And they use wealth as an inducement to get the children to behave a certain way. We've heard stories of, "If you marry him, we'll never speak to you again. You'll never inherit any money. If you decide to do this," we're going to penalize you financially. And when you think about the fact that weaponizing wealth creates incredible friction within families, it makes you think twice before going down that path.

Yeah, and it almost seems the polar opposite of how early in this conversation, how you frame wealth that unlike in days past when perhaps there was more of a dimension of guilt associated with wealth, that perhaps people should look more at it as a gift of sorts that you're empowered to do great good if you so choose.

And that's the positive aspect of the wealth that clients have, that they're able to do good. But I think about how important it is, and this is really kind of the second principle in our book, to see the world through the next generation's eyes. Because it can be incredibly intimidating for children of a successful entrepreneur to think in their mind, there's no way I'll ever measure up to my mom, or there's no way I could possibly be as successful as my dad. And so there's this intimidation and this guilt that I haven't done anything on my own. The only reason I'm able to live the way I've lived is because of some dead ancestor or something that my parents have done for me. And it often takes away their self-esteem. And at the end of the day, we're simply trying to help clients have better functioning families because money's not the most important thing in the world. Our relationships are. And the more we can encourage these conversations with clients and the more we can get them to be introspective and reflective, I think the happier they're going to be and the happier the outcome is, and the more they're going to lean on us for advice. Because when you have that seat as the client's trusted advisor, you're almost like a third cousin. You're close enough to know the family. You know about the marital issues or the child with addiction. You know all about the family, but you can be arm's length away in order to be able to advise them unlike probably anybody else that they encounter.

Yeah, and what you said before, I mean, it really almost seems like a North Star of sorts that, I'm paraphrasing, but you said in so many words, people just want to have happy and functioning families, right? And it's a very simple statement, but obviously difficult to attain, right? But that in a sense is really kind of the umbrella, it seems to me, that everything else more or less falls under.

Well, I think that's exactly right. I mean, in essence, that's the human condition. And our goal as financial advisors is not to try to replace that of the psychiatrist or the psychologist or be the counselor, but it's to be able to raise issues and frame issues and bring resources to bear. They're going to help the client through whatever life puts in front of them because Every family has a tragedy. Sometimes they talk about it and sometimes they don't. And social media generally always puts our best foot forward. But when you have the intimacy of having worked with a family for years or decades even, there is a trust that develops and you have an opportunity to help them in a way that is going to improve their life far more than beating the S&P.

Absolutely. It's truly holistic. I know a lot of people pay lip service, but you really have to— it has to be all-encompassing.

And it has to be sincere, and it has to be putting the client first and their happiness first, and everything else kind of falls out after that.

And let me ask you, in terms of legacy, how is that manifesting in more recent years in terms of where the money is going or the endeavors that are being undertaken? Are there any general trends that you're observing, or is that relatively fixed over time?

Well, I think given the demographic of the client with whom we work and the clients that we attract, they tend to be very philanthropic. And they look at their estate as I can either give it to my children, I can give it to charity, or I can give it to the government. And generally because of the tax advantages associated with charitable giving, they're going to give it to the government, or rather give it to charity before they're going to give it to the government. And typically it depends upon the client's interest. We've seen an increasing focus on environmental activism, conservation, stewardship of land, and we've seen a lot around helping families through homelessness or through child, early childhood education, trying to solve problems. So many clients that have been successful in business oftentimes have a difficult time deciding how to give money away. And I remember years ago in Atlanta talking to the founder of a NYSE-listed real estate company, tremendous philanthropist. And he said to me, you know, Robert, at the end of my career here, I'm thinking that it is much harder to figure out how to give money away responsibly than it was to make it. Because a lot of well-meaning people are trying to solve the same problems. And when you think about efficiency in business, these clients are also thinking about how can I be efficient with my philanthropy? And how can I get my children involved? And As I said at the beginning of the podcast, Greg, the antidote for entitlement is gratitude. And the more parents can model gratitude, we're so grateful, we're so lucky to be able to have this, the more the children are going to understand the values of that wealth creator. Because it's not realistic to assume your children don't have a general sense of how much money you have. They can go on Zillow and see how much the house costs. They can read the news releases when mom or dad sells the business. They understand where they go on vacations, whether they fly privately. So, I think it's a naive approach to assume that children don't have some sense of where parents are. But what parents struggle with, again, is how do I give them enough so they can start a business or they can live in a maybe in a little bit nicer neighborhood or send their children to private schools, but not so much that they're gonna sit around. And I read years ago that it's really not the amount of money that somebody has that determines whether they turn out spoiled, it's the parenting.

And I think it really, to your point, it's about knowing the value of the dollar, right? That's the old saying that having that sensitivity to what that actually means. We're running out of time, unfortunately, but I wanted to ask, can you recommend an actionable idea for listeners in terms of maybe what they can do on this count of thinking about legacy or getting closer to that for their clients?

Well, I think the best idea, Greg, is to talk to your clients, engage them. This is not just a touchy-feely subject that we need to leave to the psychiatrist or to the psychologist. This is important stuff. And so my actionable idea is take the bold step of engaging your clients in these discussions. Because I think what you're going to find is they're going to want to talk about this a whole lot more than they're going to look at charts or graphs or talk about capital calls from the PE manager. Or latest shifts in the portfolio because this gets to the crux of families. And I think what families are focused on is happiness. And it's not just a glib term. It's the idea that I'm going to be happy and I'm going to be satisfied because nothing could be truer than money does not buy happiness. I would encourage folks, engage your clients in these conversations and you'll be surprised what you hear back.

Well, thank you so much for sharing that.

Delighted to be with you this afternoon.

My guest was Robert Ballantine. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartolis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.