July 7, 2022

How to Be Rich

Dwight Cass
Forbes, The New York Times & Wall Street Journal Commentator

It seems odd to think about how to be rich. Most advice concerns how to get rich. And while that’s a big challenge, many find out to their surprise that obtaining wealth is just the first hurdle they face.

Entrepreneurs, C-Suite executives, family business founders, inheritors – these individuals all come by their wealth in different ways. There are some significant commonalities, though – and not only in the benefits of wealth. Yes, life becomes much easier in some ways, but being wealthy, especially if the wealth accrues to an individual rapidly, can have its perils.

Children

This is the most common problem for wealthy individuals. When I was editor-in-chief of Worth magazine, a personal finance magazine for the wealthy, I found that it was the issue of most concern to the readership. It comes in two, often overlapping forms.

Family business management

Stereotypes aside, much of the wealth in this country is generated by family businesses. These are often spearheaded by detail-oriented individuals who make the business their life’s work. Family members, especially children, who join the family business expecting to inherit the mantle of CEO someday, often find themselves having to wait until their parent dies. Or, in this age of the multiple technology company entrepreneur, they find themselves bounced out from sinecures when the founder decides to take the company public and must strengthen the management team to appeal to investors.

The solution? Both founder and child need to set expectations early on, and have an intergenerational succession policy in place, preferably in writing, so resentments do not derail their relationship.

Entitlement

This is a topic that causes much agony among the wealthy. Many wealth creators see their children drift aimlessly, waiting for their trust fund. The expectation that they do not have to work, or accomplish anything, derails many young lives. There’s a saying among Italian wealth advisors: “Shirtsleeves to shirtsleeves in three generations.” The first generation makes the wealth, the second fritters it away, and the third goes back to work. 

The solution? Warren Buffett seems to have the right idea. He planned to give his children “enough to do anything, but not enough to do nothing.” While the specific figure depends on the family and individuals, and requires making some wise choices, the strategy is sound.

Advice

Those who generate their own wealth through entrepreneurship or investing soon face a problem that inheritors face for generations: distrust of advisors. Few choices are more important than finding the right combination of advisors – legal, wealth management, and accounting. A bad choice of any one leg of this tripod can lead to ruin, as the Madoff scandal and countless other Ponzi schemes have proven over the years.

Suspicion of trusted advisor motives is second only to worries about children in the matrix of wealthy individuals’ concerns. Those with large multigenerational wealth often have family offices, which are like personal private banks, with financial, legal, and accounting staff all tailored to their specific needs. But these are hugely expensive to run, so for several decades, they have been merging into “multifamily offices,” which begin to resemble normal private banks, and have often been acquired by banks seeking to increase their wealthy clientele. Unfortunately, this commoditizes the services somewhat, and the wealthy family is left once again to shop for an alternative.

The solution? This is a hard one, but there are exclusive, curated groups of wealth individuals, like the Institute for Private Investors, where the wealthy share ideas and trade recommendations about trusted advisors. Some of these – like a few that recommend family office-style solutions – have a commercial incentive and should be approached with caution. 

Friends

Financial advisors occasionally talk about the “life cycle” of the newly wealthy. This involves all the above issues but includes social changes as well. There are entire industries – from vacation home peddlers to yacht builders – that cater to the newly wealthy’s desire for “unique experiences,” as their inevitable marketing slogans promise. These cost money. Moving out of your old neighborhood, buying second or third homes, taking more expensive and exotic vacations, having your children view themselves as part of a different social scene – these all separate the newly wealthy, over time, from their old friends, who do not have the means to enjoy these experiences.

The solution? Remember that this is a choice, not an inevitability. As William Stanley and Thomas Danko explained in their classic book, The Millionaire Next Door, most wealthy individuals in the U.S. do not aspire to live ostentatious lives. They are normal folks who worked hard and maintain their friendships and relationships with their children. 

These individuals are the ones who avoid what psychologists call the “hedonic treadmill” the feeling that you never have enough, no matter how much you have. The luxury goods and financial industries will do everything possible to push wealthy individuals onto that treadmill, and extract from them not only their wealth but their peace of mind. To be a “successful” rich individual really means finding the strength of character to avoid this fate.

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