This is the second instalment in our three-part series on third-generation members of wealthy families. Here, we explore the truths and myths about Gen 3 and the qualities that define the current rising cohort.
Myth #1: Shirtsleeves to shirtsleeves
When it comes to truisms about wealth, none is more persistent than the saying “Shirtsleeves to shirtsleeves in three generations.” The supposition is that an entrepreneur will build the wealth, their children will shepherd it, and their heirs will squander it. Although numerous studies have at least partially debunked this notion, it’s still often cited as a fact.
Adam Hoffman is the CEO of Pinnacle Wealth and president of Vesta Wealth Partners Ltd. in Calgary, and he says that “families are most certainly not doomed to fail.” Hoffman points out that American author James E. Hughes Jr. holds that the “shirtsleeves” adage is “a warning, not a proverb,” and that internationally recognized consultant James Grubman has written extensively on the research that debunks it.
“Families do not lose momentum simply because the third generation arrives,” says Barb Schimnowsky, partner, CEO and director of search with Watson Board Advisors in Vancouver.
“They run into trouble when the family, ownership, board and management roles are still informal, even though the enterprise has become much more complex,” she explains. “The families that do this well invest in role clarity, decision-making structures, owner education and meaningful ways for the rising generation to learn and contribute before authority changes hands.”
Myth #2: The entitled heir
Also prevalent is the stereotype of the nepo baby or the trust-fund kid who takes luxury and privilege for granted.
“That comes down to the first generation: if they’re protecting the money and [their heirs] don’t have a sense of purpose, then maybe they’ll sit back and not do much,” says Shawna Perron, portfolio manager on the Perron & Partners team under Cumberland Private Wealth in Calgary. “If Gen 1 has never trusted Gen 2 with taking over the wealth and the decision-making and the governance, then Gen 2 isn’t going to give it to Gen 3.”
Colin Keddy, the director of TAAG Family Office in Ottawa, says that among his clients is a family worth about $300 million whose next-gens have been raised modestly. “That family has had that wealth for about 180 years,” he says, “and their children said they didn’t know they were wealthy until they were in their mid-20s.”
Keddy says entitlement has more to do with upbringing and transition of family values than about position within the family’s timeline. “If you meet kids who have great values and kids more on the side of entitlement,” he adds, “it will be easy to work backwards to see that one family was intentional and one wasn’t.”
Myth #3: A university degree is enough
It’s true that, compared to founding generations, younger family members tend to have better access to higher education, and today’s rising generation has “unprecedented access to information,” says Amin Kanji, executive director, family enterprise advising with CIBC Private Wealth.
Nonetheless, “their financial literacy education is terrible,” says Michael Louie, partner with D&H Group LLP in Vancouver. “So, if you have expectations of your rising generation coming into the business, as a family you should look at their financial literacy.”
“Preparing the next generation isn’t just about developing individual capability, but also the communication, decision-making and collaboration skills needed to function as an effective ownership team,” says Jill Renton, executive director of family advisory at KPMG Family Office in Toronto. “That’s why next-generation development requires far more than financial literacy. It should prepare future owners to lead, govern and preserve the enterprise together across family branches and generations.”
Myth #4: The weak work ethic
“My generation believes there is an element of laziness among the youth, but that’s a misplaced perception in that the third generation is probably equally energetic—it’s just directed in a different way,” Louie says.
Among other distinctions, “happiness seems to be very important to the Generation Alphas and Zs,” he says—which can be challenging for the first generation to understand, since they accepted a need to sacrifice for their attainments.
Kelly Demo, senior wealth advisor and portfolio manager with West Oak Family Office in Calgary, says she used to believe the stereotype. But now, she says, “I think there are a lot of third-generation family members working as hard as their predecessors. They’re comfortable with risk and comfortable with control, and they also accept that there isn’t a safety net, because they don’t want one.”
“I think generally speaking they don’t have the work ethic that their parents did, partly because they don’t have to. But are they inherently lazy? I don’t think so,” says Neil Cockburn, director of family enterprise advisory services with KRP (Kingston Ross Pasnak) in Edmonton. He recounts the example of a client family member going back to university in their 30s to become a doctor, “not because she needs to earn a living, but because she knows there is a need for family physicians in healthcare.”
“If you’re in the third or fourth generation and you’re in the family business or family office, you had the choice to be there,” says Mary Hermant, partner with Chamberlain Family Office Advisors in Toronto. “They’re interested in working, and we definitely hear that generation talking about their children, wanting them to have that same work ethic and to be able to participate if they so choose.”
Myth #5: It’s hard to engage with Gen 3
There is certainly a possibility that the new generation will look for new advisors. “Relationships don’t necessarily transfer with the assets,” says Jim Hayhurst, managing director with Cole & Associates in Victoria. “The vast majority of next-gen inheritors say that if they’re not going to fire their parents’ advisors, they’re going to be looking at them to see whether they answer their needs.”
However, he says, it’s possible that when the advisory community thinks Generation 3 is being difficult or demanding, “really they’re enacting their own agency, which I find really interesting. They understand that the world has changed since their grandparents made their money. Now they have access to be able to make their own mark.”
In fact, “the third generation leans on advisory teams, because the parents have introduced them to professionals and they themselves realize they can’t do everything,” says Demo. “If you can, start working with the third generation early, so they know the value of the family office their parents have chosen.”
Sarah B. Hood is a Toronto-based writer and book author. She has served as editor of three national magazines and written weekly columns for the National Post. She also serves on the editorial board of Spacing magazine. She writes frequently on business, urban affairs and culture. As a food writer, her work has been translated into Japanese and Arabic. She has taught writing at George Brown College for more than 20 years.
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