For the first time in his long life, Erich Hofstetter (name changed) had no idea what to do next. As a grandfather and former company boss, he was seriously worried about how he and his wife should secure their family assets. What had happened? The planned transfer of his possessions to his three children was in limbo. Emotions trumped reason. That made rational conversation very difficult.

It started a while back, when it became clear that Hofstetter’s oldest son had other plans than to take over his father's medium-sized building services and plumbing business. The son instead had studied art history and become the vice director of a prestigious museum abroad. After a failed management buyout and with a heavy heart, Hofstetter sold his company to one of his competitors. The company had barely changed hands when an argument broke out between his daughter and his second-oldest son. Both are interested in the arts and laid claim to Hofstetter's valuable collection of paintings, which after the sale of the company also needed a new home.

As if that were not enough, two of the three children increasingly criticized their father for investing his assets in ways that brought far too little profit. “This sort of unpleasantness comes up again and again," says Jürg Segmüller, Head of Wealth Management for UBS Aargau Solothurn and responsible for UBS Family Banking. "It’s worth sitting down around a table with everyone involved, so they can voice their hopes and expectations. You can almost always find a solution through dialogue.”

Thought through, but not agreed to

The client advisor recommended that Hofstetter work out an approach to investing that included the next generation. Although initially skeptical, Hofstetter eventually agreed. Part of this comprehensive strategy was planning his liquidity requirements, including income maintenance in old age. “For many clients, it’s very important to know exactly how their livelihood and that of their partner will be secured well into old age,” says Antonio Colaci, Wealth Planner, UBS Aargau.

The discussion resulted in a three-pillar approach to investing: liquidity for the coming years, safeguarding long-term livelihood and possible transfer of the emergency reserve. The last pillar acted at the same time as the compensation fund for the art collection, which the daughter and son received as advances against inheritance. “Developing an approach to investing that spans generations requires a lot of experience and tact from the client advisor,” explains Segmüller. Once worked out, it offers clarity and trust.

The grandchildren were the key to success

Hofstetter had never been able to agree with his sons on specific investments. Their ideas about secure investment products differed too much. “The older generation often invests as if the world were ending tomorrow," says Antonio Colaci. "That fear keeps them from taking any investment risk.”

Worries that assets will not be sufficient, along with persistently low interest rates and potential inflation result de facto in wealth being depleted. In turn, this creates a considerable area of conflict in many families. What was the solution for the Hofstetter family? In this case it was the grandchildren, newly included in the process, who managed to inspire him to make long-term investments, for example in robotics, e-commerce and private equity.

In fact, the strategy the wealth planner recommended is based on the conviction that long-term investment strategies with a higher equity component can deliver the returns needed to secure the family fortune.

“Long-term investing lowers the risks and increases earnings potential,” summarizes Colaci. A generation-spanning view in particular makes it possible to invest some portion of the family assets for the long term. He advises all families: “Looking ahead, that is to say arranging for the orderly transfer of wealth during your lifetime, is the best, because this is almost impossible afterwards.”

For the Hofstetter family, the fruitful approach to preserving family values across generations lay in talking to each other regularly, building up intergenerational trust – and in the company boss’s ability to let go.

Precautions the well-to-do can take

When preserving family values across generations, timely measures can prevent conflict

  • When the time comes to address how best to preserve family values across generations, it is time to develop a cross-generational approach to investing.
  • Existing solutions should be discussed periodically and modified if necessary.
  • The next generation can be included in supporting the parents by giving it power-of-attorney combined with e-banking and mobile banking access.
  • Additionally, there is the advance care directive. The directive helps families to get ready in the event decision-making capacity is lost, allowing them to make decisions about personal and estate care as well as in matters requiring legal representation.

UBS Family Banking

UBS Family Banking believes two central features are key to the sensitive topic of “Inheritance and Bequeathing”.

Fair distribution of family assets

  • Developing a common understanding of personal hopes and needs while thinking of the next generation.
  • Setting up a financial plan and getting an overview of assets.
  • Developing and regularly reviewing the succession solution.

Preserving family values across generations

  • Developing your own approach to investing.
  • Discussing and selecting a suitable investment strategy.
  • Including the next generation in the investment process.

This article was written by NZZ Content Solutions on behalf of UBS.