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A N E S T A B L I S H E D P A R T N E R
From Stone Age to Digital:The Key Commandments of Wealth June 12, 2017
Abbot Downing
Jim Steiner, President
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A N E S T A B L I S H E D P A R T N E R
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• From Stone Age to Digital: How do we store wealth?─ We Trust an Intangible System
─ The Gap Between Rich and Poor
• Where Do We Get Our Wealth?─ The Gender Gap
─ Can We Ever Retire?
─ The Incredible Shrinking Stock Market
• Going Beyond the Numbers─ What Is Cultural Wealth?
─ Why Do We Fail at Passing Wealth to the Next Generation?
─ The Land of Immigrants: Hard-working or Entitled?
─ What Makes a Good Investor?
─ Commandments of Wealth
Imagine that a distant relative passed away earlier this year
and in the reading of the will this morning has left you with
$50 million.
What are you going to think about over the next week?
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T H E I S L A N D O F S TO N E M O N E Y
• On Yap wealth was
stored centuries ago in
a currency called “Fei”
– a large donut-
shaped stone up to 12
feet in diameter.
• The island only had
three commodities –
fish, coconuts, and
sea cucumber – all
highly perishable.
• Only the “Fei” could
store wealth and
enable families to
gather wealth and
obtain credit.
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Used with permission: Alamay DEFCGG
W H AT I S W E A LT H ?
• The stones are still used for traditional
or ceremonial exchange.
• Today we store wealth in a complex
credit system with capital stock and
currencies typically in digital form.
• Wealth storage must be trustworthy,
dependable, and durable.
• We remain heavily dependent upon
our institutions to maintain wealth
vehicles.
The Island of Yap
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Used with permission: Alamay G9RF7W
-4.7%
0.4%
1.2%
2.0%
2.8%
3.0%
3.3%
3.9%
4.4%
5.2%
9.4%
9.6%
10.5%
16.3%
32.2%
Unsecured liabilities
Educational savings accounts
Other interest-earning assets
Other financial investments
Cash value of life insurance policies
Annuities & trusts
Motor vehicles
Other real estate
Rental property
Business or profession
Asset at financial institutions
Stocks and mutual funds
IRA & Keogh accounts
401(k) & Thrift Savings accounts
Equity in own home
Composition of Net Worth by Asset per U.S. Household
W E T R U S T A N I N TA N G I B L E S Y S T E M
1Excludes households in top one percent of net worth
Source: Smith, Adam, Rebecca Chenevert, and Jonathan Eggleston. Improvements to Measuring Net Worth of Households: 2013. Rep. no. P70BR-143. United States Census Bureau, March 2017.
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B I L L I O N A I R E S A N D M I L L I O N A I R E S B Y H O U S E H O L D
Source: "Net Worth in the United States: Zooming in on the Top Centiles." DQYDJ. May 2017. Web.
U.S. household breakdown by net worth
540 5000 150,000
1.26 million
9.38 million
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
$1+ billion $100 million -$1 billion
$25 - $100million
$5 - $25 million $1 - $5 million
Nu
mb
er
of
Ho
us
eh
old
s(i
n m
illi
on
s)
Household Net Worth
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T H E G A P B E T W E E N R I C H A N D P O O R
Source: 2013 Survey of Consumer Finance
Avera
ge N
et
Wo
rth
(in
mil
lio
ns
)
Percentile
-$2,000 $80,000$1.9 million
$11.9 million
$30.6 million
$0
$5
$10
$15
$20
$25
$30
$35
10% 50% 95% 99.5% 99.9%
Average U.S. household net worth by percentile
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A N E S T A B L I S H E D P A R T N E R
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From Stone Age to Digital: How do we store wealth?─ We Trust an Intangible System
─ The Gap Between Rich and Poor
Where Do We Get Our Wealth?─ The Gender Gap
─ Can We Ever Retire?
─ The Incredible Shrinking Stock Market
Going Beyond the Numbers─ What Is Cultural Wealth?
─ Why Do We Fail at Passing Wealth to the Next Generation?
─ The Land of Immigrants: Hard-working or Entitled?
─ What Makes a Good Investor?
─ Commandments of Wealth
H O W D O W E G E T W E A LT H Y ?
Men -- 87%
• Average age of 59
• 68% made their own wealth
• 19% inherited some and created some
• 13% inherited their wealth
• Men tend to inherit wealth as heirs
• 24% finance, banking, and investment
• 7% real estate
• 7% industrial Conglomerates
• 5% non-profit and social organizations
• 5% manufacturing
Women -- 13%
• Average age of 57
• 34% made their own wealth
• 18% inherited some and created some
• 48% inherited their wealth
• Women tend to inherit wealth as widows
• 19% non-profit and social organizations
• 13% finance, banking, and investment
• 7% textiles, apparel, and luxury goods
• 6% industrial Conglomerates
• 6% real estate
Characteristics of High Net Worth*
Source: Williams, Terri. "Characteristics of the Ultra Wealthy." Investopedia. January 2016. Web.
*Households with $1+ million in net worth: 10.8 million households (DQYDJ.com)
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C A N W E E V E R R E T I R E ?
Source: Kirkham, Elyssa. "1 in 3 Americans Have $0 Saved for Retirement." GOBankingRates. December 2016. Web.
28.0% 17.3% 8.7% 7.1% 10.3% 6.2% 22.4%
Don't have retirement savings Have saved less than $10,000Have saved $10,000 - $49,000 Have saved $50,000 - $99,000Have saved $100,000 - $199,000 Have saved $200,000 - $299,000Have saved $300,000 or more
29.8% 21.9% 11.2% 10.3% 8.8% 5.8% 12.1%
Retirement savings across age groups
42.2% 29.8% 11.2% 6.3%
3.5%
2.2%
4.9%
Millennials
(Age18-34)
Gen X
(Age 35-54)
Boomers
(Age 55+)
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T H E I N C R E D I B L E S H R I N K I N G S TO C K M A R K E T
• Significant drop in the number of listed stocks in the United States over the past 20 years
• The US has witnessed a 50 percent reduction in listed securities while other developed countries have experienced a 50 percent increase over this time frame, thus resulting in a listing gap of nearly 6,000 companies
• Companies typically delist due to mergers and acquisitions (M&A) while IPOs are the most common source for new listings, and over the past ten years M&A activity has prospered while IPOs have plummeted
• Regulations have made new listings more expensive while enabling significant M&A
• This trend has resulted in more concentrated industries with larger, older, more lucrative companies who pay out cash to shareholders (dividends)
• Exchange-traded funds (ETFs) have filled some of this listing gap
Source: Mauboussin, Michael J., Dan Callahan, CFA, and Darius Majd. The Incredible Shrinking Universe of Stocks. Rep. Credit Suisse, March 2017.
Listed stocks have dropped precipitously
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A N E S T A B L I S H E D P A R T N E R
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From Stone Age to Digital: How do we store wealth?─ We Trust an Intangible System
─ The Gap Between Rich and Poor
Where Do We Get Our Wealth?─ The Gender Gap
─ Can We Ever Retire?
─ The Incredible Shrinking Stock Market
Going Beyond the Numbers─ What Is Cultural Wealth?
─ Why Do We Fail at Passing Wealth to the Next Generation?
─ The Land of Immigrants: Hard-working or Entitled?
─ What Makes a Good Investor?
─ Commandments of Wealth
W H AT I S “ C U LT U R A L ” W E A LT H ?
Culture: How we do things around here
Families have a unique culture and wealth creates challenges
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M A N A G I N G T H E I M PA C T O F W E A LT H
The Abbot Downing Clarity
and Family Insights
processes provide a
thorough understanding of
family history, values, and
vision which is foundational
in developing actionable
plans and solutions that
align with the client’s goals.
This knowledge is used to
help clients retain family
wealth across multiple
generations.
Aligning your Plans and Goals
History | Values | Vision
inform
Education Governance Transitions
applied to
Family Office Family Trusts Rising Generation
Family Business Family Philanthropy
Silent Spouse/Partner Foundations & Endowments
Communication
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W H Y D O W E FA I L TO PA S S W E A LT H O N TO T H E N E X T G E N E R AT I O N ?
Studies consistently show only one-third of family-owned businesses successfully transition
to the next generation, regardless of country, culture, industry or economic environment.*
Shirtsleeves to Shirtsleeves in Three Generations
1) Poor Communication
Breakdown of trust and communication within the family unit (60% of failures)
2) Readiness of Heirs
Inadequately prepared heirs (25% or failures)
3) Lack of Vision
Absence of a clear vision or mission to align family members (12% of failures)
4) Poor Advice
Failure by professional advisors to correctly interpret (or anticipate) taxation, governance and wealth preservation issues (less than 3% of failures)
Focus of the Study**
While the Williams and Preisser study focused on transition of family wealth generally, these four identified factors are no less relevant when applied to family businesses
Four Factors Leading to Failed Family Business Transitions**
* Joseph Astrachan, Ph.D., Editor, Family Business Review, 1999
**Based on a 20-year study of 3,500 families by Roy Williams and Vic Preisser, Preparing Heirs (San Francisco,
Robert D. Reed Publishers, 2003) 16
T H E L A N D O F I M M I G R A N T S : H A R D - W O R K I N G O R E N T I T L E D ?
The majority of Abbot Downing clients are 1st generation wealth creators
Often have ascended from low or middle class upbringings
Want their children to have a better lifestyle than they did
At the same time they desire their children to be hard-working and very much want to
avoid entitlement
Frustrating catch-22
“Bleachers vs. Box Seats”
*
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T H E W E A LT H D I L E M M A
First generation often experiences and thrives with successful business mind set
They do not want to give up control
Wealth inevitably flows to either the next generation, government, or philanthropy
Challenges arise because wealth is “shared” in families and it requires work to share
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W H AT D O Y O U WA N T F O R Y O U R C H I L D R E N ?
Famous
Successful
Beautiful
Happy
Good
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S O LV I N G T H E D I L E M M A
Some Key Elements of Managing the Issues of Wealth
Compassion
Process
Shared Values
Trust
Communication
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W H Y D O W E T R U S T ?
Integrity
Ability
Benevolence
Consistency
The Trust Project – Kellogg School, Northwestern University21
T H E B A S I C S O F I N V E S T I N G
Solve your investment problem, not your neighbor’s
Have a clear and consistent investment objective
Spend time understanding your risk parameters
Diversification or “diworsification”
Diversification does not guarantee a profit or protect against losses.22
W H AT A M A K E S A G O O D I N V E S TO R ?
Manage risk rather than return
Understand the long-term compounding of money
Know what a commodity looks like
Seek niches, scale advantages and inefficiency in active investments
Challenge assumptions and be a contrarian
Look for change at the margin
Think in probabilities and consequences
If you do not know what you are doing, seek professional help
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A B B O T D O W N I N G ’ S H O L I S T I C P R O C E S S
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KEY COMMANDMENTS OF WEALTH
Values and Legacy
• What is your cultural wealth?
• Who can you trust?
• How do you want to invest? How long do you want your investments to last?
• Will you leave wealth to your children, a cause you care about or the government?
Risk and Reward
• What are your liabilities (charity, family, retirement, health care, life style)?
• When will you need the money?
• What is your risk profile for each liability stream and the consequences associated with the risk?
• What are your investment strategies for each liability stream after considering all of the above factors?
• What could change that would adjust your perspective?
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‘THE GOSPEL OF WEALTH’
“The problem of our age is
the proper administration of
wealth, so that the ties of the
brotherhood may still band
together the rich and the poor
in a harmonious relationship.”
-Andrew Carnegie
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Used with permission: Alamay Copyright to be
added here
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Abbot Downing provides products and services through Wells Fargo Bank, N.A., and its various affiliates and
subsidiaries. The implementation and maintenance of certain strategies and techniques in this presentation may
require the advice of consultants or professional advisors, other than Abbot Downing.