OREANDA-NEWS. October 14, 2015. Families with wealth that lasts for generations tend to focus on personal values, not just financial assets, according to behavioral finance experts and family wealth dynamics leaders at Merrill Lynch’s Private Banking and Investment Group.

In a paper published today entitled “Creating Meaning from Money,” Merrill Lynch expands on the fundamental idea that building family wealth that lasts requires focus on four sources of capital1. They are:

  • Human capital: Each person’s distinct talents, skills, knowledge, interests and experiences, and the extent to which their actions and path in life align with core values, strengths and purpose.
  • Intellectual capital: The principles, policies and practices in a family that create structure to develop a shared vision of family money and sense of accountability that influences the actions and decisions family members make every day.
  • Social capital: The contributions that each person makes in the world through motivation to make a positive difference in the world and give back with a sense of gratitude.
  • Financial capital: The meaning created from money when it is used to grow other capital sources and fulfill one’s own purpose and potential. It is a means to an end, but not the end goal.

“The idea that meaning and fulfillment will come from building financial wealth alone is an outdated way of looking at capital. It sets up the rising generation for failure by making family members reliant on family money rather than investing in their own strengths,” said Michael Liersch, head of behavioral finance and goals-based development at Merrill Lynch Wealth Management. “A more comprehensive, multi-dimensional view of wealth helps reframe priorities and is the difference between families that create active stewards or passive inheritors of family wealth.”

The paper points out that the rising generation is more likely to feel empowered by family wealth when they understand that financial capital can be used to build greater human, intellectual and social capital.

“When wealth is equated solely with monetary value, the rising generation often grows up overly focused on consumption or feels pressure to gain financial assets – with those areas taking precedence over finding their own priorities and direction in life. Either way, they can end up missing the advantages and opportunities that come with family money,” said Stacy Allred, a managing director and wealth strategist in the Merrill Lynch Private Banking and Investment Group and leader of Merrill Lynch’s Center for Family Wealth Dynamics and Governance.

“True wealth is about more than dollars. Money is simply a tool to achieve some other meaning or purpose,” she added. “In that regard, every dollar is a blank slate that defines and records our values through everyday choices about earning, spending, sharing and saving.”

“Creating Meaning from Money” is the fourth in a series of papers on sustaining family wealth by the Private Banking and Investment Group. Drawing from client insights and in-depth analysis of proprietary and third-party research, the series explores behavioral, psychological and social dynamics of family wealth and their effect on the outcome of intergenerational wealth transfer.

A full copy of the paper “Creating Meaning from Money” can be found at http://www.pbig.ml.com/howmuch along with the entire Merrill Lynch Private Banking and Investment Group series on sustaining wealth.

1 James E. Hughes, Jr. developed the ideas of the four capitals. “Keeping it in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations”

Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With 14,370 Financial Advisors and over \\$2.5 trillion in client balances as of June 30, 2015, it is among the largest businesses of its kind in the world. Merrill Lynch Global Wealth Management specializes in goals-based wealth management, including planning for retirement, education, legacy, and other life goals through investment, cash and credit management. Within Merrill Lynch Global Wealth Management, the Private Banking and Investment Group focuses on the unique and personalized needs of wealthy individuals, families and their businesses. These clients are served by more than 150 highly specialized Private Wealth Advisor teams, along with experts in areas such as investment management, concentrated stock management and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation.

Source: Bank of America Corporation. Merrill Lynch Global Wealth Management (MLGWM) represents multiple business areas within Bank of America’s wealth and investment management division including Merrill Lynch Wealth Management (North America and International), Merrill Lynch Trust Company, and Private Banking and Investment Group. As of June 30, 2015, MLGWM entities had over \\$2.5 trillion in client balances. Client Balances consists of the following assets of clients held in their MLGWM accounts: assets under management (AUM) of MLGWM entities, client brokerage assets, assets in custody of MLGWM entities, loan balances and deposits of MLGWM clients held at Bank of America, N.A. and affiliated banks.