The wealth management industry in Nigeria is growing steadily. As at 2022, Assets Under Management grew by 25 per cent, and it shows no sign of stopping. This growth indicates an increasing awareness of the need for sound investment practices. Expert advisors are supporting more families to better manage and grow their financial resources.
Traditionally, wealth management has primarily revolved around the strategic growth and preservation of financial assets. While financial capital is undoubtedly crucial, limiting the concept of wealth solely to monetary resources is inherently flawed, especially when the overarching objective is the enduring preservation of wealth across generations.
As an initial matter, it is important to acknowledge that money does not exist in isolation. Its creation, utilization, multiplication, and safeguarding are all contingent upon human decisions. Money, in essence, functions as a tool wielded to accomplish specific objectives. When the pursuit of wealth centers solely on crafting this tool while overlooking the decision-making ability and capacity of its wielder, the risk of mismanagement becomes greater. To mitigate this risk, the development of a family’s human capital should be managed as seriously and strategically as its financial capital.
Human capital in this context, refers to the physical and emotional wellbeing of the individuals who make up the family. It includes their ability to work meaningfully, establish a positive sense of identity, and pursue their goals. The success of financial wealth truly resides in the humans responsible for the process- the person who executes an idea, creates a solution that brings reward, identifies profitable opportunities and so on.
True management of long term wealth in a family must deliberately consider the individuals in that family, not as an afterthought, but as a crucial matter of strategy. The experience, knowledge and skills deployed to create wealth in the first place must form the foundation on which multigenerational wealth is built. This should be followed by systems to replicate the success while refining them with innovative contributions to address current realities. Family wealth without strong, capable and well family members is likely to be lost quickly.
A story was told of a lucrative business that was on the path to significant profitability. The business had just closed a successful funding round, and the investors were excited about the opportunities for success. There was just one challenge. The individual leading the business experienced significant stress from weakening family relationship. This led to a breakdown that was so devastating for the individual that he lost the will to continue working. He was unable to function in any leadership capacity, and the business, lacking structure or a succession plan, began a slow decline. The investors lost their investments and the business was grounded to a halt.
Building human capital is not an emotional matter. It is a strategy to preserve the ability for sound judgement and informed decision-making. It is an attempt to help individuals understand their place as a part of a meaningful whole, and to care enough to preserve their collective resources.
Here are a few practices that will help in building strong human capital poised to achieve success in multigenerational wealth creation:
Identify Strengths and Weaknesses: Take the time to understand what each person excels at and where they may need improvement is essential. This knowledge can be used to allocate responsibilities and support effectively. Forcing members to pursue a path outside of their abilities may deprive the family from harnessing its collective strength.
Communicate: On-time and effective communication is the cornerstone of successful wealth management. Encourage open and transparent discussions about financial goals, strategies, and challenges. Ensure that family members feel comfortable expressing their opinions and concerns. Creating an environment of thoughtful and respectful communication will minimise the occurrence of misunderstandings and assumptions that can lead to harmful decisions.
Clarify the Family Mission: It is important for family members to see the family as more than a place to access resources and have their needs met. A family mission unifies members under a collective purpose. When members have defined roles that indicate their contribution to the vision, it establishes a sense of responsibility, prevents confusion, and promoting accountability.
On-Time Training: Younger family members should experience different opportunities to learn critical life skills and values in line with the family’s mission. These trainings can take place in both formal and informal settings over time, and prior to any pressure to make high-stakes decisions. An important element of this training will include financial literacy, investment education, a deep understanding of the family’s source of wealth and lessons on how it has navigated difficult seasons to preserve its resources.
Meaningful Family Practices: Cultivate family practices that reinforce the family’s identity and values. This could involve traditions, rituals, or philanthropic activities that bring the family together and instill a sense of purpose and unity. These practices are a great way to reinforce the family’s priorities, its history and guiding principles that are key to its success.
Ojenike is a Family Wealth Advisor at Meristem Family Office.
END
Be the first to comment