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Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management

April 1, 2010. Family and Wealth Sustainability: Integrating Family Virtues with Wealth Planning for a Lasting Legacy. Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management. Normal Family Wealth Situation A WEALTHY FAMILY’S DILEMMA. Estate Plan (Death Plan).

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Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management

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  1. April 1, 2010 Family and Wealth Sustainability:Integrating Family Virtues with Wealth Planning for a Lasting Legacy Thomas C. Rogerson Senior Director, Wealth Strategist BNY Mellon Wealth Management

  2. Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA Estate Plan (Death Plan) Concerns About Money and Heirs Investments Products by Default and Relationships Tactics by Interest (or by Necessity) Missed Family Opportunities Retire-ment Plans Living Trusts Family Retreats FamilyBusiness Success- ion Investment Broker #1 Small, Mid Cap Partner-ships HedgeFunds Family Vision Wills Educationre. $$ Mental Barriers Mental Barriers Largely Funded at Death FixedIncome RealEstate Emerg.Markets EducationTrusts DelawareTrusts Informally Discussed Or Never Done Private Banking A/B/GSTTrusts Inter-national EthicalWills Founda-tions Family Mediation LargeCap Career Counsel Manager of Managers #2 PrivateEquity Separated Concepts Separate Advisors Family Charities Insurance Index Funds Manager #3 Insu. Pro. Account-ant Consult- ant Attorney Consolidated Return?? Risk? Taxes? Fees?? Conflicts of Interest

  3. Strategic Investment Management Protect and Grow Your Money Wealth Management Preparing Your Money for Your Family Family Education And Governance Preparing Your Family for the Money Living Trusts A/B/GSTTrusts LargeCap Family Vision Small, Mid Cap Family Retreats FixedIncome Partner-ships Inter-national DelawareTrusts FamilyBusiness • Process • Family Profile • Wealth Goals • Jurisdictions • Structures • Implement • Process • Risk Tolerance • Investor Goals • Asset Allocation • Invest. Selection • Oversight • Reporting • Process • $ Education • Communication • Family Values • Philanthropy • Governance Emerg.Markets Edu- cationre. $$ TrusteePartner Asset Location HedgeFunds EthicalWills PrivateEquity CRTsCLTs EducationTrusts Family Medi- ation RealEstate Charities Retire-ment Plans Insu- rance Career Counsel Founda-tions Private Banking Coordinated Advisory Team Helps All of Us Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY

  4. Family Dynamics

  5. The Three Big Questions • How Much is Enough? • When do we tell them? • How do we break the paradigm? • “Shirtsleeves to shirtsleeves in three generations?”

  6. $ 1st Generation Creation 2nd Generation Assimilation 3rd+ Generation Enjoyment 4th Generation Lamentation (Genealogy) ? Generation Creation 90% 70% TIME Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

  7. 4th Generation Lamentation (Genealogy) 2nd Generation Assimilation 3rd+ Generation Enjoyment ? Generation Creation 1st Generation Creation $ Careers: Actors, Musicians, Park Rangers, Ski Patrol, ... Careers: Entrepreneur, R/E Developer, CEO,... Careers: Attorneys, Accountants, Investment Advisors, ... TIME Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

  8. Risk Perception “WHAT DO I THINK WILL BITE ME?” • 37% Investment Specific Risks • Portfolio risk, manager risk, timing risks, style risks, business risks… • 26% Economy and Financial Markets Risk • Economic downturn, inflation, deflation, energy costs, and availability… • 16% Political and Tax Risks • Higher personal income taxes and estate taxes, legal liability risks, government intervention… • Only 7% of the perceived risk is family dynamics and relationship problems! • Poor family communication and relationships, educating next generation issues, • governance issues… Source: Family Office Exchange

  9. Risk Perception – “What Bit Me?” WHY DO 90% FAIL? 60% of the failure is due to a lack of communication and trust. 25% of the failure is due to unprepared heirs. Only 3% of the failure is due to failures in financial planning, taxes and investments! Source: Williams and Pressier

  10. “If that factory burned down, it would be tough, but we’d get through it. However, If the family fell apart, we wouldn’t get through it. This is important to us; it’s a line item on our business budget every year. We spend money and time on this every year, just like we do with our management team!” Third Generation Business Leader Risk Perception “WHAT DO WE THINK WILL BITE US?”

  11. Client Study “WEALTH” Net Worth = ? (Giving the wrong impression can be devastating)

  12. Wealth in Families DEFINITION • Human Capital – Me • Intellectual Capital – We • Social Capital – World • Financial Capital – Wealth Wisdom • Cash, stocks, bonds, real estate, “things” • Family business? James E. Hughes Jr.

  13. Wealth in Families DEFINITION • Human Capital – Me • Intellectual Capital – We • Social Capital – World • Financial Capital – Wealth Wisdom Family Annual Report James E. Hughes Jr.

  14. Wealth in Families MISSION/VISION • Human Capital – Love of Self • Intellectual Capital – Love of Family • Social Capital – Love of Others • Spiritual Capital – Love of God • Financial Capital* – Love of Creation *The purpose of financial capital is to enhance human, intellectual, social, and spiritual capital.

  15. Wealth in Families MISSION/VISION • Human Capital – Love of Self • Intellectual Capital – Love of Family • Social Capital – Love of Others • Financial Capital* – Love of Creation • Spiritual Capital – Love of God *The purpose of financial capital is to enhance human, intellectual, social, and spiritual capital, all based on the family spiritual capital

  16. Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT • Governance Procedures • Family bank, family office, good dysfunction? James E. Hughes Jr.

  17. Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT • Governance Procedures • Family bank, family office, good dysfunction? • Horizontal vs. Vertical Structures • Rothschild vs. Vanderbilt James E. Hughes Jr.

  18. Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT • Governance Procedures • Family bank, family office, good dysfunction? • Horizontal vs. Vertical Structures • Rothschild vs. Vanderbilt • Family Philanthropy • Philanthropy day? Aunt adoption? Charlie Collier

  19. Philanthropy “Paradoxically, families often learn more about long-term wealth preservation through the process of learning to give away than by the process of learning to accumulate and spend.” James E. Hughes Jr.

  20. Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT • Governance Procedures • Family bank, family office, good dysfunction? • Horizontal vs. Vertical Structures • Rothschild vs. Vanderbilt • Family Philanthropy • Philanthropy day? • Caring Motivational vs. Caretaking • “Invest in you” vs. “Distribute to you” • Loans vs. gifts?

  21. Vision of Family Future Controlling Leaders Sibling Rivalry Unknown Cousins

  22. Vision of Family Future Cousin Consortium Sibling Partnership Enlightened, Successful Leaders

  23. Five Steps to Healthy Family Governance • 5.Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  24. Five Steps to Healthy Family Governance • 5. Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  25. Education STEP ONE: RESOURCES • Younger Children • RaisingFinancially Fit Kids – Joline Godfrey • www.Allowance-Plus.com – Ned Hentz • The Financially Intelligent Parent – Gallo & Gallo Teenagers and Older • This Presentation to the Family • The Ultimate Gift – Jim Stovall • The Born Rich Video – Jamie Johnson • Outliers and The Tipping Point – Malcolm Gladwell • Children of Paradise – Lee Hausner • The Five Dysfunctions Of A Team – Patrick Lencioni • Family Wars – Gordon & Nicholson – etc.

  26. Stages Responsibilities Actions Apprenticeship (5-18) • Develop financial vocabulary • Manage allowance • Establish early financial • Hold first job habits and values • Begin community involvement • Practice saving, spending, earning, and philanthropy Starting Out (19-30) • Establish identity and • Acquire education and/or independent lifestyle life/career experiences • Experiment • Establish savings and a good credit record Taking Charge (31-50) • Build assets • Acquire assets • Establish a foundation for self • Build career and family and/or family • Explore life interests Looking Ahead (51-65) • Take stock • Reassess life choices/goals • Mentor and energize plans • Contribute to next generation’s needs Third Wave (60+) • Relinquish some responsibilities • Live and give creatively • Plan for the next generation Example of External Expertise Available

  27. Five Steps to Healthy Family Governance • 5. Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  28. Family Communication Styles STEP TWO Spontaneous Persuader Counselor Challenging Supporting Director Analyzer Disciplined Stratton Consulting Group

  29. Communication STEP TWO (USE TESTS CAREFULLY, THEY ARE NOT PERFECT) 1. Stratton Consulting Group – www.strattonconsulting.com • 2. Strengths Finder 2.0 – Tom Rath • 3. Food For Talk – Great Family Conversation Cards • 4. DISC Personality Test or Kolbe Test • 5. Financial DNA – Hugh Massie • 6. Magnificent Mind at Any Age – Daniel Amen M.D. • 7. Family Outward Bound – outwardbound.org • 8. Myers Briggs Tests – myersbriggs.org

  30. Five Steps to Healthy Family Governance • 5. Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  31. Individual and Family Values Daughter Mom Dad Family Son Son Tolerance and Intolerance?

  32. Mission/Vision STEP THREE • 1. Working With The Ones You Love – Dennis Jaffe • Relative Solutions “Values Cards” – www.relative-solutions.com • 21/64 “Values Cards” – www.2164.net • Ethical Wills – Susan Turnbull – www.yourethicalwill.com • The Ten Lenses – Mark A. Williams • Beyond Success – Randall J. Ottinger • Individual and Family Mission Statements? • www.theheritageinstitute.com • Halftime – Bob Buford, etc.

  33. Five Steps to Healthy Family Governance • 5. Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  34. PhilanthropySTEP FOUR • Wealth In Families – Charlie Collier • Philanthropy, Heirs and Values – Williams/Pressier • Can’t Take It With You – Lewis Cullman • New Process of Family Giving vs. Giving to “Past Pets” • Social Venture Partners? • Micro Finance – kiva.org?, etc.

  35. Five Steps to Healthy Family Governance • 5. Healthy Family Governance • Putting into action, horizontal thinking • 4. Philanthropy • A test drive with someone else’s money but our values • 3. Family Values and Experiences • Mission/vision – history and future • 2. Communication • Evaluation and discussion in a safe family setting • Parents make “The Call” • 1. Education • Giving the family an understanding of the possible problems and solutions - context • BNY Mellon’s experience

  36. GovernanceSTEP FIVE 1. Family Wealth : Keeping It in the Family – Jay Hughes • 2. Family: The Compact Among Generations – Jay Hughes • 3. For Love & Money – John Ambrecht, Howard Berens, Richard Goldwater, & Tom Gorman 4. Beyond Success – Randall Ottinger 5. Family Constitution? 6. Empowered Wealth – Brower/Thurber 7. Beating the Midas Curse – Cochell and Zeeb – etc.

  37. Extra Resources • For Families in Business • 1. Preserving The Legacy of a Family-Owned Business– Bachmeyer & Snyder • 2. Perpetuating The Family Business– John L. Ward • 3. Working With The Ones You Love–Dennis Jaffe • Other Family Wealth Books • CEO Dad– Tom Stern • Navigating The Dark Side of Wealth– Thayer Willis • The Golden Ghetto– Jessie O’Neill • Money Harmony– Olivia Mellan

  38. The Hard Questions – Preparing the Family for the Money When does a person become a member of the family? Prenuptial agreements; a “gate in,” or a “roadblock out?” What does “equal” mean? What is an appropriate lifestyle, and when should it start? Should trusts pay for “lifestyle?” or: invest into the beneficiaries? Should we sell or keep the family business? What do we do with the vacation house? What consequences should family members be subject to? How should WE enforce these consequences? What “types” of beneficiaries might we create? How should the trust handle each “type?” Who should apologize, who’s “right” or who’s “wronged?” … How do we create independence AND interdependence? The Easy Questions – Preparing the Money for the Family How do we minimize taxes? How do we invest the family money? Governance Questions to AnswerSTEP FIVE

  39. The Three Big Questions • How Much is Enough? • The amount for which you prepare them. Preparing them for nothing is as hard as preparing them for millions • When Do We Tell Them? • When they are ready to hear it. Use “little train” opportunities to challenge them. • How Do We Break the Paradigm, “Shirtsleeves to Shirtsleeves in Three Generations?” • Build flexible family teams and empower them.

  40. 1st Generation Creation 2nd Generation Assimilation 3rd+ Generation Enjoyment 4th Generation Lamentation (Genealogy) ? Generation Creation $ 225 Year History TIME Client Study - Wealth“SHIRTSLEEVES TO SHIRTSLEEVES?”

  41. Wealth in Families DEFINITION • Human Capital – Strong Me • Intellectual Capital – Strong We • Social Capital – World Perspective • Financial Capital – Wealth Wisdom James E. Hughes Jr.

  42. Preserving Wealth in Families ACTIVITY AND COMMUNICATION AROUND WEALTH CAN BE DIFFERENT • Governance Procedures • Family bank, family office? • Horizontal vs. Vertical Structure • Rothschild vs. Vanderbilt • Family Philanthropy • Philanthropy day? • Caring Motivational vs. Caretaking • “Invest in you” vs. “Distribute to you” • Loans vs. gifts?

  43. Normal Family Wealth SituationA WEALTHY FAMILY’S DILEMMA Estate Plan (Death Plan) Concerns About Money and Heirs Investments Products by Default and Relationships Tactics by Interest (or by Necessity) Missed Family Opportunities Retire-ment Plans Living Trusts Family Retreats FamilyBusiness Success- ion Investment Broker #1 Small, Mid Cap Partner-ships HedgeFunds Family Vision Wills Educationre. $$ Mental Barriers Mental Barriers Largely Funded at Death FixedIncome RealEstate Emerg.Markets EducationTrusts DelawareTrusts Informally Discussed Or Never Done Private Banking A/B/GSTTrusts Inter-national EthicalWills Founda-tions Family Mediation LargeCap Career Counsel Manager of Managers #2 PrivateEquity Separated Concepts Separate Advisors Family Charities Insurance Index Funds Manager #3 Insu. Pro. Account-ant Consult- ant Attorney Consolidated Return?? Risk? Taxes? Fees?? Conflicts of Interest

  44. Strategic Investment Management Protect and Grow Your Money Wealth Management Preparing Your Money for Your Family Family Education And Governance Preparing Your Family for the Money Living Trusts A/B/GSTTrusts LargeCap Family Vision Small, Mid Cap Family Retreats FixedIncome Partner-ships Inter-national DelawareTrusts FamilyBusiness • Process • Family Profile • Wealth Goals • Jurisdictions • Structures • Implement • Process • Risk Tolerance • Investor Goals • Asset Allocation • Invest. Selection • Oversight • Reporting • Process • $ Education • Communication • Family Values • Philanthropy • Governance Emerg.Markets Edu- cationre. $$ TrusteePartner Asset Location HedgeFunds EthicalWills PrivateEquity CRTsCLTs EducationTrusts Family Medi- ation RealEstate Charities Retire-ment Plans Insu- rance Career Counsel Founda-tions Private Banking Coordinated Advisory Team Helps All of Us Integrated Family Wealth SolutionA WEALTHY FAMILY’S OPPORTUNITY

  45. The Bottom Line • Simplifies your life. • “We sleep better” • Provides better investment results for you and your family. • Even with the same investments This communication is intended to provide general information that is believed to be accurate. It should not be construed as legal or tax advice. Please consult with your legal and tax advisor to determine whether the information in this communication may be appropriate for you.IRS Circular 230 Notice: Any information pertaining to tax related matters contained in this communication including any attachments is not intended or written to be used, and it cannot be used, by any person or entity for the purpose of (i) avoiding tax penalties imposed by any governmental taxing authority or agency, or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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