RUPERT PHELPS Heads the family wealth group at Smith & Williamson

What does wealth mean? For families with substantial assets, it might be better to ask ‘what is capital?’ In my career advising families on their strategic governance, it has become clear that it exists in several different forms. Thinkers ranging from anthropologists to sociologists and


Chair of pro-equality campaign group Patriotic Millionaires and a former managing director at BlackRock

I see the meaning of wealth changing as you go through stages of wealth accumulation over the course of your life. Say you graduate from school, and get your first job. You have enough money to get lunch with your colleagues from the deli next to your office. You have as much self-confidence and self-esteem as the guy who owns the company. Then, after a year of smiling at your cute colleague who goes to lunch at the same time you do, and eating dinner together when you’re working late when big deals are going down, you decide you’re ready to start your lives together and you’d rather have the hour- long train than continue living separately in your respective parents’ houses. After your bonuses, between the two of you you’ve got $100,000 – and the bank counts that as salary, so they will loan you another $400,000. When you buy the house with the white picket fence that’s a half-mile walk from the train station, you feel rich. A couple of decades later, you’re more worried about money for your junior staffers’ bonuses than your bonus, and your high-school junior asks about paying for college. You really feel like you’ve made it when you tell your kid not to worry about financial aid or loans or anything; for college, you will give them whatever they need. Soon after that, you realise you are too busy with your life and your volunteer work, and you’re thinking that something has to go – and you suddenly realise that it’s the job that has to go. When you realise that you can give up your income without affecting your life one bit, you know you are wealthy. A few years later, you are at lunch, listening to a talk by the

executive director of an institute that you have been supporting. You realise that a lot of the people in the room are not actual philanthropists, they are the philanthropists’ staff members. You hire a director of philanthropy to help manage your giving, and you feel so much better about what you are doing after that. That is when you know you have real wealth – not only can you and your family not spend it all, you even need help to give it away.

family governance experts have identified a plethora of variants. I have found that delineating initially between human capital, intellectual capital, social capital, spiritual capital and, lastly, financial capital, is the most helpful approach to create engagement in discussions with families. Aspects of each form of capital overlap: human is character, skills, labour and behaviour; intellectual is education, knowledge, talent and teaching; social is network, relationships, community responsibility and philanthropy; spiritual is values, ethics, morals and purpose; and financial is investments, ownership, liquidity and material goods. The reason I put financial last is that although it offers the easiest metrics for accounting, it is of zero intrinsic worth. Without this framework financial capital is invariably placed first; this can mean the riches in the family’s other forms of capital are ignored and lost. Recently a client family member was keen to give financial capital to support an impact-first endeavour. This desire came from themselves (human capital), but more deeply was part of their value code (spiritual capital). They then articulated (intellectual capital) this to individual family members, the family council and its philanthropy subcommittee. This activity and seeking to influence other family members (social capital) had the dual aim of creating engagement and support for the project, as well as securing from a family fund the actual money to create impact (financial capital). For the family, this will have the effect of enhancing their social capital as well as creating social good in a community where they are stakeholders – building a virtuous circle in the process. Overall, what you might call ‘family capital’ – the family’s entire store of all different forms of capital – will be augmented But then, what is the purpose of family capital? That can only

be examined by starting with family values and then embarking on this ongoing process of examining forms of capital.

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