(Wealth) Being Rich Isn’t Easy

Story of E.A. Stuart

E.A. Stuart established the Pacific Coast Condensed Milk Company in 1899, paying $25,000 for the technology to make evaporated milk. He had his share of business misfortunes, but lucked out when the Alaskan Gold Rush began and prospectors stocked up on evaporated milk. The Pacific Coast Condensed Milk Company became the Carnation Company, one of the world’s leading food makers.

In 1985, Nestlé acquired Carnation for approximately $3 billion. The family of author Stuart E. Lucas owned almost 30% of Carnation, and suddenly had $1 billion cash collectively. The family had not prepared for the company’s sale and was not ready to handle such wealth. The family’s portfolio, better managed, might have grown by more than 100% from 1987 to 1994, yet it hardly grew at all. In fact, various costs and fees were seriously eroding the family fortune.

“My family and I needed to get a handle on the long-term management of our wealth. Otherwise, we wouldn’t have a family fortune anymore – only the memory of it.”

The family members met to decide what to do. Their discussions defined a strategy for wealth management founded in the conviction that they were stewards of this fortune, that its management had to be rooted in values, and that family peace, communication and harmony had to set the context for wealth management.

“Managing wealth effectively requires that you take charge of the process early.”

Family had to take direct responsibility for managing its fortune because financial advisors often have goals that are at odds with the goals of the clients. Few advisors have broad competence in different disciplines. They labor under systems that reward certain behaviors and punish other behaviors, whether or not those behaviors are in their clients’ interests.

Moreover, because advisors are outsiders, they seldom appreciate the values, philosophies and ideas that shape a family. Therefore, any family must define its own strategy for managing wealth and should have a “wealth strategist” – an individual or a team that takes the job of aggregating and assessing the work of financial advisors to ensure that their activities advance the family’s wealth management strategy.

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Categories: Economics, Personal Development, Personal Finance, Reading Notes


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