Four Capital Sources Are the Key to Lasting Wealth
October 13 2015 - 10:44AM
Business Wire
New Paper by Merrill Lynch Private Banking and
Investment Group Calls for an Expanded View of Wealth as a
Sustainable Resource
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financial wealth alone is an outdated way of looking at capital.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/pwa/pages/Create-Meaning-with-Money.aspx
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 ManagementMerrill 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.
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