By Linda Graham, CFP®

We know how to value a business, a property or an investment portfolio. Some of the most important assets of a wealthy family are much harder to put a number on.

When we talk about family wealth, we usually mean money. It is understandable. Financial capital can be counted, invested, divided, and transferred. There are specialists to value it, structures to protect it, and pages of reporting to tell a family whether it has grown or shrunk.

Spend time around families whose wealth has survived more than one generation, and a broader picture emerges. Money matters enormously, but so do the people entrusted with it, the knowledge accumulated in creating it, the relationships surrounding the family, and the family’s ability to take a long view.

There is another asset too, although it is more difficult to pin down. It is the family’s sense of where it came from and what, beyond maintaining the fortune, it would like the wealth to achieve. I think of this as legacy capital.

Money is only the beginning

Financial capital deserves its prominence. It provides security and choice, finances businesses, supports philanthropy and gives succeeding generations opportunities that might otherwise be unavailable to them.

It is also the capital we have become particularly good at protecting. A family office can monitor investment performance, manage liquidity, diversify risk, and work with lawyers and tax specialists on asset transfers. Far less attention may be given to whether the people who eventually receive those assets are ready for them.

This is where human capital starts to matter. Wealth passes to people, and people bring their own ambitions, strengths, weaknesses and judgement to it. A beautifully constructed portfolio cannot indefinitely compensate for family members who have never learned to make decisions, deal with setbacks, or understand the responsibilities that accompany ownership.

Interestingly, the reverse can also be true. A family may lose a business or a substantial part of its fortune and still retain the entrepreneurial skill to build again. The financial capital has been damaged; the human capital has not.

There are things the founder knows that nobody has written down

Consider what sits inside the head of someone who has spent 30 or 40 years building a successful company. It may be an extraordinary collection of small pieces of knowledge: which numbers in the management accounts deserve closer attention, when to distrust an apparently attractive deal, how a particular industry behaves in a downturn, or which long-standing relationships need looking after.

There will probably be mistakes in that memory too, and these may be every bit as valuable.

Families lose this intellectual capital surprisingly easily. The next generation may know the story of how the company was founded without knowing why certain decisions were made along the way. A family history records events; it does not necessarily capture judgement.

Some of the best knowledge transfer therefore happens quite informally. It happens when younger family members are included in discussions, when an older generation is willing to talk candidly about decisions that went badly, and when someone has the curiosity to ask, “What were you thinking at the time?” Knowledge becomes family capital only when it can travel. HNW capital

A good name has a value, even if nobody can price it

Family wealth also exists in relationships.

Over decades, a family may build an extraordinary network around itself: advisers who understand its history, business partners who trust its word, employees who have remained loyal through difficult periods and communities that associate the family name with particular standards of behaviour.

This social capital is easily underestimated because nobody sends the family a quarterly valuation of it.

Reputation is part of the same equation. A respected name may make an introduction easier, attract a business partner, or give a new generation credibility before it has established much of its own. The uncomfortable part is that inherited goodwill still has to be deserved. One generation can spend the reputational capital painstakingly accumulated by several generations that came before it.

Relationships inside the family deserve the same attention. Legal agreements can prescribe who owns what and who gets to vote. They cannot make siblings trust one another. HNW capital

Being able to wait is an asset

Wealth can also buy time.

A family investing its own capital may be able to support a promising company through a difficult few years, hold an investment whose potential will take a decade to emerge or commit to environmental or philanthropic work where the meaningful outcome lies well into the future.

That is the attraction of patient capital. It is not under the same pressure to prove itself next quarter.

Patience does need discipline, though. Families can become attached to assets precisely because they have owned them for so long. A company founded by a grandparent can acquire an emotional importance far beyond its economics. There comes a point when waiting for value and refusing to let go are two different things. Knowing which side of that line you are on is part of good stewardship. HNW capital

And then there is legacy

Legacy capital is harder to isolate because it runs through all the others.

It can be found in the stories a family talks about itself, but stories alone are not enough. It is also visible in the decisions successive generations make about what they preserve, what they are prepared to change, how they use the family name, and what they believe the privilege of wealth asks of them.

A founder may regard the family business as the legacy. His or her children may eventually decide that selling it is the best decision for them. That need not amount to abandoning the family’s history. If the original achievement came from independence, entrepreneurship and a willingness to take intelligent risks, selling one business to create something new may be closer to that inheritance than preserving the company indefinitely.

Legacy capital gives a family a thread of continuity without dictating what every generation must do with it. HNW capital

One of the more revealing conversations a wealthy family can have begins with an uncomfortable hypothetical question: what would we have left if the money disappeared?

The answer might include capable people, trusted relationships, hard-earned knowledge and a name that still carries credibility. More revealing still would be whether the family retained a sense of what it stood for and the confidence to build something new.

None of this diminishes the importance of financial capital. Without it, many of the opportunities available to wealthy families disappear. But money is only one part of what one generation hands to another.

A family that understands that has a much richer definition of what it means to preserve wealth.