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Half of business owners do not want their children to inherit, survey finds

Do business owners want to pass down their wealth to their children? According to a Wells Fargo survey, 52% of business owners do not want their children to inherit and run the business. Michael Liersch, Wells Fargo Head of Advice and Planning, discusses the reasonings behind the study's findings.

Video transcript

[AUDIO LOGO]

DIANE KING HALL: Inheriting the family business, it can be a badge of honor or a financial burden. A new Wells Fargo study found that 52% of business owners do not want their children to run their business.

For more, we're joined by Michael Liersch, Wells Fargo Head of Advice and Planning. So Michael, let's get right into this survey. So I was a little bit surprised, not completely surprised by this. What stood out to you?

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MICHAEL LIERSCH: Well, what stood out to me, and maybe this is where you're particularly surprised too, is that not only did business owners say they weren't necessarily wanting or expecting their next gen, generation to help take over the business, but in fact, a large proportion 44% were worried that their children didn't know how to build and protect wealth.

So it wasn't only just the idea of taking over the business, but also did they have the knowledge, the ability, the capabilities to really, really understand finances, really understand how a business works. So there was a lot of interesting findings along those lines.

DIANE KING HALL: So Michael, I got to ask, have you watched any "Succession"? I know it's awesome but--

MICHAEL LIERSCH: I don't watch it. I don't watch "Succession" personally. But a lot of our customers and clients do. And they have a lot of thoughts about it. And I think the thoughts about it seem to rhyme a bit with I think where you're going with this. So what are your thoughts on "Succession"?

DIANE KING HALL: I was going to say, it feels a little bit like life imitating art. I didn't watch all of the episodes of "Succession", but I watched enough to know that there was really this battle for carrying on the legacy. And, you know, the children were vying for that, but it was tough to hand over. You know, so that kind of plays out in some of the numbers that you're talking about with us.

But where were these families willing to kind of help, you know, their next generation?

MICHAEL LIERSCH: So the very positive part about all of this-- so moving on from TV programs that maybe sensationalize a bit of these dynamics-- is that actually a vast majority of the wealth creators that we surveyed, said that they wanted to enable their children to carve their own path in life. So over 90% said that.

And that they were willing to really invest in those ideas. So things like education, you know, came out at the top. Things like helping their children become homeowners, and also invest in a way that would be productive, came out as top. So they're willing to help their children build those skills.

The idea is that they were just concerned that maybe in the face of having wealth or in the face of having the opportunity to run a business, they might not build those skills by a matter of necessity. So they realized they had designed those experiences for their children if that makes sense.

DIANE KING HALL: So I got to ask you, Michael, in that context. I've seen data before. I don't remember the exact source, but where the next generation, they followed kind of this formula. The previous generation did not pass on the family business.

And the next generation basically kind of squandered the wealth and then that leads the following generation to have to rebuild and start all over. Was there any conversation around that and kind of the fallout of not passing on the family business?

MICHAEL LIERSCH: Absolutely, so that's called the shirtsleeves to shirtsleeves phenomenon. And it exists across the world. So the idea here is that 70% of the time by the next generation, all the wealth is lost or dissipates. And by the third generation, 90% of the wealth is lost or dissipates. And that was a key concern of about 44% of the respondents that that would happen.

And so what was interesting, though, is that they acknowledge then that the focus should be on the values. What are the values related to money? And 3/4 of the participants said they were very focused on sharing financial values and passing those along. And they felt they had done a good job.

The one watch item that they had, and especially Gen Xers that they had, for themselves, is that even though they're transferring those values, sometimes they like to help a bit too much, soothe in, smooth situations, help support, or get kids out of trouble when they probably should learn their own lessons.

And the respondents acknowledged, especially Gen Xers or people born, let's say, in the '70s, knew they were doing those things and that may actually make kids less able to make it on their own and they needed to work harder on that.

DIANE KING HALL: That's an interesting point because as a parent myself, I can certainly understand the desire to help because you dont-- you know, you don't want to just leave your kid completely out there. But I guess there's a way to do it without leaving them hanging.

MICHAEL LIERSCH: Exactly, you want to create that resilience. And so how do you do that? The response is acknowledged. The number one thing is through hard work. The second thing is through education. And the third is really through this idea of just working through a lot of different cycles.

And in a land of opportunity-- so they acknowledged living in the United States, for example-- is a huge plus. And then what's interesting is, they said and there's a bit of luck involved in all of it too. So that hard work, living in the US as a business owner, and that education, pepper in a little bit of luck, and then that's what makes someone successful. And that's what they want to pass along to their children.

DIANE KING HALL: All right. We will have to leave it there. Michael Liersch, Wells Fargo Head of Advice and Planning Thank. You so much for joining us today.

MICHAEL LIERSCH: Thank you so much.

DIANE KING HALL: All right.