In today’s fast-paced and interconnected world, managing wealth effectively has become more complex than ever. For many ultra-high-net-worth (UHNW) individuals, particularly across Africa, securing the financial future of families and businesses requires a strategic, thoughtful approach. The concept of a ‘wealth philosophy’ is emerging as the cornerstone of this strategy, offering a framework to help manage, preserve, and grow wealth across generations.
The rise of a new generation of affluent individuals across Africa has led to a growing awareness of the importance of a sound, strategic approach to managing wealth. This is not just about securing one’s financial future, but also about leaving a stable legacy. As Eric Pinn, managing director and head of UK distribution at Barclays Private Bank and Wealth Management, observes, “African families are becoming increasingly global. It is now normal to have the patriarch or matriarch (who are often the wealth creators) in their home country, but for the children to be based elsewhere. Therefore, one needs to consider a holistic Wealth Philosophy.”
But why is this so important? Wealth does not remain static, and without proper planning, it can easily be lost or mismanaged. It’s a common adage that wealth goes through a cycle of “rags to riches to rags again,” illustrating how quickly wealth can be made and, just as quickly, lost. Typically, the first generation amasses the wealth, the second generation enjoys it, and the third generation finds the family fortune depleted.
For today’s super-rich Africans, the stakes are higher than ever, and the need for expert guidance is greater. Recent research indicates that the number of millionaires in Africa is expected to rise by 65 percent over the next decade. However, this growth comes with a significant challenge – global mobility. Between 2013 and 2023, nearly 20 000 millionaires left the continent. The dynamic nature of wealth in Africa means that assets are not only created at a rapid pace, but they are also being redistributed across borders.
Furthermore, wealth is no longer just about accumulating money; it’s about managing it strategically across generations and geographies. With the rise of unpredictable events like divorce, political instability, and even conflict, the security of family wealth is often threatened. This means that now more than ever, individuals must have a clear and wealth philosophy that ensures the longevity and sustainability of their assets.
A well-articulated wealth philosophy serves as the foundation of wealth planning. It offers peace of mind, helping individuals make informed decisions. This brings us to the framework of the 3Ls – Liquidity, Lifestyle, and Legacy. These three concepts are designed to help individuals allocate their assets in a way that aligns with their values, goals, and aspirations.
The 3Ls: A Simple Framework for Wealth Planning
The concept of the 3Ls is based on three fundamental “buckets” into which money and assets are allocated. Each bucket represents a different phase of wealth management, and understanding how to balance these elements is key to long-term financial success.
“African families are becoming increasingly global. It is now normal to have the patriarch or matriarch (who are often the wealth creators) in their home country, but for the children to be based elsewhere. Therefore, one needs to consider a holistic Wealth Philosophy”
Eric Pinn, Managing Director & Head of UK Distribution at Barclays Private Bank and Wealth Management
Liquidity: The Starting Point
The first and perhaps most straightforward bucket is Liquidity, which is essentially about having enough cash or easily accessible assets to cover immediate or short-term needs. For wealthy individuals, this could include expenses such as school or university fees, luxury purchases like holiday homes, and even debt repayments on multiple properties.
Liquidity planning includes provisions for tax bills or unforeseen events, such as investment opportunities or unexpected life changes. For example, if a business is sold and there’s an impending tax liability, setting aside sufficient cash to cover such expenses would fall under the liquidity bucket. Ultimately, liquidity ensures that one’s day-to-day financial obligations are covered.
This bucket is designed to cover expenses over the next five years, providing a financial safety net and offering peace of mind.
Lifestyle: The Middle Road
As one progresses in wealth accumulation, the focus shifts to Lifestyle. This bucket concerns the medium-term needs – typically the next five to 10 years – and is where wealth holders begin to focus on preserving their assets, generating income, and maintaining purchasing power. It’s not enough to simply accumulate wealth; it’s equally important to plan for how to grow and manage it.
For example, it takes into account the impact of inflation, a significant issue for wealth holders. In recent years, inflation has eroded the value of cash, and those sitting on large amounts of liquid assets may feel the effects most acutely. A skilled wealth manager will help clients make strategic investments, diversify their portfolios, and protect their wealth from the erosive effects of inflation. This could involve real estate investments, equities, or other assets that can grow in value over time.
But the Lifestyle bucket is not only about managing the wealth one already has; it’s also about defining and maintaining one’s desired lifestyle. This may include philanthropic goals, such as establishing foundations, donating to causes, or structuring giving plans in a way that allows for long-term impact.
Legacy: The Long-Term Vision
The final bucket, Legacy, represents the long-term future of wealth. This is often the most challenging part of wealth planning as it requires a vision that transcends one’s own lifetime. This bucket is about deciding how one’s wealth will be passed down to the next generation and how it can continue to grow beyond one’s own time.
“Many wealthy individuals initially focus solely on the accumulation of assets, but considering legacy early on helps ensure that wealth continues to thrive long after its creator has passed. A key part of legacy planning involves making decisions about business succession, whether the next generation of the family will take over the business or whether external candidates will be brought in. This stage of wealth planning also addresses more personal matters, such as creating wills, trusts, and other mechanisms to ensure that assets are distributed according to one’s wishes,” explains Amol Prabhu, CEO of South Africa and market head for Africa.
In the context of family dynamics, legacy planning often brings difficult questions to the forefront. For example, what happens to wealth if a child divorces, or if a family member is not financially responsible? For families that are spread across multiple countries, legacy planning also involves navigating cross-border legal and tax considerations. Wealth transfer between countries can become complicated as different jurisdictions have different laws and tax implications. A well-planned strategy will ensure that the wealth holder’s intentions are met while minimising the tax burden on beneficiaries.
Philanthropy also plays a significant role in the legacy bucket. Wealth holders often want to leave a lasting mark on society, and thoughtful philanthropic planning allows them to direct wealth towards causes they care about.
From Theory to Reality
While the concept of the 3Ls is easy to grasp, bringing it to life requires careful thought and planning. Each individual’s circumstances are unique, and so the allocation of assets across the 3Ls will differ from one person to the next. For some, liquidity will be the most important consideration, while for others, legacy planning may take precedence.
The role of a skilled wealth manager is to help individuals navigate this complexity. They will work with clients to create tailored strategies that balance liquidity needs with the desire for long-term growth and legacy. These strategies will often involve a combination of asset classes and global markets, all designed to help wealth holders realise their personal goals while safeguarding their wealth.
For African families who find themselves spread across continents, having a robust wealth philosophy is essential. By adopting the framework of Liquidity, Lifestyle, and Legacy, individuals can navigate the complexities of wealth and build a sustainable future for themselves and their descendants.
With the right wealth philosophy, the future is bright, not just for the first generation of wealth creators, but for generations to come.
