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Sunday, Apr 21, 2024

Overcoming the “Third Generation Rule” Challenge

According to the “third-generation rule,” 70% of affluent families will have lost their wealth by the third generation. This economic adage addressing the longevity of multigenerational wealth has been well studied across cultures and professions. Even the fortunes of iconic families have fallen subject to this depletion of wealth. Cornelius Vanderbilt left the equivalent of billions of dollars in today’s money to his heirs, but in three generations’ time, as described in the book “Fortune’s Children: The Fall of the House of Vanderbilt” by Arthur T. Vanderbilt II, that inheritance was exhausted and did not leave any of the Vanderbilt family among the world’s richest.

Jonathan Hodge, a Financial Advisor at UBS, has dedicated his career as a wealth manager to overcoming this issue—especially for the Black community and its business owners. According to Hodge, creating communication and bringing the necessary resources to the community are the keys to improving outcomes. Although wealth has many different meanings to people, the underlying focus, according to Hodge, must shift from the accumulation of tangible assets to the abundance of resources that “true” wealth can provide:  

• Wealth provides lower barriers to entry for families and business owners. Whether that is access to capital, education and/or healthcare; “true” wealth provides the means to these necessary tools.
• Wealth provides the ability to build and have access to a powerful network of families and businesses that helps drive more successful outcomes.
• Wealth is scalable, not only in the ability to grow over time as capital becomes available, but across generations as long as the proper tools are in place. This scalability helps build a lasting legacy.

These elements alone will not solely solve the third-generation rule challenge. It is important to build a team based on integrity and communication. They all must work together with a clear shared vision and determination.

The financial services industry is an important aspect of these necessary wealth resources. The Black community and business owners should work together with this industry to build dialogue around what is needed and a sustainable path forward. Conversations should entail all stakeholders, working towards a unified outcome. With this focus, Hodge believes a multigenerational accumulation of wealth for the Black community is possible.

This past year and its whirlwind of events have exacerbated disparities for some, while creating opportunity for others. Hodge wants to use his breadth of experience and resources as a wealth manager to mitigate the barriers to building Black wealth and ensuring that the community is well-positioned to create a lasting legacy. Now is the time to take advantage of the tremendous opportunities provided, and that with the right partnerships, resources, and relationships, Black business owners and the community at large can build lasting multigenerational wealth.

Jonathan Hodge is a financial advisor with UBS Financial Services Inc., a subsidiary of UBS AG (member FINRA/SIPC in Los Angeles). The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. For more information, visit

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