Families destroy their wealth within 3 generations – Britain’s oldest bank reveals how to win

True Wealth: the NEW money & business podcast

Alexander Hoare of C. Hoare & Co. discusses how his family-run bank has survived for over 350 years by avoiding common generational wealth p

Key takeaways

• The seventh generation of the Hoare family lost significant wealth through lifestyle excesses and lack of responsibility.
• Adopting a meritocracy rather than strict primogeniture allows for better leadership within large extended families.

Main topics

• Generational wealth preservation
• Business simplicity and scaling

Notable quotes

You don't want to raise a monster, but some parents in fact do.

Conclusion

The episode provides a masterclass in long-term thinking and the impor

Transcript preview

Speaker 3 (0:00) You don't want to raise a monster, but some parents in fact do. That's Alexander Hoare. He's the 11th generation of the Hoare family to run C. Hoare & Co., Britain's oldest private bank. Founded in 1672 and still owned by the same family after 350 Speaker 1 (0:15) years. The first few generations compounded on building a very significant business and the seventh generation blew a lot of the wealth. Speaker 3 (0:22) Most wealthy families lose their money within three generations. So how have they beaten the odds? In today's episode, you're going to learn the three fundamentals for raising kids around Speaker 1 (0:32) wealth. All parents really struggle with this. I believe that communication helps, education helps, and experience helps. How avoiding powerful customers was the key to this bank's survival. People who are sort of richer and more powerful in the institution are a concern. And why your need to scale is actually holding your business back. You can keep the business small and simple. The next generation might enjoy it. working in it. And if you make it really big and really complex, the next generation will probably just sell it. This is Speaker 2 (1:02) the ultimate guide to generational wealth. The sooner you understand this, the better. Imagine future generations of your family are watching this podcast years down the line. How would you answer that? Speaker 3 (1:18) So, Alexander, your family business has survived more than 350 years. What do you believe has been the biggest reason the Hoare family is still running its business today? Speaker 1 (1:29) We've been in the right place at the right time, bang in the middle of between the city of London and the city of Westminster. Speaker 1 (1:36) Since 1692, I think we moved to our site. It's been a really, really good location decision for a bank. And then we had other luck. We had, there were partners who wanted to sell the bank a couple of occasions, but they couldn't get a majority. Their other partners were too complacent or idle or maybe optimistic about the future of the business. I don't know. So we never got around to selling the business. One of the extraordinary things is that eighth wonder of the world, how if you just keep growing something, the law of compounding is astonishing. And so what was a very small bank is quite a reasonable sized bank now. Speaker 3 (2:19) Must be more to it than that though. Because like, obviously I always get the luck aspect of things. I've been incredibly lucky at times in my life. But if you were reading through your book, you talk about like the seventh generation. and kind of the bit of a car crash that that was. So obviously there's been things along the way where things have gone wrong, but then the bank has or the family has corrected. Could you maybe talk a little bit about that and kind of the systems put in place afterwards? Speaker 1 (2:48) There's a saying that fool and his money are easily parted. there's a twist on that, which is the fool and his money were very lucky to get together in the first place. Speaker 3 (3:01) Can I build on that? There was a quote in your book. Banking is fun if you avoid the mad and the bad. Yeah, yeah. And applying that to business life, I think is also really important. If you can avoid the mad and the bad, either from a... business partner, an investor, or a customer perspective. Speaker 1 (3:24) Standards of behavior, which were quite common at that time. So most people at that time didn't work. Sorry, most rich people at that time didn't work. And one or two of them wrote about, so I don't want to go into the bank. It's boring. I want to be in my stately home. And so the conclusion of that is not a surprise that they all ran out of money and had to sell their stately homes and their art collections and their lands. And we've got a sort of rather sad list of beautiful stately homes our family built, which we no longer own. But I regard it as a good thing, net-net, because if the bank and the family just carried on getting wealthier, I wouldn't have Speaker 2 (4:12) had Speaker 1 (4:13) the enjoyable career I've had Speaker 2 (4:15) for the last 40 years. I mean, nothing's linear as well, right? It always goes up and down. So you can be happy they gave you a lot of work to do. Speaker 1 (4:24) Yeah, Speaker 2 (4:24) but exponential Speaker 1 (4:25) growth in a finite planet is a bit troubling too, isn't it? You've got to stop somewhere. What will you say were the main Speaker 2 (4:32) things that the seventh generation did wrong that we can learn Speaker 1 (4:37) from? What we learned in the seventh generation. was in the case of our family, primogeniture might not be such a good idea. So if the oldest son always inherits the biggest prize, it's not necessarily the best adapted for the job. And so this generation lived a life of Riley and they destroyed unbelievable art collections, thousands of acres of land, fabulous stately homes, and the rest. They were not... properly brought up for the responsibilities of owning a family bank, I suppose. And subsequent to that, we've been more open-minded and we currently have about 3,000 living cousins. So within the nepotism of 3,000 living cousins, we can operate a meritocracy and we only want half a dozen of the best. One of the choices I've made in my career has been to double our chances by admitting women. We've gone from being all males to 50 % females and very bright women there are too. Speaker 3 (5:42) So you talked with, so the seventh generation had a bit of a party time. You've used a really interesting phrase, not properly brought up. And I think in your book, you also talk about, you know, stewards rather than heirs as kind of a mindset. It's like, I'm a father. How would you as a parent prepare a child? you know, to bring them up properly, to think about stewardship rather than inheritance, and to navigate a very different future to most children. Speaker 1 (6:14) All parents really struggle with this particular responsibility of parenting. And you don't want to raise a monster, but some parents, in fact, do. I believe that communication helps, and education helps, and experience helps. I met this customer on Thursday who has done quite well in life. And he was on the point of opening up the books for his four children to explain what he's got, what they can expect, and what they can't expect. So they can't actually expect to live a life of Riley and never work. They're going to have to work, but they're going to have help buying their houses or educating their children or whatever they want to do. So that's a grown-up conversation you have with adult children. Speaker 1 (7:02) problem of an only child and it's very very hard not for parents the parents not to overindulge an only child but i'm watching his relationship with money with some interest where we live out in the sticks he has no use for money there are no stops but where we go on summer holiday in cornwall there's an ice cream van and there's a post office which sells sweeties And he discovered that if he cleaned my car or cut the grass or something, I'd pay him a pound. And he got this little batch of pounds together a few years ago. We went down to Cornwall and disaster, he had left money behind. And I was then able to say to him, he's never had any interest in what I do, but I was then able to say to him, well, what you need is a banker who can advance money from where it is to where you need it for a small fee. And he suddenly completely understood what I do for a day job. And how old is your son? He's now pushing 13. But actually that experience of earning pounds was good because now he's earning bigger money. Twice this year he's been hired as a waiter and paid near £30 for doing a night pouring drinks. And he's good at it. He enjoys it. And it's his money to do what he wants to do with within Speaker 2 (8:13) reason. Speaker 1 (8:14) And he's generous with his kids, with his friends, but he's not lavish. Speaker 1 (8:19) I think parents can help children learn to the dignity of work, as the Catholic Church calls it. Speaker 3 (8:26) If you're enjoying this conversation, please do subscribe. We're a brand new show, so this will really help us to grow and reach more people. And in return, we promise to make this show a little better with every single episode. Sound fair? Let's get back to it. Speaker 2 (8:40) Just a question. How important is it for you to, in your eyes and from what you've seen, for children to be able to take on these like... These jobs like being a waiter or working in a store, like these kind of like basic level function jobs. I Speaker 1 (8:53) think it's absolutely critically important for their own self-esteem to know that they can and may even enjoy earning money. And in my case, being a waiter in between school and university, I was a waiter in France and then Switzerland. I learned a lot of the human skills I use every day in banking. The situations are analogous. A waiter's got identical tables, nice forks and menus. And I've got identical debits and credits. They're all identical. But you have to get into the mindset of who you're talking to and understand how they think about these things. Speaker 3 (9:27) So as a parent, because my son's 14, so we're kind of kids around the same age. Apart from odd jobs or earning a little bit of money and the concepts of banking, how are you... Pairing the way for the future for him to kind of, you know, think about money and wealth and preservation and the bigger family picture. What does that look like? Speaker 1 (9:53) The next phase I'm waiting for the moment to come up is charity or philanthropy. So we as a bank, we offer a donor advised fund and I have one of these funds called the Alexander Hall Charitable Fund. to get him and my wife to participate in what causes are we going to select, how much and why and how can we help in other ways. And he's not quite there yet, but I think you'll get there. And that's a really healthy experience of managing money, not just for your own tooth decay, but for the good of others. Speaker 2 (10:34) What would you say is the importance of that? So obviously, there's one thing, obviously, doing it for business, for your own personal wealth, you're accumulating that. But focusing on giving at such a young age, what do you think is the importance of that? Speaker 1 (10:48) So I see a lot of wealthy customers, really a lot. And the ones who are happiest are the ones who are doing something purposeful with some social benefit. If you just get up in the morning and drink champagne and that's that, it's not a very enriched life. But if you're participating in, I mean, there's a lot of rich trust affairs trying to save the climate. Good luck to them. But at least they're trying something. Speaker 2 (11:13) And do you feel that some of those skills that your son could pick up now in focusing on like charity or philanthropy is something that could help him moving forwards, like say in the business world or perhaps looking after the bank after? Speaker 1 (11:27) That is quite a certain question. And the answer is yes. So in our partnership, the partners all have to work full-time in the bank, but they are encouraged also to sit on maybe one outside commercial board, but certainly one outside charity board. And the reason for this is not just to help a charity, which they may or may not, but you look at every problem through three different lenses. It might be GDPR, it might be health and safety, it might be whatever it is. You see it hitting a charity, you see it hitting another company, and you see it. You can apply this thinking to your own business. And the charity is an important part of the business, although it's not business. So the business has got a purpose to be good bankers and good citizens. There are good banks and there are good citizens. There are not many banks trying to be good citizens. We give 10 % of our profits each year to this charitable trust. And then we try to use that money wisely. And we double match whatever our staff wish to give under give as you earn. We encourage our wider cousins to appeal for things they are. actively involved in not not things they care about but things they're actively working in uh and we Speaker 1 (12:49) With the bulk of the money, actually, we decide what we want to do and we find out how best to do it. And a priori, I would not have expected us to be working with slavery, with refugees, with amputees, with prisoners. But these are the areas we found that, you know, our smallest sums of money can have quite good impact. Speaker 3 (13:09) Obviously, the seven generation speed bump. What systems were put in place afterwards? to avoid a repeat of that situation occurring again? Speaker 1 (13:22) We Speaker 3 (13:22) have some disciplines which Speaker 1 (13:25) have worked well for us. One is that if you wish to be an owner of Paul's Bank, you have to come in and work full-time. I mentioned that. And that generation was playing full-time. And the generations before them, actually, the three generations before them, according to the oil paintings on our walls, chased a lot of fucktans. And they missed the Industrial Revolution. So the first few generations... Speaker 1 (13:49) compounded building a very significant business. The next few generations went book founding and book hunting and the seventh generation blew a lot of the wealth. And of course, now I'm a bit worried about the 14th generation. We've got the 12th in the bank, but it won't be my problem. Speaker 3 (14:04) The size of the family tree at this point, like you said at the beginning, kind of does create its own metacracy where the people who are interested and have the capabilities. Speaker 3 (14:14) can gravitate towards the bank for a potential career. Speaker 1 (14:18) Absolutely. And we've been lucky. So the founder of our bank, Richard Hall, who opened his book in 1672, he was a gifted business person and goldsmith. But he gave us some good genes. But he married a lady called Susanna Austin, and she gave him 17 children. So she gave us some genes of survival and resilience and toughness. And so I like to think that these 3,000 cousins have got some pretty good genes amongst us. Speaker 2 (14:54) You mentioned two things. So you were basically the first, you're not going to give it directly to the elders. You're going to pick from the 3,000. So get the best of the bunch. The second is that you have to work full time. I believe there was a third one in your book as well. Could you touch on that one? Speaker 1 (15:10) The bank traded as a series of partnerships until 1929 and 1672. In 1929, the partners realized that a bank needs to accumulate reserves and a corporate structure, permanent corporate structure, is better for accumulating reserves. So they incorporated. But they also realized that the disciplines of partnership had served the family quite well. So they kept the discipline of unlimited liability. So these shares we have now are not unique. There are other companies having them, but not many unlimited liability companies out there. That focuses the minds of the shareholders. They are jointly and separately liable for absolutely anything and everything that can go wrong. And you asked earlier about what were the factors of success, and I said luck. But actually, unlimited liability, I think, is an important... Speaker 1 (16:10) discipline and there are different ways of thinking about it in in my way of thinking about it one of my ways of thinking about it is trying to keep the business small enough and simple enough so that's the kith principle and small is beautiful try and keep them if you can keep the business small and simple the next generation might enjoy working in it and if you make it really big and really complex the next generation will probably just sell it The discipline of unlimited liability has, I think, helped us focus and do one thing and do it well. Speaker 2 (16:42) Because obviously, like one of the things when you've got unlimited liability, you've also matched that towards having like, was it unanimous voting as well? So everybody has to agree for certain like large decisions. Is that right? Unlimited liability Speaker 1 (16:54) falls through disciplines on the partners. Speaker 1 (17:00) At the end of the