NextGen Custodians of Significant Wealth

December 10, 2021 caracolemanauLeave a comment

How can families best prepare the rising generation for inheritance and/or joining the family business?

Parents may reasonably worry about raising spoiled or entitled offspring, and may feel uncomfortable discussing topics like wills and trusts before their kids are mature enough to grasp such concepts. However, a failure to prepare children for the responsibilities that come with being a custodian of significant wealth is not in the best interest of the child or the assets.

In addition to an estate plan, parents ought to provide children with a sound financial education, and develop the ability to communicate honestly and openly about family wealth.

Where there is an operating business, it’s important to embrace best practice in talent management, and identify/develop prospective leaders. Genetic factors play a role, but the majority of leaders are made not born. Personality development of the rising gen is an important factor – helping them individuate, and make an active choice to join the family business, rather than doing so from a sense of obligation. Finally, it’s worth noting that women-led family businesses have increased by 58% since 2007, so sons and daughters should be a part of the same conversations and be an active part of all discussions around the family business.

Consider This: Have you thought about how to prepare children for the wealth that will ultimately come their way? Do you have ways to talk about family wealth and family business? To what extent have you considered what the children want when it comes to these issues?

Original articles: https://www.forbes.com/sites/adamstrauss/2020/07/01/4-ways-to-prepare-children-now-to-oversee-their-inheritance-later/#28e7df7d193c, https://www.forbes.com/sites/francoisbotha/2020/06/23/3-simple-steps-to-develop-successful-family-business-leaders/#3cb8124474e7, https://www.thisismoney.co.uk/money/pensions/article-5263603/More-half-50s-prefer-spend-not-leave-money.html, https://hbr.org/2020/05/why-the-second-generation-can-make-or-break-your-family-business, https://www.forbes.com/sites/forbesbusinesscouncil/2020/03/04/start-preparing-daughters-now-to-take-over-the-family-business/#690970b91241, https://www.bizjournals.com/denver/news/2020/02/03/tips-on-talking-to-the-next-generation-about-your.html?s=print

[reprinted with permission]

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter https://DavidWerdiger.com. We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement
#successionplanning #workfromhome #governance #leadershipdevelopment

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Family Advisor Transition

December 9, 2021 caracolemanauLeave a comment

With all the talk about intergenerational wealth transition, another very important topic doesn’t get the attention it deserves: transition of trusted adviser relationships.

The baby boomer generation of advisers manage a third of all client assets, and they too have retirement plans. Firms need to manage the succession planning of these advisers, and this means both advisers and families need to manage the transition of the relationships.

In my family, we’ve had relationships with banks, accounting and legal firms that have spanned 60+ years and 2-3 generations. In large banks, people move around all the time, but with accounting, legal, and investment advisers (depending on the size of the firms), the key account managers tend to stay around for longer. In those situations, the relationship transition needs to be actively managed.

Younger generations want to talk to advisers who understand them, and who are able to view them as the owners, not the children-of. It therefore stands to reason that advisers need to lead the way on transitioning.

Consider This: How long have key trusted adviser relationships been in place in your family? Are the firms you deal with family businesses themselves? What are you and they doing about laying the foundation for the next set of relationships between the family and its advisers?

Original article: http://www.wealthmanagement.com/industry/baby-boomer-advisors-near-retirement-many-have-no-game-plan

Actionable Generational Wealth Succession

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#successionplanning #workfromhome #governance #leadershipdevelopment

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Next Generation Interest in Family Business

December 2, 2021 caracolemanauLeave a comment

Transitioning a business can be difficult when the #nextgeneration aren’t interested … It turns out there are 4 core components to consider, and if you get them right, the conflict resolution usually runs very smoothly.

Medium to large sized family business (turnover $50M+) have a problem: the next generation aren’t interested in joining. There are so many options out there in the job market (jobs that didn’t exist in the previous generation) that the family business often doesn’t hold an interest.

Grant Thornton’s July 2017 report ‘Diversity of Thought in Family Businesses’ discusses the risk-averse nature of mature family businesses that can often be an impediment to the next generation wanting to make changes.

Many family businesses suffer from two big issues: (a) younger generation being frustrated and the older ones feeling disrespected, and (b) a reluctance of the founders to step aside (the so-called ‘sticky baton’).

It could be useful to think of this in ‘purpose’ terms, as per the previous article. If the foundation for intergenerational family connection is a purpose that transcends the family business or wealth-generating capacity, then discussions about what the next generation do with their lives are built on a stronger foundation.

Consider This: If the next generation don’t want to join the family business, then either the business might need to change, or the next generation might need to change. Which of those is more likely to happen?

Original articles: https://www.transitionbook.co/conflict-resolution
https://www.linkedin.com/pulse/kids-arent-interested-now-what-carmel-melouney/, https://www.grantthornton.com.au/globalassets/1.-member-firms/australian-website/services/fos/pdfs/gtal_2017_fos-report_lf_screen.pdf

Actionable Generational Wealth Succession

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#successionplanning #workfromhome #governance #leadershipdevelopment

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Purpose goes Beyond Work Life

November 30, 2021 caracolemanauLeave a comment

People are living longer, which means time spent in ‘retirement’ is increasing – the latest US Census figures report the average retirement is 18 years. The huge numbers of Baby Boomers moving into this stage of life is becoming a phenomenon of its own, and could potentially ‘reinvent’ what retirement actually looks like. Just because they are ‘old’, doesn’t mean the huge Baby Boomer cohort won’t continue to change society rather than ride off quietly into the sunset.

We all need to plan for retirement, and Tom Kalejta points out that this often means finding a (new) purpose beyond full time employment or business ownership. The shift into retirement can lead to depression for some people (not just professional sportspeople). Further, he notes that it’s important to distinguish ‘keeping busy’ from actually having a purpose.

I would take this one big step further. If purpose goes beyond our work life, then it doesn’t necessarily need to change significantly when we retire. This is about changing our thinking that work is not a purpose in and of itself, rather a means to achieve the purpose.

Finding that true purpose isn’t always easy, but having that as the foundation makes it easier to transition through the various stages of our life as we age.

Consider This: Do members of your family – particularly the wealth originators or generators – have a clear sense of the purpose in their lives? How does their purpose differ from those of other generations in the family?

Original article:
https://www.thereporteronline.com/reinventing-retirement-finding-purpose-in-retirement/article_81bc9104-b0ab-5e95-920e-8f2be73e70e5.html

Actionable Generational Wealth Succession

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#successionplanning #workfromhome #governance #leadershipdevelopment

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The Value of Intergenerational Wealth

November 24, 2021 caracolemanauLeave a comment

The role of family offices has evolved from being an investment platform to guiding the next generation(s) back into the family business. A next-generation development program will help the next generation become good owners and future leaders.

According to HBR, these programs focus on five key objectives:

business ownership skills and competencies;
family business principles and
practical knowledge of the family business’ assets,
understanding the family history and values; and
developing personal leadership competencies.

Boston Private’s 2018 report “The Why of Wealth” surveyed respondents with new investable assets of $1-20M, and found that “individuals pursue financial wealth to achieve emotional well being”, rather than for the pursuit of material goods.

Across generations, there was slight variations in attitudes. Older generations prioritise peace of mind, Baby Boomers place more importance on financial capital, and Millennials see wealth as a “gateway to happiness”.
The most interesting difference in attitudes was between genders – 28% of males valued power and influence compared to 20% of females. Men valued forms of external/reputational wealth, while women found more significance in inner emotional wealth. (This is reminiscent of a great Al Pacino scene in Scarface, immortalised in ICE T’s rap classic Money, Power, Women).

Consider This: Does your family have open discussions about what wealth means to them? Or is this a big secret that is a taboo discussion? Only by being able to discuss it and understand both our own attitudes and those of other family members can we hope to translate it into something meaningful and relevant to the entire family.

Original articles:
https://www.scmp.com/print/presented/business/topics/defining-family-office-landscape/article/3076192/lifelong-learning-drives
https://www.businessinsider.com.au/how-rich-people-view-wealth-every-generation-2018-6, https://go.bostonprivate.com/wowsurvey

[reprinted with permission]

Actionable Generational Wealth Succession

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment

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Public debt: Intergenerational burden shifting

November 21, 2021 caracolemanauLeave a comment

A fascinating research article discusses public debt and intergenerational burden shifting. Using laboratory experiments, it seeks to understand how voters make choices about the way public debt should be accumulated in the presence of multiple and/or overlapping generations.

The study finds that in the presence of future generations, voters are comfortable with the government loading up with debt in the knowledge that this debt burden will have to be satisfied by future generations. But without considering future generations, voters are far more conservative about how much debt the government should take on.

Now, while the study is in the context of people voting about how much debt government should take on, how much it should spend on services, and who will eventually repay it, the principles and attitudes are relevant to multi-generational family wealth.

In a family, decisions must be made to balance present day distributions and investment risk profile (which may include debt) with the needs of future generations. Of course this is a function of the size of the family wealth and the anticipated future needs of generations to come. It is also a function of the historic attitudes to risk (particularly those of the wealth originator).

Consider This: To what extent does your family consider its investment risk profile and gearing levels with a view on the burden that may be transmitted to future generations? Are those next generations part of the discussion?

Original article: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0202963

[Re-posted with permission]

Actionable Generational Wealth Succession

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Principia Familia

November 12, 2021 caracolemanauLeave a comment

I’m thrilled to have joined the experts panel at &Simple, who are focussed on helping FOs and their service providers professionalise and be future-ready through insights, services and data.

In my first insight published on their platform, I articulate three principles of good family governance:

1. The stewardship (rather than ownership) mindset: family wealth does not belong to any individual, rather to the family – both present and future. The people who happen to be responsible for it at any time act as stewards, taking their turn to look after it for the benefit of the whole family.

2. Because they have this steward role, open communication and transparency is essential. Lack of communication leads to negative assumptions and an erosion of trust. Being open and accountable to family members builds trust and fosters a sense of accountability to the entire family.

3. More broadly, this is about the responsible use of power. Families have an inherent power dynamic based on generations and control. Those in power have a responsibility to use that power carefully and judicially.

Consider This: What are the attitudes of the incumbent generations to the family wealth? What are the differences in those attitudes between generations (particularly 1st and 2nd)? How openly does your family communicate about matters relating to the family wealth?

Further reading: https://andsimple.co/insights/principles-of-good-family-governance/, https://gulfbusiness.com/why-good-governance-makes-sense-for-family-businesses/, https://www.campdenfb.com/article/differentiators-help-family-businesses-thrive, https://mibiz.com/sections/economic-development/roundtable-communication-transparency-among-keys-to-managing-successful-family-businesses, https://qz.com/work/1711650/what-succession-gets-right-about-power-and-family/

Actionable Generational Wealth Succession

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The Foundation of a Family Business

November 11, 2021 caracolemanauLeave a comment

There is more to maintaining family wealth through generations than getting the best financial advisors and managers for operating assets.

Families of wealth must learn how to work together in the sharing of assets. A key part of that is to integrate their wealth management with their values. That means the values need to be articulated within the family. Then, the family needs clear and open dialogue discussing values as well as financial assets, and why preserving wealth matters to the family and the world around us. That is the foundation upon which successful transition is built.

To raise the next generation responsibly with wealth may require adapting the family’s middle-class orientation to add new strategies where solid values are taught and demonstrated. Large sums of money can have damage on children’s ability to craft their own lives and break out of their parents’ shadow.

When people base their self-worth on financial success, they experience feelings of pressure and a lack of autonomy.

Few families who come to wealth have been prepared for these tasks. They often don’t know these new strategies are even necessary. That is where external advisors can be helpful.

Consider This: Has your family articulated its values? Does that include the values of the rising generation? What is your family’s approach to educating the rising generation with the appropriate values so they can be comfortable in their own skin and good custodians in the future?

Original articles: https://www.coastalbreezenews.com/articles/the-value-of-your-values/, https://bigthink.com/politics-current-affairs/great-wealth-transfer, https://www.valuewalk.com/2020/02/family-wealth-planning/, https://www.scmp.com/presented/business/topics/defining-family-office-landscape/article/3076183/what-chinese-family, https://nypost.com/2020/04/10/investing-life-in-money-leads-to-lack-of-community-study/

[reposted with permission]

Actionable Generational Wealth Succession

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment

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Family businesses need another set of principles

November 3, 2021 caracolemanauLeave a comment

Family businesses aren’t just businesses that happen to be owned and/or managed by a family. Factors like a long-term perspective, and the multiple/overlapping roles of owners, employees and family members are both strengths and weaknesses. These factors mean that family businesses need another set of principles to help them stay strong.

Because many stakeholders have multiple hats, separation of powers is very important. Everyone needs to understand what their roles are (employee, manager, owner, etc) and the scope of each role.

Because family business transitions fail most often because of poor communication, a governance structure that includes independent director(s) is essential for mature family businesses. This helps the business and family stay true to its values, put policies in place to manage conflict, and maintain open communication and accountability. Good governance ensures that issues are dealt with in the appropriate forum at all times.

Another reason for failure is lack of strategic renewal. External voices on a board can ensure regular strategic planning happens, established ideas are challenged, and all stakeholders’ voices are heard.

Consider This: Does your family operating business have a board? Does your family have a council (or similar), separate from the governance of any operating businesses? At family meetings, who is the chair? Does everyone who attends genuinely have a voice?

Original articles: https://www.forbes.com/sites/forbescoachescouncil/2020/01/17/15-tips-for-navigating-family-business-challenges/#462bab2b8a92, https://www.smartcompany.com.au/business-advice/family-business-constitution/, https://hbr.org/2020/01/managing-the-trickiest-parts-of-a-family-businesses, https://hbr.org/2020/01/every-family-business-needs-an-independent-director, https://hbr.org/2020/02/should-your-family-business-have-a-no-in-laws-policy, https://hbr.org/2020/02/what-makes-a-family-business-last, https://www.forbes.com/sites/rochellemclarke/2020/02/29/6-tips-for-working-with-family-and-friends/#4de7af5612f9

[Reposted with permission]

Actionable Generational Wealth Succession

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Cult Behavior in Wealthy Families

October 29, 2021 caracolemanauLeave a comment

The pandemic crisis is forcing the hand of family businesses to address the pace of change in new ways. Every day we must act and even make some tough choices—despite the lack of any reliable information about the best direction to take. Some owners make tough decisions on their own, rather than seeking help from others. Some choose impulsive or blind allegiance pathways.

I wrote the following on the Bloomberg press about the Singh brothers – heirs to an Indian health-care empire – and their relationship with guru Gurinder Singh Dhillon. What makes this interesting is the financial relationship between them, and the dramatic fall in their fortune over the last few months.

It brings to mind another story with plenty more still to happen – that of Clare Bronfman’s involvement with a New York self-help group called Nxivm, which appears to display cult-like behaviour. In addition to Bronfman sisters using their substantial fortunes to underwrite Nxivm in a variety of ways, most recently there have been accusations of criminal behaviour including conspiracy and criminal racketeering, and Ms Bronfman herself has been arrested and is out on USD 100M bail.

Stories like this are a warning bell to wealthy families of their vulnerability to people of all kinds with ulterior and sometimes nefarious motives. Many families employ gatekeepers to protect them, but this is a never-ending game of cat and mouse. Social media and techniques like social engineering can readily be used by protagonists to worm their way in. When it comes to trust, families should observe a healthy (but not obsessive) measure of vigilance.

Consider This: Does your family have policies about the use of social media, and acceptance of ‘friendship’. Do family members have an awareness of spotting ‘hangers on’, and maintaining the right degree of scepticism and vigilance when meeting new people?

Original articles: https://www.forbes.com/sites/dennisjaffe/2020/03/24/how-family-businesses-can-respond-to-the-pandemic–collaboration-openness-and-sharing-the-burden/#58b2b7a94e34 https://www.bloomberg.com/news/features/2018-08-16/billionaires-and-the-guru-how-an-indian-family-lost-2-billion and https://www.cnbc.com/2018/08/12/new-york-times-digital-from-heiress-to-sex-cult-defendant.html

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