Family offices (FOs) come in so many shapes and sizes that the term ceases to have specific meaning. It’s simply a set of services provided for a family.

The origins of the FO often determine their primary focus: there are plenty of FOs that are simply vehicles for co-investment, or glorified reporting platforms.

Having a FO essentially means taking a professional approach to managing the affairs of the family. It’s interesting that 92% of FO leaders believe the most successful FOs have external hires in key leadership positions.

What your FO will include depends on with your goals, so it’s important to consider them before you set one up (or start searching for a suitable MFO), and then to review against goals regularly.

The stuff everyone seems to look for are financial and investment services, but it’s hard to truly differentiate in those services.

The most ‘value’ you will actually get from FO services are the things that are the hardest to measure: creating continuity, cohesion and engagement across families for generations, helping the family define its purpose, and promoting family unity, harmony and happiness.

The rising importance of sound formalized investment management governance goes hand-in-hand with enhanced family governance.

Consider This: Does your family office have clearly articulated goals (both financial and non-financial)? How often do you measure performance against those goals? How often do you review the goals to ensure they are relevant to the family as it evolves?

Original articles: https://www.forbes.com/sites/forbesfinancecouncil/2021/07/19/how-a-family-office-can-uncover-goals-with-a-family-meeting/?sh=7b59ff99c1f5, https://www.forbes.com/sites/forbesrealestatecouncil/2021/06/29/how-to-build-a-family-office/, https://www.forbes.com/sites/paulwestall/2021/06/08/family-office-to-keep-it-in-the-family-or-not-to-keep-it-in-the-family-that-is-the-question/?sh=1cfe05b53f70, https://www.finews.asia/services/advertorials/34441-trust-administration-fiduciary-services-estate-planning-wealth-structuring-family-office-family-governance-trusts, https://www.kiplinger.com/retirement/estate-planning/602492/do-i-need-a-family-office-a-guide-for-the-rich-and-not-so-famous, https://www.campdenfb.com/article/rising-importance-social-capital-family-offices, https://www.lexology.com/library/detail.aspx?g=8b8eae4c-061f-47c9-8399-c5468b03e742, https://www.forbes.com/sites/johnjennings/2020/08/04/how-to-decide-what-your-family-office-should-outsource/#20f2c87e221c

Actionable Generational Wealth Succession

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Wealthy people are a soft target at the best of times. The media revels in sensational stories about wealthy families, especially when things go wrong. And if that wasn’t enough, neo-socialists in the US preach redistribution and question whether the world should have billionaires.

The emerging “wealth minimisation” movement encourages inheritors to redistribute “excess wealth” for the betterment of society. In some cases, this is about making up for the “harm” done by the wealth creation in the first place, which plays to feelings of guilt. There is some overlap with those who advocate destruction of statues that are no longer politically correct.

What does all this mean to someone born into a wealthy family? Forming a positive identity about their wealth can be a huge challenge. The “acquirer’s and inheritors dilemmas” can lead to feelings of shame.

Families need to get ahead of this, and have open discussions about their family’s wealth to encourage positive feelings. Family philanthropy and impact investment can be framed as ways to serve the wider community, rather than being an act of penance.

Consider This: At what age did you start talking to your children about the family wealth? Do they have the tools to be comfortable with their wealth in dealings with with friends, colleagues and advisors? Are they able to discuss concerns within the family?

Further reading: https://www.yesmagazine.org/issue/how-much-is-enough/2021/08/10/rich-redistribute-money, https://www.kiplinger.com/personal-finance/603205/ok-boomer-vs-avocado-toast-how-to-talk-money-across-generations, https://www.rgj.com/story/news/money/business/2021/02/18/8-important-money-conversations-have-your-family-brian-loy/6793796002/, https://www.forbes.com/sites/rainerzitelmann/2019/12/16/the-six-most-overrated-factors-in-getting-rich/#59a7f68e7f75, https://www.kiplinger.com/article/retirement/T064-C032-S014-wealth-shame-when-wealth-changes-your-life.html, https://www.nytimes.com/2019/08/02/your-money/parenting-wealth-discussions.html

Actionable Generational Wealth Succession

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Kenny Rogers sang of the importance of knowing “when to hold ’em, and when to fold ’em”. Any succession plan worth its salt isn’t just a plan of who will succeed whom in running the business. It also needs a “Plan B” for the scenarios where the chosen successor is unwilling or unable, where there is no successor, or where a generational transition of the business might lead to serious conflict.

Some business founders/owners enjoy the early stages of creating and growing a business, but then tire as the management becomes more bureaucratic by necessity. Or worse, the founder is the one who does the “exciting” activities, and then passes it to the next generation who inherit a mature business with little scope for innovation.

Another possible obstacle when transitioning is the family dynamic of the rising generation: will they (collectively) be able to govern/manage the business without conflict? Will they end up being unwilling partners joined at the hip and with most of their wealth tied up in a single asset? Most families will choose to be financially separate and on good terms, than sharing assets and fighting over them.

Consider This: In your succession plan, have you done “scenario planning” to consider the ways thing might not go as you plan or aspire? To what extent has the rising generation’s own aspirations been taken into account at the planning stage?

Original articles: https://www.investmentnews.com/article/20190528/FREE/190529949/sometimes-a-sale-is-the-best-succession-plan, https://www.forbes.com/sites/forbescoachescouncil/2019/07/29/the-fifth-commandment-of-family-business-succession-know-whether-to-sell-or-transfer/#62382dc52307

Actionable Generational Wealth Succession

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A “universal truth” about the imbalance of inputs and outputs is what became known as the Pareto principle, or the 80/20 rule. While it doesn’t always come to be an exact 80/20 ratio, this imbalance is often seen in various business cases, Here we will address how not to sell a family business.

0% of all businesses do not sell, and only about 30% of family businesses get handed down to the next generation. If it doesn’t sell and isn’t passed down, what happens? Typically, they die a “slow death”, or are liquidated. Understanding why businesses don’t sell is the key to maximising the value of your own family business.

Many family businesses are “lifestyle” businesses – they deliver cash to the family, but are starved of the investment and strategic thinking needed to grow them and make them sustainable For too many of them, much of their value is tied up in family members (and their personalities). And most owner-founders have over-inflated expectations as to the value of the businesses they have created.

The way to make your business more sellable is to put yourselves in the shoes of a prospective buyer. They would ask: what intrinsic value are they getting for their money once the founders/owners leave? Are the accounts and structure ‘clean’? Has the business been getting enough re-investment to grow?

The process of making your business sale-ready is best achieved through externals (who don’t wear your rose-coloured glasses) and through the establishment of a governance structure that can regularly examine “big picture” strategic issues facing the business. Making you family business sale-ready, even if you have no intent to sell, is a worthwhile exercise in itself.

Consider This: Have you considered the future scenario of family members wanting to sell your family business? Have you ever had it assessed for sale-readiness or valued by an independent? Do you consider its long term disposition in risk assessment?

Original article: https://www.greenhousegrower.com/management/how-to-manage-succession-planning-when-there-is-no-succession/, https://www.bakersfield.com/kern-business-journal/why-most-businesses-don-t-sell-and-what-owners-should/article_a736d50a-a4af-5b69-94d6-c648e72baad6.html

Actionable Generational Wealth Succession

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Coming into wealth suddenly – such as through inheritance or a windfall liquidity event of a family business – can carry serious risks.

The rapid change in financial circumstance can lead to poor decision-making, a loss of perspective, and social isolation. It can lead to a dysfunctional relationship with money/wealth. In the case of inheritance, there can be mixed or conflicting emotions of loss and gain.

It can be like winning the lottery, and research shows that most people who do so end up losing their money in a relatively short time.

But unlike winning the lottery, families are able to prepare themselves for future changes to their financial circumstance. I would argue that it is incumbent on parents to prepare their children to be healthy custodians of family wealth, rather than hide it from them for fear of spoiling them.

Consider This: Are your children ready for the wealth they will inherit? What have you done to prepare them? If most of your family wealth is tied up in an operating asset, do you have a sense of what it is actually worth?

Original articles: https://www.kiplinger.com/article/retirement/T064-C032-S014-five-common-pitfalls-of-sudden-wealth.htm, https://www.ft.com/content/3122b790-70b3-11e9-bf5c-6eeb837566c5l

Reposted with permission

Actionable Generational Wealth Succession

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This is a difficult topic to broach, and needs to be done only in appropriate settings – indeed, that might be the most important message of this topic. After the story of BMW heiress Susanne Klatten went public, she was slammed on social media. Her personal challenges – the responsibility, self-doubt, and being targeted by scammers – are real. But it’s very hard for anyone brought up without wealth to have any sympathy (and often it’s the reverse), so seeking it from ‘outsiders’ is almost a waste of time.

For people without it, wealth is seen purely as an opportunity with only positives. People growing up with wealth realise that it also comes with a burden – expectations that can never be achieved, the challenge of finding purpose. For some, the burden can seem like more trouble than its worth. Wealthy families have the same family issues as others – indeed, when money is used to sweep issues under the carpet, the underlying issues only fester and become worse. My friend likes to say: “the poor want to be rich, and the rich want to be happy”.

Consider This: Do you have an appropriate forum (e.g. peer network or mentor) where you can discuss both the positives and negatives of wealth? Do you have family discussions that broach these issues?

Original articles: https://www.news.com.au/finance/money/wealth/bmw-heirs-reveal-downsides-of-wealth-in-surprise-interview/news-story/ab120741fca3c56d9f4219c26595b1bd

Actionable Generational Wealth Succession

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The challenges of bringing up children with wealth are predicated on the idea that said wealth will transition to said children. But what if it won’t?

Some families are thinking more about giving away the bulk or almost all of the family wealth to charity. In the US, families are talking about giving a maximum of $15M to each child (and the rest to charity).

There are different reasons driving this (don’t want to leave children with “too much” or overly entitled, want to make philanthropy the family legacy), and different approaches (e.g. setting up a foundation and having family members involved, so they remain part of the legacy). Of course depending on the numbers involved, giving away “the bulk of” can still leave more than enough for generations to come.

It’s important for families to understand their “why”, and take their children on the journey.

Consider This: If you plan to give significant family wealth to charity, have you considered the reasons? Which family members were involved in the decision? Are you doing it for positive or negative reasons? Will the distribution of the wealth result in a lifestyle downgrade for future generations?

Original articles: http://www.campdenfb.com/article/families-giving-away-their-children-s-inheritance-charity, https://www.bloomberg.com/news/articles/2019-04-22/hong-kong-property-scion-has-no-house-no-inheritance

[reposted 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.

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The lockdowns of varying degrees currently being experienced in Melbourne and Sydney highlight the deep fissures and inequalities prevalent in large cities. Rather than a tale of two cities, it’s a tale of two halves within each city.

While these generalisations are very broad, they are indicative of a number of factors that start with the socioeconomic status (SES) variation across different suburbs within the city. This is not a simple case of rich vs poor; of course there is plenty of variation between and within suburbs. However, for the purpose of this exercise, it is helpful to consider two “halves” of the city – lower and higher SES, and then look at the other related factors in people’s lives.

Again, to qualify this table: I’m not suggesting that everyone in higher SES suburbs are white collar workers who can work from home, live in larger houses and are vaccinated. Rather, there is nuance in the differences. So someone in a higher SES suburb is more likely to have white collar work; a white collar worker is more likely to be able to work from home etc.

Now, consider the multiplier effect of these factors. People who are lower SES are more likely to be blue collar workers who need to travel for work. The more people move around, the greater their COVID transmission risk, so the higher transmission risk will be among blue collar workers. They are on average not as well-educated and may not have English as their first language, which means they may be more susceptible to misinformation about vaccination, which means they may be less likely to vaccinate. Because of their work, they may not be able to take time off to vaccinate either.

Because people in lower SES suburbs are more likely to live in higher density housing (think large government housing apartment buildings and multicultural communities with larger families and multiple generations all living together – and again, this is something that is more common in some suburbs), risk of infection spread is higher. And these are people who already need to travel for work.

The mental health toll of lockdown will also be higher with so many people living together in close quarters and unable to spend as much time outdoors. This is especially the case if they need to home isolate after being in an exposure site. The lockdown experience in a leafy suburb where more people live in larger houses with gardens and fewer people per house is completely different.

It’s clear that these factors all carry a multiplier effect: lower SES, travelling around the city for work, not vaccinated, living with others in close quarters. A quadruple (or more) whammy. Another factor is compliance with regulations, and there is certainly variability in this across suburbs.

The net result is that in some suburbs, COVID will spread more rapidly than in others. And from those suburbs, it can spread outwardly more easily because their populations are more mobile.

Rather than use this as a launching pad into “systemic inequality”, what I’d rather address are the policy implications in dealing with COVID outbreaks and getting us closer to the vaccination targets and opening up.

The biggest lesson here is that vaccination rates across the country or even the state are too broad a measure. Rather, we need to consider the finer granularities of suburbs and LGAs. When taking population density, movement and demographics into account, it’s possible that a lower or higher vaccination rate is needed in different suburbs to achieve the same target COVID spread risk.

Because lower SES suburbs carry higher risk of infection spreading, messaging to those suburbs needs to be targeted and in appropriate languages other than English as necessary. In close-knit communities, partnering with community leaders to get the message out can be more effective to increase acceptance.

While eligibility for vaccination is now being broadened, supplies are still short. Rather than prioritising on age bands (some of which may be related to mobility and contact with others) and whoever is fastest to book an appointment, we should consider prioritising on risk factors that directly relate to occupations, travel, and SES. To put it bluntly, vaccinating a retired couple from a leafy suburb who walk regularly in the park and have a small social circle will protect the two of them. Vaccinating an Uber driver who drives all around town, working two shifts to support their family of six which includes their grandparents will protect their family, as well as everyone they come in contact with.

With national vaccination targets as a key path to opening up and learning to “live with COVID”, vaccination is no longer just about the person being vaccinated. It’s also about everyone they come in contact with. Every single person vaccinated is a step close to the target that affect all of us.

Sledgehammer policies like mass lockdowns have now reached the point where they are causing more damage then benefit. It’s time for some fine-honed social marketing and sensible thinking to bring everyone on the journey while taking into account the full diversity of our country.

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One of the biggest challenges in wealthy families is when/how to talk about the family wealth to children. There are a number of factors to consider:

1. Being aware of other ways children will learn about it themselves, e.g. from the media, direct research, and from friends (it’s a bit like sex education). Would you rather your children find out about the family wealth from reports and rumours that are laden with assumptions? It’s better to tell them more than have them fill in the gaps in what you do tell with misinformation.

2. Children will also make assumptions about family wealth based on the lifestyle you live. This is the “indirect” way you tell them about the family’s wealth, status and influence. Be aware of what messages you are sending about the family wealth by your actions (aside from your words).

3. Age-appropriateness is essential at all time, as well as taking the children on a controlled journey as they grow older. It takes some balance and nuance to ensure children know as much as they should as teenagers, young adults, and as they mature. Taking a step-by-step approach works well to avoid any “shock” that can have negative consequences.
See a number of good articles linked below for additional insights.

Consider This: When did you tell your children about the family wealth? How much do you think they already knew by then? Have you considered the risks of not telling them (i.e., not giving them authoritative information straight from the horse’s mouth)?

Original articles: https://www.ft.com/content/4d9ebbdc-03a1-11e9-9d01-cd4d49afbbe3, https://www.fa-mag.com/news/advisors-can-help-aid-generational-wealth-transfers-by-starting-conversations-about-values-44782.html, https://www.ft.com/content/b39c1ea8-4009-11e9-9499-290979c9807a, https://www.forbes.com/sites/dennisjaffe/2019/05/29/what-do-we-tell-the-children-intergenerational-talks-about-the-family-business-and-wealth/#36fb7baf78e0, https://www.kiplinger.com/article/retirement/T021-C032-S014-to-prepare-heirs-for-wealth-don-t-hide-the-truth.html, https://citywire.co.uk/wealth-manager/news/wisdom-of-wealth-when-is-the-right-time-to-talk-about-money/a1221573?ref=author/emahmoud

Actionable Generational Wealth Succession

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Family business has positives and negatives – our aim should be leverage the positives and seek to mitigate the negatives. One important distinguishing feature of family businesses is that they can embody a sense of purpose.

The original purpose of the business founder may have been wealth creation. However, as the business evolves and additional family members join, it’s an opportunity for the family as a group to discuss and articulate their collective values and purpose, and then make them an essential part of the family business.

Purpose and profit are not mutually exclusive; purpose must drive profitability. It need not be political either. While early thinking was that purpose of the corporation is to “maximise shareholder value”, more recently this has broadened into thinking about “stakeholders” which includes employees and society at large.

This can be challenging for many corporations. But a business that is owned by a small group who are connected by familial ties are in a better position to both articulate their purpose, and take a long-term view in terms of how they manage and operate the business. That way, the business is just one piece of the family’s “social capital” that helps it achieve the broader family mission.

Consider This: To what extent is your family business “values driven”? Has your family discussed and considered your shared purpose? and how that translates into how you use the family capital (both operating and non-operating assets)?

Original articles: https://www.campdenfb.com/article/nine-principles-purpose-why-doing-good-good-family-business, https://www.entrepreneur.com/article/364853, https://www.forbes.com/sites/dennisjaffe/2021/02/24/from-shareholder-primacy-to-stakeholder-primacy-how-family-businesses-lead-the-way/?sh=c477f2321ede, https://www.rte.ie/brainstorm/2020/0623/1149060-family-business-ireland-coronavirus/, https://www.industryweek.com/leadership/article/21119925/does-your-family-business-have-what-it-takes-to-endure

Actionable Generational Wealth Succession 

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