Financial advisors are an ‘old’ bunch – with an average age in their mid-50s and a big bulge of advisors now in their 60s and 70s. If that didn’t already pose a risk to their clients, the COVID-induced recession means that many of them will leave sooner than expected – either by choice or otherwise – and may choose to retire completely in the current economic environment.

Merrill Lynch, perhaps in response to both issues, is seeking to shift the age balance of its advisor ranks. Certainly larger wealth advisory firms are in a better position to develop succession strategies for their advisors than smaller firms and sole practitioners. But that doesn’t mean they are doing so, or that they are doing so well.

Some 37% of financial advisors in the US are expected to leave this decade, and they represent about 39% of wealth managed by US advisors servicing the retail market.

For families, this is a mix of key person and supply chain risk, and needs to be on the agenda.

Consider This: What are the key advisor relationships for your family? What is the plan if one of them leaves, retires, or falls ill with COVID? Has your family considered these risks for all categories of advisors?

Original articles: https://www.investmentnews.com/merrill-lynch-next-generation-advisers-succession-planning-193904, https://www.wealthprofessional.ca/news/industry-news/coronavirus-crisis-puts-advisor-succession-planning-in-focus/329694, https://www.cnbc.com/2019/10/29/financial-advisors-need-succession-plan-to-benefit-clients-and-firm.html

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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During a crisis, having a family business can be a double-edged sword. On one hand, there are often family elders with experience in overcoming previous recessions, support from the family unit, and the fact that family businesses tend to be more risk averse and therefore in a better position to weather the storm.

But some of those very attributes can also manifest as weaknesses. For example, family businesses have a concern for a wide range of stakeholders, including employees and customers, rather than a single-minded focus on shareholder value. Also, family tensions brought to the surface under pressure can often expose underlying stress fractures and exacerbate conflict in relationships, which may lead to more divisiveness.

How to capitalise on the strengths and avoid the weaknesses?

• Be in regular communication with all stakeholders and be extremely open – this builds trust
• Draw on family leadership, shared values, and governance
• Be open to learning from others, e.g. military approaches to VUCA (volatile, uncertain, complex and ambiguous) environments

Consider This: How has your family business responded to the COVID crisis? Has it shown resilience or weakness (or some of both)? Have you considered what family members can be doing to help (aside from specific operational matters)?

Original articles: https://www.forbes.com/sites/francoisbotha/2020/03/31/family-business-challenges-the-3-issues-families-cant-ignore/#664087f23cf4, https://insight.kellogg.northwestern.edu/article/family-business-coronavirus-crisis, https://hbr.org/2020/05/what-family-businesses-can-learn-from-the-military, https://hbr.org/2020/05/4-tensions-in-family-businesses-and-how-to-work-through-them

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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Most families have them, and all families need them. The trusted non-family members who have worked within the family enterprise for many years. In addition to their formal roles, they might be confidantes for family members,  and informal mediators and channels for tricky conversations. They know everything important that is happening within the family. They can also serve as a bridge between the family and rank-and-file employees within the family enterprise.

They are not blood or married-ins, but in their own way they are considered “part of the family”. That has implications for how they are monitored, managed and rewarded. Their high level of trust is a double-edged sword – if the relationship with them ever soured, that could pose a huge risk for the family. They may not ever be rewarded with equity, but for some roles shadow-equity or profit share might be appropriate, as well as the opportunity to co-invest with the family. Understanding their motivation to be “part of” the family is essential in creating a suitable package.

Their role within the family should also be acknowledged by giving them a seat at legacy discussions such as strategy and succession. They can provide very valuable input as an external and can say things at the table that some family members may find hard to say, but that need to be heard.

Consider This: Who are the trusted non-family members within your family group? What distinguishes them from other employees? How are they rewarded for their roles? 

Original articles: https://www.forbes.com/sites/forbesbusinesscouncil/2022/10/06/involving-your-non-family-executives-in-succession-planning/, https://www.campdenfb.com/article/considerations-family-businesses-recruiting-non-executive-director, https://chiefexecutive.net/for-family-run-businesses-heres-the-key-to-competitive-recruiting/

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

The post The Role of Non-Family Members appeared first on David Werdiger.

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Research indicates that more than 70% of heirs will fire or change wealth advisors after they inherit. Clearly this poses a huge risk to advisors, but it says a lot about how advisors are currently dealing with family groups. It’s also worth considering the risks of this situation to families themselves.

A significant proportion of wealth advisors to family groups do not appear to be engaging with the rising generation, and certainly not taking the holistic and family-wide perspective of wealth that families need. When the wealth is a family and legacy asset, the client isn’t just the incumbent, but the whole family. If the advisor (and their firm) wants to stay in their role for a long time, they need to engage with multiple generations, and be relevant to them and listen to the concerns and needs of multiple stakeholders.

From the family’s perspective, changing wealth advisors can be disruptive and risky. If the rising generation are not part of (and on board with) the family’s long-term investment strategy, they may have a long learning curve when it’s their time to take the reins. Any shift in strategy should happen at the appropriate time rather than be triggered by a change in control. So it’s also in the family’s interest to have a wealth manager that is engaged across multiple generations.

Consider This: What is the involvement of rising generation family members in the family’s investment goals and strategies? What relationship do they have with the family’s investment advisors and/or family office professionals? What would happen to any of these relationships in case of the sudden death of a key family member? 

Further reading: https://www.advisor.ca/my-practice/conversations/advisors-must-improve-how-they-work-with-wealthy-families/, https://www.bizjournals.com/albany/news/2022/08/18/what-makes-a-good-intergenerational-wealth-managem.html, https://gulfbusiness.com/how-wealth-advisory-must-be-customised-for-the-new-generation/, https://www.wealthprofessional.ca/news/industry-news/why-advisors-must-work-with-next-generation-of-business-owners/363811, https://www.internationalinvestment.net/news/4034632/financial-advisers-warned-most-heirs-change-inheriting-wealth, https://www.nasdaq.com/articles/help-clients-on-their-life-journey-youll-both-win-2021-01-15, https://www.prnewswire.com/news-releases/64-in-jcf-study-point-to-nextgen-inheritors-lack-of-knowledge-about-their-own-family-wealth-as-major-obstacle-301178504.html, https://www.ftadviser.com/investments/2019/02/05/how-advisers-are-missing-out-on-billions/

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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For years, we’ve been writing and talking about this trillion dollar wealth transition that is “going to happen in the next ten years”, ostensibly as baby boomers retire. But has it happened? The fact that we’re still talking about it as “happening” says plenty.

We need to ask: why were the predictions of so many people incorrect? and more importantly, what (if anything) should we be doing differently about it?

I’ve written previously about the “two speed” state of wealth – splitting by value rather than by number. Broad aggregate statistics do not tell the whole story. There are millions of relatively ‘small’ wealth transitions, and a much smaller number of very large wealth transitions. Within each ‘wealth band’, they work very differently.

My view is that one of the biggest impacts is increasing life expectancies. People (particularly those in business) don’t retire at 65; they can often continue to be productive for another 10-20 years or more. By that time, there may be two (or more) generations who are active in the family enterprise.

This can leave the rising generation as ‘waiters’ for a lot longer than they used to be. Does anyone want to be handed control of the family enterprise or inherit significant wealth in their 60s? Think of Prince Charles – born and raised to be king, and now 73 and still waiting for his turn.

With longer life expectancies, it’s time for a rethink on what intergenerational wealth transition actually means and how it should work. More on this theme to come in future newsletters.

Consider This: How old is the ‘rising generation’ in your family? Is your own family’s wealth transition plan on track as envisaged ten years ago?

Original articles: https://www.marketcurrentswealthmanagement.com/succession-planning-the-impact-of-skipping-a-generation/, https://www.washingtonpost.com/opinions/we-need-a-major-redesign-of-life/2019/11/29/a63daab2-1086-11ea-9cd7-a1becbc82f5e_story.html, https://www.denverpost.com/2018/07/15/improving-investor-behavior-longevity-and-the-fear-of-running-out-of-money/, https://www.heraldpalladium.com/features/generational-interdependency-has-grown-as-we-continue-to-live-longer/article_6b65e6e9-f9c2-5505-a9ac-c9f549092c9d.html

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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One of the great challenges of family wealth is raising children. And one of the best articles I’ve read on the topic (and I read a lot of articles) is the first link below, and I urge anyone for whom this is an issue to read it in full.

It’s very important to be aware of the unintended consequences of our beliefs about wealth and the messaging we convey to our children about them. How we treat our children can often become a self-fulfilling prophecy.

For example, if we are fixated on controlling the family wealth for fear that our children may lose it, this conveys the message that we do not trust our children, and that can lead to them not putting sufficient trust in themselves to become good custodians of the family wealth. If we fear that wealth is toxic and can spoil our children and therefore we seek to hide it from them and not talk about it, that can lead them to pick up on the negative feelings and carry shame about being wealthy.

For most every vicious cycle, there is a corresponding virtuous cycle. If instead, we trust and empower our children, that in turn can lead to positive attitudes around the family wealth, which in turn can help them develop into effective custodians and contributors to society.

Consider This: What messages are you sending to your children about family wealth? What messages are you getting from your parents about family wealth? Have you ever sat down and shared this (now might be a good time)?

Further reading: https://www.forbes.com/sites/dennisjaffe/2021/11/03/a-guide-for-passing-down-your-wealth-harmful-and-helpful-assumptions/, http://www.campdenfb.com/article/did-great-great-great-grandpa-have-ipad-how-teach-your-children-wealth-responsibility, https://www.kiplinger.com/article/retirement/T065-C032-S014-raising-wealthy-kids-to-be-socially-responsible.html, https://qz.com/293849/how-baby-boomers-ruined-parenting-forever/

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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When there is more than enough wealth for the family itself, families often turn to philanthropy as a way of “giving back” to society.

Like anything, philanthropy can be done well, and not so well, and for the right reasons as well as the wrong reasons. These factors are not necessarily connected – someone may support a charitable project purely to feed their ego, yet it may achieve substantial social good. Certainly, doing things for the right reasons, and in the right way maximises the chance of getting good outcomes.

It’s important for families to ask “why?” as much as possible to understand their underlying motivations. Knowing “why” can also drive what the family seeks to achieve. In other terms, knowing your values helps articulate meaningful goals.

There are several family benefits to embarking on philanthropic activities. It’s well known that it’s a great way to engage the rising generation, and to build bridges between the generations. 

Another, lesser known benefit is that it can help equalise the hierarchy within a family. When it comes to business or investment, some family members may have seniority, aptitude and experience which makes their voices louder. But philanthropy can help raise the voices of all family members and allow all of them to contribute together in a meaningful way.

Consider This: Does your family understand why does philanthropy? Are all family members given the opportunity to learn about the space and participate? Who ‘leads’ philanthropy within your family?

Original articles: https://www.wealthmanagement.com/philanthropy/three-tips-set-table-family-philanthropy, https://www.fpmagazine.com.au/philanthropy-its-a-family-affair-379158/, https://www.millionacres.com/real-estate-investing/articles/what-is-a-family-office-and-who-might-need-one/ https://www.wealthmanagement.com/philanthropy/three-tips-set-table-family-philanthropy

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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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/

[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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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When family wealth is controlled or owned by a single person (usually the wealth creator), things are simple. But at some point, the wealth will likely pass to more than one person – the wealth creator’s children. In respect of the family wealth, the members of the family are bound together through three circles of involvement: family, business and ownership. That adds a huge degree of complexity, as no decision gets made in isolation.

Strong governance establishes a process for decision-making and conformity within the family. Clearly defined policies and processes for governance, in line with a formal family vision and mission statement, can reduce the potential for conflict.

Family governance can also focus on strengthening the non-financial capital within the family – working on these can ensure it’s not “all about the money” (because usually it isn’t anyway).

For some families, there may be an advantages to separate ownership and management. This can ensure the sustainability of the family business and wealth through its management by professionals with the diverse skills needed. The family members govern (set policy, monitor), and others manage.

There is an emotional side to effective family governance which is often overlooked by the first generation. In order to be effective, family governance needs to take into account all interested family members in the planning process and to be consistent with the existing family culture which is likely to have evolved over multiple generations.

Consider This: Who owns and controls your family’s wealth? Who will own and control it in ten years? How many ‘hats’ (business, family, owner) does each family member wear? Are you aware of the diverse interests and aspirations of each family member (across multiple generations) in respect of the family wealth?

Original articles: https://www.bizjournals.com/sanantonio/news/2020/04/27/effective-governance-strengthens-family-unity-and.html, https://www.forbes.com/sites/francoisbotha/2020/04/29/the-importance-of-separating-ownership-and-management-3-steps-to-get-families-started/#f7efd62655b1, http://www.campdenfb.com/article/carlos-arbesu-governance-and-succession-family-business-boards, http://www.mondaq.com/jersey/x/873496/wealth+management/Avoiding+rags+to+riches+in+three+generations+family+governance+in+the+Middle+East

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 #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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