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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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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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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You join a family through birth or marriage, and leave it through death or divorce. But if by divorce, it may not be possible to fully “leave”, and the process itself can be traumatic for a wide stakeholder group.

A significant focus of estate planning for families is about ensuring that the family assets are “protected” in the event of a divorce. But how about the time until a couple divorces, i.e. the time they are actually married? That time is anything from a day until forever, and yet so much about marriage and married-ins in wealthy families is fixated on a possible future scenario.

As much as we want to engineer a “clean separation” in the case of a divorce, we should seek to facilitate a “clean togetherness” for the duration of the marriage. Children-in-law share a bed with our children, and are the parents of (and pass genetic material to) our grandchildren. Even if they are not allowed “at the table” for family meetings, they are often there by proxy.

The challenge is to frame family policies that relate to marriage in positive terms. The role of in-law children can be an opportunity, not just a risk. If only viewed as a risk, that can be a missed opportunity.

Remember: families start with a partnership of two (who themselves come from different families).

Consider This: How are your family’s policies regarding marriage framed? How are your feelings about married-ins influenced by yours or the family’s previous experience with divorce? Are married-ins ever told “you can’t do [X] because you might divorce?”

Original articles: https://spearswms.com/new-generation-family-lawyers-hnw-divorce/, https://www.wealthprofessional.ca/news/industry-news/saving-family-businesses-from-divorce-during-covid-19/335407, https://www.ft.com/content/d38ab97b-0abf-4624-8063-80bc48599aa3

Actionable Generational Wealth Succession 

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I have a lot of empathy for Tom Brady. While not in his ‘league’ on several fronts, I can fully appreciate his exasperation at the challenges of teaching children with wealth to understand “the real world”. Anyone facing these and similar challenges deserves to be taken seriously, and to get the support and empathy they need to deal with the issues.

There’s just one small catch.

People who don’t have or genuinely understand the experience of living with significant wealth (i.e. 99.9%+ of the population) are not only unlikely to be able to provide empathy and support, but may actually respond with the very opposite.

This is what happened to Brady when he stated in a podcast interview that bringing up his children amid great wealth was “probably the hardest thing for us as parents”.

There are two perspectives of living with wealth: outsider and insider. To outsiders, wealth is viewed as a panacea that will instantly solve all problems. The insider knows this is not the case. The only place insiders can get support and empathy is from other insiders.

The popularity of TV shows like Succession is that they show that wealthy families suffer from the same family dynamics challenges as others: jealousy, rivalry, favouritism. They are just played out with much higher stakes.

Family members need two things: insider networks to provide support, and an understanding of what can and cannot be shared with outsiders.

Consider This: How do members of your family deal with the assumptions and judgments of outsiders? What peer-networks do they rely on to provide support?

Further reading: https://www.newsweek.com/tom-brady-mocked-wealth-hardest-thing-parenting-1724887, https://www.irishnews.com/lifestyle/familyandparenting/2021/10/26/news/five-ways-to-be-a-parenting-boss—and-run-your-family-like-a-business-2482106/, https://www.moms.com/20-baby-boomer-parenting-tactics-that-millennial-moms-are-finally-ditching/, https://www.mamamia.com.au/worst-generation-of-parents/, https://vulcanpost.com/585663/millennial-parenting-discipline-mistakes/

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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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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It’s a most quoted statistic – “just 13% of family businesses survive the third generation” – and it has finally been challenged. It comes from a single study of US manufacturing companies in the 1980s, and for some reason it has stuck and become almost axiomatic.

But it is deeply flawed. Most importantly, it never compared family businesses to non-family businesses (family businesses on average do last longer), and it also never considered the reasons why those businesses did not continue. Besides, not all businesses are meant to last that long – among other things it’s a function of their industry and their ability to do regular strategic renewal (and for some family business, the latter is a huge challenge).

The other issue is the conflation of this trope with the well-known “shirtsleeves to shirtsleeves” proverb. Enduring family business is not the same as enduring family wealth. Plenty of families have been able to parlay an operating business (which is usually how the wealth was created) into a healthy mix of diversified assets that can support the family for decades.

So forget blanket generalisations about family businesses and focus on their unique attributes that are a mix of strengths and weaknesses.

And view the proverb as a statement about the culture of wealth and how it affects those who created it, those born into it, and those well removed from its creation.

Consider This: How do attitudes to wealth in your family differ between generations? How long do you think your business (or any business) ought to last?

Further reading: https://hbr.org/2021/07/do-most-family-businesses-really-fail-by-the-third-generation, https://www.thinkadvisor.com/2021/05/25/what-wealth-really-means-to-4-different-generations/, https://www.forbes.com/sites/dennisjaffe/2021/04/28/how-family-business-leaders-make-room-for-new-generations-the-right-time-and-the-right-way/?sh=45833f283933, https://www.kiplinger.com/retirement/estate-planning/601798/how-to-help-your-family-wealth-last-for-generations, https://thriveglobal.com/stories/what-successful-family-businesses-do-to-survive-beyond-the-three-generation-curse/, 

Actionable Generational Wealth Succession 

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Research has shown that in HNW families, daughters were rarely encouraged nor received support to pursue entrepreneurship education. Entrepreneurial families often prepare their daughters and sons differently for their careers. Cultural factors and their associated gender biases may result in the problem being far more pronounced.

Things are changing. Some 82 per cent of women from wealthy families expect to inherit substantial wealth over the next 20 years, but 41 per cent of women are currently not involved in family financial decision making. They need to start preparing themselves. The role of women within wealthy families is also shifting, in part due to the rising generation having a less traditional outlook on life. Family businesses are able to play a critical role in helping break glass ceilings that perpetuate gender roles.

There are changes in the wind on the investment and advisor spaces too. Millennials and women value investment principles that have a positive impact on challenging issues. HNW women are often less confident about making family financial decisions, prompting the need for investment relationship dynamics to change. To remain competitive, advisors must consider a truly consultative approach; female advisors are well-suited for the job. Women – more of whom will control significant wealth over the next 10 years – prefer to work with female advisors.

Consider This: Does your family treat male & female children differently? Are they given the same choices & opportunities within the family enterprise? Are there cultural or historical gender biases in your family? Is this a source of intergenerational conflict?

Original articles: https://www.eurekalert.org/pub_releases/2021-06/uoo-gbi060721.php, https://www.greenqueen.com.hk/women-prefer-to-work-with-female-advisors-now-is-the-moment-for-esg-customisation/, https://www.forbesindia.com/article/bharatiya-vidya-bhavan039s-spjimr/addressing-the-novel-fault-lines-in-family-business/67115/1, https://www.jdsupra.com/legalnews/cracking-the-glass-ceiling-empowering-6627462/, https://www.campdenfb.com/article/how-raise-your-succession-game-next-gens-family-business, https://www.bnamericas.com/en/news/almost-25-of-family-businesses-have-a-female-presence-on-their-boards, https://www.wealthadviser.co/2020/12/15/293551/growing-financial-power-next-generation-wealthy-women-prompting-change-within

Actionable Generational Wealth Succession 

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