Trillion Dollar Wealth Transition

December 15, 2022 davidwerdigertransitionsLeave a comment

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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source https://davidwerdiger.com/2022/12/trillion-dollar-wealth-transition/

Unintended Consequences & Kids

December 9, 2022 davidwerdigertransitionsLeave a comment

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

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

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source https://davidwerdiger.com/2022/12/unintended-consequences/

The Family Equaliser

December 7, 2022 davidwerdigertransitionsLeave a comment

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:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/12/the-family-equaliser-2/

Principia Familia

December 1, 2022 davidwerdigertransitionsLeave 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/

[reprinted with permission]

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/12/principia-familia-2/

Family Governance; Owner or Management

November 30, 2022 davidwerdigertransitionsLeave a comment

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:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/12/family-business-owner-management/

Q&A. How much to help?

November 25, 2022 davidwerdigertransitionsLeave a comment

Q. How much extra financial support should we give our children?

A. This is one of the great balancing acts parents need to perform. Too much and kids might end up spoiled or entitled. Too little and the wealth is not there for them when they actually need it (and if it’s not, then what’s the point of it?)

We all have a particular psychology of money, and these attitudes are formed in our early years and deeply ingrained, sometimes on a subconscious level. Children who see parents always fighting about money might end up feeling money is a source of conflict, and find themselves unable to hold on to it. Some wealth creators feel their children should struggle financially like they did because it made them tough and resilient. I’ve used the word “feel” deliberately as these views are more based on emotion than logic.

Warren Buffet famously said “enough that they can do anything, but not so much that they can do nothing”. Given this discussion is about additional support (rather than wealth transition), the bigger risk is around “doing nothing”.

My view is that children in wealthy families ought to learn an important life skill: making financial trade-offs. While at some point in the future, they may not have to, it’s a good thing to know as it’s healthier to treat money as a finite resource.

A financial trade-off means sacrificing some of X to get more of Y. That could mean a better vacation at the expense of a nicer car, or a restaurant dinner at the expense of an outing. Note that you may want policies to ensure your children do not make certain financial trade offs, such as for medical expenses.

It’s also important not to set policies in stone, and continue to monitor (while respecting our children’s autonomy) and adjust as needed.

Consider This: Does your family have formal policies on distributions to family members? How flexible are these policies? Do you have open discussions with children about money and spending?

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/11/how-much-help/

Due Diligence

November 23, 2022 davidwerdigertransitionsLeave a comment

The recent Vanity Fair expose of the Ritossa FO conferences gives us pause to reflect on one of the most important sources of value for families: our networks.

Our networks are a source of deal flow – families like to co-invest and always look to what others are doing. They also are an important step-up for our children – helping them with education, employment and more.

Membership organisations and the event/conference circuit play an important role in helping us curate and extend out networks. While the companies that run these purport to filter who is allowed to join/attend, their due diligence may not be sufficient for family members who attend. Those who are “sell-side” will do whatever they can to gain access to “buy-side” families. And sadly, there are no shortage of crooks and predators in the world.

There is a principle in the security industry: always assume the first line of defence will be breached. And this one from the investment world: don’t rely on someone else’s due diligence (unless your criteria are fully aligned).

I was invited to speak at a Ritossa conference some years ago, and something about it felt a bit funny. I asked a couple of trusted friends (who are mentioned in the article) and they confirmed my suspicions. Phew!

Developing a ‘sense of smell’ takes years. Taking people into our trusted network should be done very carefully, and always considering the risks against the potential gains.

Consider This: What protocols and due diligence processes does your family have for new business and personal relationships? Are rising gen family members educated as to the value of their networks and the risks of networks and relationships being compromised?

Further reading: https://www.vanityfair.com/style/2022/10/inside-wealth-conference-con-man-anthony-ritossas-wild-web-of-lies, https://tfoatx.com/publication/family-office-networks/

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment

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source https://davidwerdiger.com/2022/11/due-diligence/

Family Business Conflict

November 18, 2022 davidwerdigertransitionsLeave a comment

How we deal with conflict in family business is totally different to a regular workplace. Why? In family business, we wear multiple hats: family member, co-worker, owner, and those roles can lead to conflicts of interests. The work hierarchy is overlaid by the family hierarchy, and that can lead to … conflicts of interests. And unlike a regular workplace, it’s not quite so easy to just quit for another job. By their nature, families and their businesses are deeply interdependent systems.

Understanding these key differences helps us work out how better to manage those conflicts.

A lot of conflict mitigation revolves around the principle of establishing boundaries. That helps provide clarity over the various roles we play, so that we have spaces where we are co-workers, and other spaces where we are relatives. Of course, we can’t instantly switch from one identity to the other. However, having codes of conduct, sacred spaces, formal meetings, and independent advisors make it less difficult.

The hardest part is learning how to debate tough issues, and criticise. This requires well-considered communication so that the message gets across in as positive a way as possible, with minimum spill-over to other aspects of the relationship.

Consider This: What tools or policies does your family use to reduce conflict in the family business? Is there a strong awareness of them? How often do you break your own rules or codes of conduct?

Original articles: https://www.forbes.com/sites/forbesbusinesscouncil/2021/09/21/keep-it-in-the-family-6-cs-of-managing-family-business-conflicts/, https://www.ibtimes.com/how-run-family-business-without-straining-relationships-3276000, https://www.forbes.com/sites/dennisjaffe/2021/07/29/how-to-prevent-family-dynamics-from-undermining-your-family-business-a-code-of-conduct/, https://www.entrepreneur.com/article/370008, https://www.franchising.com/articles/the_petty_crap_of_a_family_business.html

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/11/family-business-conflict-3/

Upside Down Succession

November 16, 2022 davidwerdigertransitionsLeave a comment

The headlines are everywhere – a high percentage of family businesses have no formal succession plan – and then the story launches in to the usual tropes about estate planning, life insurance, choosing a successor, etc.

But maybe we should be turning this upside down? After all, by necessity, a family business succession involves two generations – the incumbent and the rising – and so much of the thinking about succession focusses on (a) the perspective of the incumbent generation, and (b) the legal, structural and procedural.

What does succession look like from the rising generation? Are they plagued with self-doubt or burdened with high expectations? What of their own personal dreams and needs to individuate? While they may be chosen/groomed from a young age to do the job, it’s very important that they are taking it on for the right reasons, and have the space to make the role truly ‘theirs’.

And just like company mergers most commonly fail on culture, family business successions are seriously put at risk if there are family “elephants in the room” that are not dealt with. Issues that might seem petty (especially to parents) can fester over many years, and explode once the incumbent generation have stepped aside or passed away.

Consider This: Is the rising generation in your family business interested in taking over? What are their dreams and aspirations (both about the family business, and in general)? Have you discussed this with them early in your own succession planning process?

Further reading: https://www.kiplinger.com/business/small-business/603023/what-role-should-your-children-play-in-your-business-succession-plan, https://www.campdenfb.com/article/how-next-generation-can-conquer-their-fear-and-anxiety-family-business-succession, https://ifamagazine.com/article/psychology-of-family-governance-appreciating-the-importance-of-family-dynamics-in-succession-planning/, https://www.saltwire.com/nova-scotia/business/exit-planning-family-matters-have-to-be-ironed-out-before-business-succession-273087/

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/11/downside-succession/

Entrepreneurial Spirit Legacy

November 11, 2022 davidwerdigertransitionsLeave a comment

Most wealth is created through entrepreneurship: taking a risk to start a business, and growing that business. Some families with generationally “old” money (i.e. more than 3-4 generations removed from the wealth creator) may have their family wealth in passive assets, and the entrepreneurial spirit that created it is long gone from memory, sometimes irretrievably lost.

For families that hold (or acquire) operating assets, it’s important to maintain that entrepreneurial spirit in subsequent generations, but that has its challenges. Rising gen family members born with spoons in their mouths often don’t share the hunger (or need) of wealth creators.

To do this, families need to tell stories of the bad times as well as the good, and create space for rising gen family members to become entrepreneurs of their own, rather than being in the shadow of others (external mentors can often help). Operating assets, especially those held by the family for a long time, need the governance that can facilitate regular strategic renewal (which may need entrepreneurial thinking) to ensure their long-term survival.

Consider This: Do family members know the story of how the family wealth was created? When was the last time an operating business you own did some serious strategic planning? Has anyone assessed whether there is “stale thinking” in the family business leadership?

Original articles: https://hbr.org/2020/05/is-the-next-generation-of-your-family-business-entrepreneurial-enough, https://www.stamfordadvocate.com/business/article/5-Factors-for-Planning-Your-Entrepreneurial-Legacy-15204834.php, http://entrepreneurship.babson.edu/barber-family-entrepreneurship-journey/, http://entrepreneurship.babson.edu/the-power-of-the-entrepreneurial-family/

Actionable Generational Wealth Succession:

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #nextgensuccession #intergenerationalwealth #governance #leadershipdevelopment
#entrepreneurship

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source https://davidwerdiger.com/2022/11/entrepreneurial-legacy-3/