One of the biggest lies ever told is “blood makes you family”. Blood makes you related; loyalty, love and trust makes you family.

That was the meme that showed up on my feed recently.

It got me thinking.

Families tend to have a fixation on blood: that family wealth needs to be preserved along the bloodlines, that only blood can be trusted, that married-ins should be kept on the outer.

Some of these tropes come from longstanding cultural beliefs.

But we ought to challenge them.

As Jay Hughes noted, a family starts with a couple who are not related: two people who choose to partner and create a family. The bond between those two – the parents – are often the model for their children.

If you treat their children-in-law as second-class family members, it can send the message that you respect your own marital choices, but not those of your children!

This is not to ignore the fact that divorce can wreak havoc on family relationships and family wealth, that divorce rates are very high, and that some people marry for money.

Rather, be consistent, and aim to setup marriages for success to the extent that you can.

We can similarly challenge putting the sibling bond on a pedestal. My father-in-law put it well: “just because two people come out of the same womb doesn’t mean they will be friends”.

Every child is born into a different family – a different environment. They carry a different mix of genetic material from their parents. They are … individuals. Sometimes siblings fight because they are different, and sometimes they fight because they are similar. The way you treat them as parents can also drive conflict.

You might say that your children are equal, but that doesn’t always translate into practice. With each child, you are a different parent. The needs of each child are different.

Don’t assume your children would automatically make effective coworkers in a family business, business partners, or custodians of shared family assets.

It doesn’t come naturally.

In contrast to blood (and genetics, and life-partner choices), loyalty, love and trust are values that you can control, and prioritise when raising your children.

Those values carry a high degree of reciprocity: if you are loyal to someone, they are likely to be loyal back to you. Same for love and trust. This positive cycle starts with you as a parent: if you trust your children, they are more likely to trust you, and to be more trustworthy.

I’ve seen too many families where parents don’t trust their children: not to assume positions of responsibility within the family enterprise, not to know the extent of the family wealth (age appropriate of course), not to be a responsible custodian. Those negative cycles often start with parents, and then repeat.

A family is like a house: it needs a strong foundation. That foundation is mostly on you as parents. The behaviour you model is so important. And the behaviour you reward is what you will get back from your children.

Conversation Starters:

Whom do you trust more: your sibling’s partner, or your partner’s sibling?

How much do you trust your children?

How do your close friend relationships compare to your blood relationships?

Here is more reading on Wealth Transition.

Q. How to prevent my family from falling apart?

A. Make it Antifragile

Families are complex systems.

There are lots of intermingling pieces.

 

Unlike a jigsaw puzzle, the pieces are not a certain set of shapes.

The members of the family are individuals, with their own wants and needs, dreams and fears.

As individuals, they grew up with multiple influences:

• Their family (and each child is born into a different family)
• The events going on around them
• Their personality

 

Consider married-ins, and blended families, and the diversity of personalities, wants and needs within the family group only expands.

 

Unlike a jigsaw puzzle, they don’t automatically fit together.

We can’t assume siblings will get on just because they happen to have emerged from the same womb

All the more so for family members who joined later.

Family members are connected by bonds of all shapes and sizes – relationships.

Parents & children, siblings, spouses, cousins, in-laws, step-siblings, grandchildren etc.

Each type of relationship has its own features and complexities

If there are 4 family members, there are 6 relationships between them.

With 8 family members, there are 28 different relationships.

It doesn’t take much for discord to spread through the family system.

 

If that wasn’t interesting enough, add family wealth to the mix.

That brings a whole new layer of complexity.

Shared assets, operating business roles, estate plans, power dynamics.

 

Stack all that together and you get something that can be very fragile indeed:

So how to make your family Antifragile?

Much the same way you build a strong house

It starts with a solid foundation

 

The foundation for an Antifragile family is communication and trust

Lack of communication leads to a vicious cycle of assumptions and mistrust

Open and good communication lead to trust

 

Once the family knows how to communicate, the next thing to layer over that is a sense of shared values & purpose.

That needs to respect individuality, and still find what the diverse family members have in common.

It’s often more than you think.

With shared values, the family can develop a sense of shared purpose.

That’s one of the most important things – “social capital”

The ability for a group of people to work together to a common goal

 

With those two things, you have a platform for the next stage: good governance.

That’s just fancy for the responsible use of power and good decision-making.

Clarity over how decisions are made that affect the whole family.

The comfort that the family members in charge are acting as stewards of the family wealth – acting in the best interests of the family as a whole, and considering the needs of all family members.

This often involves documenting the ‘rules’ by which the family operates in some kind of document – a charter or a constitution.

With that foundation, you end up with a group of people who are willing members of a family of affinity.

They are part of the family because they want to, not because they have to.

They understand the responsibilities that come with the privileges they enjoy.

They respect difference and can work toward common goals.

That foundation makes a family robust, resilient, and Antifragile.

 

Conversation Starters:

How would you rate the quality of communication and trust in your family?

What rules (written or unwritten) does your family have?

How does your family manage conflict?

Further reading:

Transition – A family must first govern itself before governing the family business
Democracy or monarchy – which will family businesses choose?
Defective family constitutions are dangerous
Opinion: Intergenerational strife: Why can’t we all just get along?
The Role of Trust In A Family Business
Unequal Inheritances Often Equal Hurt Feelings
Why estate planning should be a family affair
Three P’s Of Family Office Culture: Developing Purpose, People And Plans

 

Here is more reading on Family Governance.

“I don’t need to work; I’m doing this for my kids.”

These words from a patriarch had wider implications than he realised.

 

Comments like these – ranging from “One day this will all be yours” to the patriarch’s statement – are about the purpose of family wealth.

Wealth creators start as ‘Owners’ – the wealth is theirs to do with, as they please.

While the initial intent of wealth creation varies, at some point, the thinking shifts.

From the future – to LEGACY.

 

The question becomes –

What should happen to this once I’m gone?

• It could all (or most) – go to charity.
• It could be used for SKI-ing – ‘Spending-Your-Kids’-Inheritance’
• It could provide for generations to come.

 

But then, other thoughts come to mind…

• If my kids don’t need to work, what if they end up lazy?
• I don’t want them to be spoiled, trust-fund-babies.
• How can I make them tough and resilient (like me)?

 

One way is to retain control over the wealth for as long as possible.

For some wealth creators, that means ruling from the grave.

After all, you know what’s best for them – don’t you?

 

Or do you?

 

Do parents really know what’s best for their children?

What’s the impact of doing what you think is best for them?

These approaches can be more damaging to children than spoiling them!

When parents act like this, their children can end up infantilised and disempowered.

They can end up resenting their parents’ attempts to save them, from themselves.

 

The statement – “This is for my family”, has huge implications!

It means it’s no longer just about you – the ‘Owner’.

It shifts the focal point from you to your family.

And it shifts the wealth creator from ‘Owner’ to ‘Steward’.

 

‘Owners’ own and control (family) wealth.

‘Stewards’ look after family wealth on behalf of something far bigger than them –

something that came before them, and will endure beyond them – their family.

 

Once the focal point is your family, you need to consider their wants and needs.

There is only one way to find out a person’s wants and needs, and that’s to…

ASK THEM!

 

That means, including the children in discussions about family wealth.

(Of course, do it in an age-appropriate way).

These discussions can be wide ranging.

Anything from –

• How the wealth can be used for the benefit of the family.
• Projects and initiatives the family can do together.
• How to raise future generations.

 

These discussions can be really difficult for some wealth creators.

After all, they did all the hard work.

What right do their children have to direct how to use the wealth?

But if the wealth is indeed “for the family”, then the family should have a say.

 

If family wealth discussions are ABOUT them, but do not INCLUDE them, then they are not truly FOR them.

 

This is where having an impartial third-party in the room can be invaluable.

Such a person can facilitate more productive discussions, and be enabling for all family members.

 

Conversation Starters:

• Who is at the table to discuss family wealth in your family?
• Who is not at the table? – Why?

 

If you’re an ‘Owner’ thinking about transitioning to ‘Steward’ and would like an external sounding board to help map out your options, my door is always open.

If you’re the rising generation and would like guidance/ support on how your role in the family is evolving, I’m very familiar with the ins and outs of that journey.

Please contact me by reply to talk.

Further reading:

3 Steps to Creating A Healthy Multi-Generational Family Wealth Culture
Introduce your children to your wealth manager
Strained relationships can lead to loss of generational wealth – Family advisor
I Come From a Wealthy Family: Why I Still Had To Take Out Student Loans
Family fortunes: the importance of multi-generational wealth discussions
Why We Don’t Talk About Money (and How We Can)
Family Business: The death of the founder
Hash Out the Inheritance Now, or Fight Your Family Later
The Kids Are Alright—But Are They Right for the Family Business?

Here is more reading on Family wealth advisory.

It’s a great visual: a relay race where the next runner is waiting in position ready for the current runner to reach the handover spot, at which point they will execute a quick and seamless handover of the baton so the team can continue apace.

The first runner arrives at the handover point, but for some reason, the baton is stuck in their hand.

They can’t let go.

The race stalls.

 

This happens regularly in family enterprise succession planning.

The rising generation is chomping at the bit to take their place and make their mark.

But the incumbent generation is … hesitant, uncertain, anxious.

 

What is at the heart of this hesitancy?

 

It might be expressed in different ways: the rising generation are not ‘ready’, the business may struggle with a change of leadership, the current economic environment is not suitable.

Sometimes, these are deflections from “The Sticky Baton”: the difficult emotions associated with letting go.

 

For the incumbent generation, the business is often something they put their heart and soul into for decades and watched it grow – almost like a child that is now grown up.

When our children leave home, we are often ambivalent – happy for them to be spreading their own wings yet sad to see them leave.

Their departure leaves a void in our lives.

 

In the same way, passing the business to the rising generation (or selling it) leaves a void.

 

As one person said: “if your business is everything, what are you without your business?”

That gives rise to some complex emotions: fear and grief.

Fear of a future without a clear sense of what to do each day, lacking in purpose and drive, and no longer being a useful contributor to the family enterprise.

 

Fear is one of our most powerful emotions, and our greatest fear is of the unknown.

 

What comes next? 

Golf and lawn bowls? Being put out to pasture?

The feeling of grief is genuine: for something that was for decades a huge part of our lives and now may be irretrievably ‘lost’.

 

The good news is that there are ways to address this.

 

Succession (done well) is not an event; rather it’s a process.

 

With the right preparation, it can be as seamless as the baton handover in the 4x100m race.

And it can’t be hurried – it can easily take several years.

That work pays off when the transition goes smoothly.

The preparation must work across several aspects of the family enterprise.

 

Not just the structural, organisational and financial, but also the emotional.

 

And any family enterprise succession plan takes (at least) two to tango; it needs to consider both generations.

 

What to do now?

 

The first step is to acknowledge the emotional aspect to succession, and to become OK with it.

 

Expressing emotions may not come easy for wealth originators and family patriarchs.

They are usually perceived (by themselves and others) as the strong ones in the family who look after others.

Any insecurities and self-doubts are pushed aside.

 

But they are as human as anyone else; they just may not want to show this to their children.

 

This is where friends, confidants and advisors can help.

 

People with the experience and understanding to help work through these issues, and with a level of independence to remain non-judgmental and provide sage counsel.

Conversation Starters:

Do you have a process for succession in your family enterprise?
What if anything is holding things back?
What tensions has either discussion about the process or the process itself uncovered within the family?

Further reading:

Why Leadership Is So Important To Millennials Right Now
Talking about family business: Planning for a successful succession
Succession Planning: It’s A Marathon, Not A Sprint
The Right Ways to Pass the Torch
3 STEPS BUSINESS OWNERS SHOULD TAKE PRIOR TO SUCCESSION PLANNING
Here’s 3 steps business owners should consider when succession planning
Trust more important than ever for successful transfer of family businesses between generations
COVID-19, Great Transfer And Bridging Generational Gap
The Succession Plan: Discovering Its Rewards Through A People-Focused Strategy
Half of Business Owners Do Not Want Their Children to Inherit, Run Business
6 Actionable Steps For Preparing Your Exit Strategy
Lonely at the top: The emotional struggles of wealthy families
Family governance is necessary — but not sufficient — for transgenerational success

 

Here is more reading on Succession Planning.

One of the most common questions facing families is: what kind of family office do I set up? Typically, the choice is between setting one up yourself – a single family office (SFO) – or getting services from a multi family office (MFO). But just as family offices come in all shapes and sizes, another option – the virtual family office – is becoming more popular and worthy of consideration for many families.

Where to start? The set of FO services offered by MFOs and private banks can read like the lavish menu at a Chinese restaurant and leave us overwhelmed with choice (just the beef fried rice for me, thanks. OK, an egg roll too). They can be a useful prompt for the sorts of services your family might need. Other resources that compare the pros and cons of different types of FOs can also be helpful.

But as Lewis Carroll beautifully put it in Alice in Wonderland, “if you don’t know where you want to go, then it doesn’t matter which path you take”. So the most important starting point is “why?” and please don’t say “because John also just had a liquidity event and he setup a FO”. That is surely the worst reason to setup a family office, yet sadly a common one.

The questioning should be around “what complexity in my family would a set of family office services solve?” which can lead to “what are our goals as a family?” which can lead to “what does it mean for us to be a family?” and “what are our shared values and purpose as a family?” That is when we get to the good stuff. These questions are more difficult than SFO vs MFO vs VFO, but once you have the answers, finding the appropriate form for your family office will be so much easier.

Architect Louis Sullivan said, “form follows function” and this applies equally to FOs as it does to buildings. After all, a FO is a structure intended to last for generations, so it should be built with the long-term family goals in mind.

Once you set your goals, go back to the menu of services and identify which of them meet a genuine need within your family. Don’t go to the supermarket without a shopping list, and don’t shop for FO functionality without a set of requirements. Then, think about how these functions are best resourced. Not just now, but in a generation. Don’t setup a role for someone (especially a family member) that ends up being a millstone around their neck. The intent of a FO is to help the family navigate complexity, not provide family members with jobs nor turn them into wealth manages.

One of the most important considerations is risk, and particularly with a FO (which are often relatively small), key person risk is paramount. This is where virtual services can be so helpful. While you may need a CIO or investment professionals or concierge, you (a) may not need then in units of whole people, and (b) need to consider what happens if they leave. Fractional services provided by specialists can be very effective. As an example, you can build a VFO with 0.2 of a CIO (i.e. virtual), an analyst, and an EA who co-ordinates outsourced/virtual admin, lifestyle, and reporting services. A lean and robust structure like this can leave you as the part-time CEO, giving you the most valuable thing of all: time to do what you really want.

Conversation Starters:

Why does your FO exist? In what ways does it meet the needs of your family? When did you last complete a risk assessment of the FO? When did you last review the extent to which the FO is delivery on the goals of the family?

Further reading:

Do You Need An SFO, MFO Or VFO?
Health really is wealth for UHNWs, Julius Baer family office survey finds
Is It Time To Rethink Your Single-Family Office?
When is the right time to establish your family office?
The Rise And Rise Of The Family Office: An Analysis
There Is No Such Thing As A Family Office – Part 1
New Family Offices Can Teach Old Ones a Data Trick

Here is more reading on Family Office.

Former US secretary of defence Donald Rumsfeld famously said “there are unknown unknowns” – the things we don’t know that we don’t know. While at the time, the comment was the subject of some ridicule, the concept was well-established in the military relating to risk and decision making. We can prepare for “known unknowns” – risks we are aware of – but it’s the stuff we don’t know that we don’t know that can really hurt.

We can adapt this concept to advisors, who are subject matter experts within a specific domain. The “known knowns” are a given – that is the core knowledge and experience they hold. They also need to be across the “known unknowns” – the risks associated with their recommendations or decisions but still within their field. And they need to be always learning to minimise the “unknown unknowns” – both expanding their field of knowledge to ensure it remains current, as well as more advanced thinking about risk like systems and scenarios.

That generally works where the boundaries of the expertise are reasonably well-defined: we call a plumber when the pipes are clogged, and a lawyer when we want to contract with another party, or a conveyancing specialist when purchasing a property.

However, when we think about the advice needs of complex wealthy families, this approach is not sufficient.

Look at any ‘menu’ of services offered by a multi-family office or a private bank. The number of boxes on the page can be overwhelming: services like wealth management, tax advice, philanthropy, trustee/custody; administrative services for reporting and lifestyle services. Why so many? Because with increasing number of people and assets in a family group comes increased complexity and interconnections between them.

The UHNW Institute grouped the services into ten domains (see the diagram) in two categories: wealth creation and stewardship, and cultivation of family capital. This model is helpful for both advisors and families to understand what expertise is needed, and how the domains of expertise can interconnect

When serving a family, being an expert in philanthropy strategy, risk management, or asset allocation is not enough. The philanthropy strategy also needs a governance and decision-making piece, may involve leadership, the rising generation, family dynamics and more. Risk management relates to health and wellbeing. Asset allocation may draw on social impact goals.

No single person can be an expert in all these domains. Even bringing together a complete set of experts across the domains in a single firm is challenging (although some firms will try or purport to have this).

What advisors need to do is work on the “unknown unknowns” – to know just enough about the other domains so they can call in other advisors and collaborate with them. The philanthropy strategist ought to know enough about governance and family dynamics to know when those and other such experts are needed.

In collaborations like this, the domain at the centre of the circle – Family Advisory Relationships – comes into play. With multiple experts, one of them (or someone else entirely) needs to take a co-ordinator role to ensure they have agreed ways to work together and keep others informed in the best interests of the family.

In the complex world of family advisory, collaboration and being family-centric are essential to deliver good outcomes.

Conversation Starters:

(for advisors) How much do you know about what you don’t know? In what ways have you collaborated with others when working with a family?

(for families) How many different advisors does your family have? In what ways do they work or not work together?

Further reading:

Inside Merrill’s New Framework for Wealthy Families
What wealth managers can learn from family dynamics
These Factors Are Driving M&A In The Wealth Management Industry
Why you absolutely must meet your wealthy clients’ kids
What difference does it make if your client is a family business or business family?
Five things I’ve learned as a family business advisor
Three Strategies to Keep the Next Generation of Clients
Why Wealth Managers Start With Family-Centered Client Discovery
Best Idea: Nest Trains NexGen Advisors To Replace Retirees
Why Almost Every Family Office Employee Is Getting a Fat Raise in 2023

Here is more reading on Family Wealth Advisory.

David will be co-presenting on a panel at PWN’s Family Office Congress XV in 2024. The theme of congress is “Wealth. Wisdom. Happiness”.

The panel topic is “Does ‘having it all’ make us happier or sadder?”. Ren Barlow and Suparna Bhasin will join David on stage with Richard Milroy as facilitator.

Q. What do you do?

A. I help families make good decisions together.

It took a while to come up with something succinct to describe what I do. For some years, I used the term “family governance” and people’s eyes would glaze over. What does that actually mean? The term had connotations of formality and its use in other contexts didn’t make sense for many family members. The focus on decision-making is more practical, and we can break this down further into three steps.

1. Making decisions: simply making a decision can sometimes be challenging in a family context. Here are some examples: What should we do with the family business? How much should we give our children? Who should get to use the family holiday house this summer? Some of these are big and difficult decisions, and others are relatively small but still important. Because of their context, there is either a lot at stake, or other factors (like family) that make the decisions challenging. And when things get hard, we often play the avoidance or procrastination game. That means either defer or don’t make a decision. Leave things as they are. Don’t upset the applecart.

But a non-decision is itself a decision: not to do anything. And that (non) decision can have a cost. Sometimes it’s an opportunity cost: the loss of other alternatives. Sometimes a non-decision can allow a situation of latent conflict to fester. So the first step is to understand that everything is a decision.

2. Making good decisions. We generally make good decisions by following a process. That means clarifying that the question we are asking is in fact the right one, then collecting the information we need so that we are well-informed as to the options, establishing criteria by which we evaluate the options before us, and finally making the decision and putting it into action. For “who should get the holiday house this summer?”, a more relevant question to consider might be “what benefit is there to having a family holiday house?” In any event, to decide who should get use of the property, we might look at previous use and seek to make it as equal as possible across the family, poll family members as to their plans, and then decide.

3. Making good decisions together. The earlier decision examples have multiple stakeholders, but the decision may still be made by just one person – the one in effective control. But just because one person has the legal power to make decisions on behalf of the family, doesn’t mean having them make those decisions will deliver the best outcome for the family. In situations where the decision maker chooses to allow others into the decision, or where multiple family members do have decision-making power, things suddenly become far more complicated.

Before you even start the process, you need to clarity on who the decision-makers are. Again, decisions about decisions. Who is at the table? Your children? From what age? How about their partners/spouses? Does everyone who is at the discussion table get a vote? Do the parent’s votes count for more than that of the children?

Then, the people at the table need to follow a process to a good decision. Because there is more than one person involved, they need to reach consensus about every step. The group may choose to delegate some aspects to individual members – exploring options, suggesting criteria – and then regroup to seek agreement. Having a collaborative environment where family members are all heard and feel included not only leads to better quality decisions, but decisions that will more likely be well accepted by all stakeholders (rather than imposed on them).

This process isn’t easy, nor does it come naturally for people. The diverse interests of family members, different personality styles, and family power dynamics all make this quite challenging for families. Learning how to make good decisions together is one of the fundamental things successful families do.

Conversation Starters: Who makes decisions in your family? What process is followed (assuming there is a process)? How are decisions communicated to stakeholders? What clarity is there for family members as to how decisions that affect them are made?

Further reading:

Rich Families Are Having Awkward Conversations About Governance
INSIGHT: Easing Conflicts When Hiring in a Family Business
Family businesses have corporate governance structures in check. What about family governance?
Five Keys to Creating a Successful Family Entity
Consiglieri: A Family Business CEO’s Chief of Staff
Split decisions: how siblings succeed — and fail — in business together
Sandi Bragar talks about the importance of family collaboration and governance
Adaptive Governance for New Wealth vs Old Wealth

Here is more reading on Family Governance.