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

Actionable Generational Wealth Succession. For more in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area/

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Why is this state different from all other states?

There are no simple answers. We are still in the “fog of war” (albeit slightly less foggy than a few months ago), and we won’t get to the bottom of this for a while yet. We don’t know if the second wave has peaked. We don’t know if there won’t be further waves (here or in other states). The judicial inquiry is barely getting started. We don’t know if government officials and ministers will fully co-operate with it.

The best way to find answers is to make sure we’re asking the right questions – the ones that go to the heart of the matter rather than picking at the edges.

My fundamental question: what is needed to get COVID-19 under control – to navigate through this crisis? I would say it needs a strong working relationship between the government and the people. That relationship is based on trust and execution, with a foundation of communication.

Trust means the people trust that the government is competent, always acting in the best interests of the people, and getting their priorities right, and will therefore accept and comply with government decisions. That depends on execution – that government has the right culture and process to make good decisions, and the ability to marshal sufficient and correct resources to execute those decisions.

The two are linked and form a cycle: if the people do what they are told, then the government is able to execute. If the government executes successfully, the people will continue to do what they are told. That is a virtuous cycle. On the flip side, if there is no trust, it makes it harder for government to execute, and if they do not execute, then people lose trust.

These two elements are built on a foundation of good communication: clear and unambiguous messaging from government regarding what is being done and why, and a government that listens and responds to the needs of the people.

We came into this crisis trusting that the government was able to do the right thing. They did not need to do anything to gain our trust, only to avoid losing it, by executing properly.

Now, deep into our second wave, and seeing other states open and living some semblance of a normal life, trust has completely eroded. When and why did this happen? Poor execution – notably the hotel quarantine fiasco, and inept contact tracing (“mystery cases” is an excuse, not a statement of fact), and poor communication – mixed messages as to what is and is not permitted, and dodging of questions regarding government decisions and actions. We have fallen into a vicious cycle where there is neither trust nor execution. The government has chosen draconian measures that punish millions with stage 4 restrictions rather than pouring resources into enforcement measures against the thousands who are flaunting the rules.

It has taken months to finally get messages of accountability and (qualified) regret from state leaders. Maybe a couple of months ago, that may have helped restore trust, but now it is too little; too late.

The current restrictions will likely lead to a serious drop in cases, and maybe even eradication of community transmission. But what confidence do we have that the current team can keep it that way? That they can successfully open things up? New Zealand went super hard the first time around and got it right. Taking the same approach for a second wave may not lead to a similar outcome.

So what needs to happen from here? The government, as a matter or urgency, needs a new strategy of better communication, trust-building measures, which in turn should lead to better execution. They need to show that they are doing things qualitatively differently and better now – that is the only way they can regain our trust. After all, they are there only to serve us – the people.

Family philanthropy can be a very effective way to bridge generations and engage the rising generation. However, according to a recent poll from Key Private Bank, there are significant differences between parents and children on matters of giving.

Most parents are not discussing philanthropy with their children, let alone agreeing on causes. 82% of advisors say very few clients involve the next generation in family philanthropy. Faith-based causes represent 73% of interest from parents, but only 3% from children. On the flip side, ESG causes are 3% from parents, and 59% from children.

It is self-evident that a lack of communication would only feed a further divergence of interests between generations. With increasing life expectancies and therefore a greater overlap between parents, children, and grandchildren, there are two likely outcomes: find common ground across generations, or fall into conflict.
Consider This: Who makes the philanthropy decisions in your family? To what extent are younger family members informed about choices or engaged in the decision making process?

Original articles: https://www.forbes.com/sites/francoisbotha/2020/07/29/how-the-worlds-next-generation-of-ultra-wealthy-are-redefining-what-it-means-to-give-back/#112919c85aad, https://www.prnewswire.com/news-releases/lack-of-family-conversations-about-philanthropy-fuels-differences-of-opinion-finds-key-private-bank-poll-300920068.html

Actionable Generational Wealth Succession. For more in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area/

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When seeking to deal with conflict in family business, it is essential to understand the impact of the family dynamic on a business. Conflict in family business happens differently, therefore must be resolved differently.

Disputes within a family don’t escalate suddenly. They are often built on years of relationship sentiment that is latent or suppressed. The triggers for those conflicts can be the smallest thing, because they are just the straw that breaks the camel’s back. The worst thing to do with family conflict is to suppress it, because it will only get worse with the passage of time.

These conflicts have a factual or financial component, as well as an emotional component, so both those aspects must be considered when seeking to resolve. Often, the emotional component is what is at the heart of the conflict.

A family is not a meritocracy. Family decisions have a very different basis than business decisions. When those two decision processes lead to different outcomes, conflict is inevitable.

Having independent voices – around the board table, or generally advising the family – can be very helpful to unpack complex, multi-layered issues. They can also assist with the establishment of more formal (but not necessarily too formal) governance and dispute resolution processes.

Consider This: Can you see latent conflict in your family that is a ticking time bomb? How does your family usually deal with such things?

Original articles: https://www.homecaremag.com/july-2019/conflict-family-owned-business, https://smallbiztrends.com/2019/08/firing-a-family-member.html, https://business.inquirer.net/277074/fixing-problematic-family-businesses, http://www.sbnonline.com/article/resolve-conflict-among-business-owners/, https://www.hindustantimes.com/columns/the-art-of-dealing-with-conflict-in-family-businesses/story-Kcte71AupdLgBIOMZiHtCO.html

Actionable Generational Wealth Succession. For more in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: https://www.transitionbook.co/member-area/6cf3b890596

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The conflicts that take place within wealthy families are often on display through the media as a result of their public profiles (and because people want to read about them). For outsiders, they can be hard to understand: What are they fighting about? Surely there is enough there for everyone?

But in fact, wealthy families have all the same family issues as others: sibling rivalries, favouritism, jealousy, power struggles, and the search for identity. The only difference is that in wealthy families, the conflicts can be played out with much bigger stakes.

Throwing money at a family problem doesn’t make it go away – the best it can achieve is to “kick the can down the road”, or defer it. It’s rarely about the money, which cannot – in and of itself – make people happy. Solve the underlying issues, and the money component suddenly becomes easier.

Advising a family business, or developing a wealth/business succession plan with a family is part business advisory, and part therapy (often more of the latter)

Consider This: How many arguments within your family look like they are about money, but are really about deeper issues?

Original articles: https://www.townandcountrymag.com/society/money-and-power/a27191152/rupert-murdoch-family-therapist-dynasties/, http://www.campdenfb.com/article/keep-out-ring, https://www.theatlantic.com/family/archive/2018/12/rich-people-happy-money/577231/

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Wealthy people broadly come in two flavours – wealth creators and wealth inheritors – and each have very different characteristics.

Attitudes to money and wealth are usually established as we grow up and largely remain with us for the duration of our lives. Creators often grow up without a lot of money and therefore have different attitudes to spending and the value of a dollar, are uncomfortable talking about it with their children, and often look at the wealth they created through an “ownership” rather than a “stewardship” lens. If they have created the wealth through starting a business, they also have a set of beliefs (resilience, confidence, sense of invincibility) common among business founders and entrepreneurs.

Inheritors view the world very differently, sometimes feeling conflicted or guilty for the “sin” of not having to earn it like most others. Depending on their upbringing, they may not have a sense of the value or spending power of money. They are often challenged to develop their own identity – not wanting to be known as “the child of …”, and needing to make their own mark. Their mark may often be in the non-financial arena (because their parents already made it financially).

In order to effectively transmit or transition the wealth to the next generation, both creators and inheritors need to understand their difference, and learn new skills (raising children with healthy money attitudes, adopting a “stewardship” approach, finding meaning beyond money).

Consider This: Have you considered how your attitudes to wealth might differ compared with your parents or children? Have you had family discussions about these differences and what they mean to each of you?

Original articles: https://edition.cnn.com/2019/07/23/success/financial-enabling/index.htm, https://www.fa-mag.com/news/russ-prince–among-super-rich–self-made-wealthy-and-inheritors-think-differently-45566.htm, https://www.fastcompany.com/90372281/5-lies-youve-been-told-about-generational-wealth, https://www.forbes.com/sites/forbesbooksauthors/2019/08/06/better-together-stewarding-wealth-and-wisdom-to-prevent-affluenza/#2e9f03807a58

Actionable Generational Wealth Succession. For more in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area

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I thought I would re-share this co-written article last year with me and Henry Brandts-Giesen for the New Zealand Law Society about two different perspectives on information disclosures for family trust beneficiaries.

I discuss the the humanistic perspective while Henry discusses the legal view of it. They put forward the trustee’s obligations and rights in this article.

Original Article: https://www.lawsociety.org.nz/practice-resources/practice-areas/trusts/perspectives-on-the-disclosure-of-information-to-beneficiaries-of-family-trusts

For additional in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter (formerly Family Matters): www.transitionbook.co/member-area/ or book a call or speaking engagement at https://www.davidwerdiger.com influenced and partly based on the Book E-Myth Revisited case study. Actionable intergenerational wealth planning practices.

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

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

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

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

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

Actionable Generational Wealth Succession. For more in-depth, thought-provoking discussion points and commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area/

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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 commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area

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

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 commentary on family and business, sign-up to gain access to the archives of my Familosophy newsletter: www.transitionbook.co/member-area/

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