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?
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?
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.
Money creates freedom to enjoy the best things in life, yet statistics show that levels of wealth have an extremely modest impact on our happiness. Why is this? Our panel discuss the paradox of having it all yet still feeling discontent. What are we doing wrong?
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?
David Werdiger is the managing director of the private family office Nathanson Pearson in Melbourne, Australia, and the author of Transition, a book on preparing for wealth transfer. Werdiger spoke with Crain Currency about how he works with high-net-worth families and on planning for succession.
Can you tell us about your background? What led you to work with high-net-worth families?
It really started with having grown up as the youngest child in a HNW business family and one very involved in community. I worked in the family business as a child and as a student and felt quite self-conscious, as the boss’s son, about how others might perceive me. By the time I finished university, I decided not to join the family business. Three other family members all 10-plus years older than me were already working there, and I didn’t see a place for myself. I had a job for a few years but always wanted to be in business because that’s what I saw growing up.
Through 20-plus years of my “second career” as a tech entrepreneur and through several nonprofit directorships, I learned a lot about governance, strategy, intergenerational issues, philanthropy and family offices. I got to know a number of other families and heard their stories. I observed up close what no-profits and families did well and the huge cost to them when things don’t go well. This fed my passion for good governance — what I essentially describe as the responsible use of power.
After completing a master’s of entrepreneurship and innovation, I found myself writing and speaking about family wealth. I was thinking about what I wanted to do with my life — aware that in my own family, there would be an intergenerational wealth transition. I had already learned a lot but needed to continue that and to prepare myself for that future. At that stage, I decided I wanted to help other families on their journey, so I wrote a book and became a family enterprise adviser. That was the beginning of what has become my “third career,” and it has been developing nicely over the past few years.
How would you describe your approach to working with clients?
Holistic. I serve the whole family rather than any one family member. And when working with an individual, I work with their entire self: business, personal and the integration of all parts of themselves. I’m very top-down, pulling back to the big picture and then working down from there. That means there’s initially a focus on values and purpose, and everything either flows from that or has some connection to it.
It’s easier to answer questions like “Why are we doing X?” when we can link them back to the family’s or individual’s values.
Another big area of focus for me is process and decision-making. My goal is to help families make good decisions together. That means families need a good decision-making process — one that raises all voices, considers decisions within the broader family context and therefore generally leads to better-quality decisions. These principles apply equally to my work with family groups and also entrepreneurs and family businesses.
You wrote a book, Transition, about preparing family businesses for wealth transfer. What do you think are some of the most important steps family businesses can take today to prepare for the inevitable changes they will face in the future?
Firstly, be open to change. Not every family business is meant to last forever. The ones that last do regular strategic planning, are prepared to reinvent themselves, make significant changes to the way they do business and avoid holding “sacred cows.”
Secondly, ensure the family members involved are there because they want to be. In families, there can often be an implied or actual obligation to join the family business. When this happens, it can lead to resentment and a sense of being trapped. Being part of the family business isn’t for everyone, and having clear policies on how family members are prepared and qualified to join leads to them being more engaged and aligned.
Finally, provide a pathway for incumbent family members to move to the next stage of their lives. Note: I didn’t use the “r-word” [“retirement”] for a reason. It has connotations of being moved out to pasture and no longer being of value. In a family enterprise, it’s the opposite. More senior family members are a huge source of social capital in the family. So, it’s about helping them transition to the role of “elder,” where they can support/guide/mentor others rather than remain operationally focused until the day they die.
You are writing a second book, focusing on social media. How do you think the constant connection to the digital world has impacted succession planning?
That’s a fascinating question. I actually wrote an earlier version of that book before I wrote Transition, then put that project on hold. I have wondered about the link between the ideas in the book and the work I do with families. The constant connection to digital is, among many other things, another manifestation of the generation gap, which has existed for centuries. Parents and children often live in different worlds and talk different languages. The bigger impact of the digital revolution on succession planning is how it has disrupted so many businesses — that is probably a more significant threat to family business continuity.
What are some of the common succession challenges that you help your clients work through?
Family business succession can be a tricky one. There is the “sticky baton.” The incumbent who says they want to retire but don’t really. So they talk about it and talk about it but never push the button or agree to a formal plan. Or — and this can sometimes be worse — retire but don’t really let go and remain involved.
Then, there is the situation where none of the children want to join the family business. And the reverse, when children are in the business and aspire to move into a leadership role but don’t have the capability.
Another big challenge is when there is an existing conflict situation, sometimes between the incumbent and the rising generation over key business decisions, or within the rising generation over roles within the business or distribution policies or … well, anything.
How can family members develop productive and open ways to discuss and overcome these challenges?
The way to overcome these challenges is largely through discussion. The problem is that just the relevant family members sitting down around a table and trying to work things out often doesn’t work. There are a few reasons for this. One is that there is far more around the table than just the family members. There is the implicit family hierarchy and power dynamic, which means parents will act like parents rather than business owners or partners. Birth order and gender stereotypes can also be an impediment to hearing voices on their merits. I know this from experience — I’m the youngest — and from families I’ve worked with.
Then there are the decades of emotions and family baggage. A conflict that is expressed as who should be CEO might actually be a proxy for a sibling rivalry that started when the siblings were children and remains unresolved. The real issue is often beneath the surface, the things people don’t like talking about.
That is where having a genuinely independent voice around the table can help facilitate open discussion, confront the actual problems and reach consensus. The discussions can be very difficult, but that’s not a reason to push them off. In fact, it’s the reverse. Issues often fester and grow the longer we delay dealing with them. Part of that process is developing a set of guidelines — they might be called a code of conduct or a family charter — which determine the rules by which the family operates. These are all the tools of good governance, and they apply equally to families as they do to organizations.
“The opposite of love is not hate, it is indifference”. This quote has been widely attributed and the concept dates back to the 19th century. We can understand this by considering two dimensions to a relationship: valence and intensity.
By valence, we mean if the relationship is positive or negative, and we add to this a second dimension of intensity that represents how strong our feelings are. This is illustrated in the diagram: a positive valence with high intensity is love. As the intensity reduces, love reduces to like, and hate to dislike, but as the intensity reduces even further, the relationship devolves to indifference.
This differs from typical 2×2 models – the shape is a triangle rather than a square. This is because as intensity gets lower, valence becomes less important. In the extreme, the relationship is reduced to “I don’t care”, which can be a far more difficult relationship to mend.
When the intensity is high, even if it’s negative, there is something to work with because the person cares enough to express their negativity. It is possible to engage and deal with those negative feelings and address them.
By their nature, relationships involve at least two parties. That means we need to consider the valence and intensity of each party and not assume they are the same. If A feels love and B is indifferent, then not only are they far apart (so bringing B back from indifference is an important step), but A is also experiencing a lack of reciprocity to their love.
When it comes to family relationships, things are more complicated. There may be more than two parties in conflict, and sometimes conflict can coalesce around groups within a family when family members take sides which can lead them to become amplifiers of the conflict of others, rather than seeking to limit the conflict to the protagonists. When we add a family enterprise into the mix, things become more complicated still. In addition to the family relationships, there may be business and ownership relationships. A family member can simultaneously feel love for another yet despise them for the way they act in the family business context (and vice versa).
This state of mixed emotions – known as ambivalence – can itself exact an emotional toll. It can help to acknowledge that they come from different contexts within a broader family situation, rather than seeking to net off one emotion against the other. That can allow the specific issues to be addressed in relative isolation.
Another attribute of family relationships is their longevity, and they endure much longer than people think. Only a small class of serious relationships can truly end, allowing the parties to completely walk away, such as when a couple divorce and have no children. In almost all other cases, they remain tethered in some way: divorced couples with children, estranged family members, and similar. While people may say “our relationship is over” or “we have no relationship”, a more accurate characterisation would be “we have an awful or dysfunctional relationship”.
Relationships within a family enterprise are, by their nature, complex. It behoves us to acknowledge and work within the complexity rather than seek to brush over and simplify matters.
Conversation Starters: In the broadest context of your family enterprise, how many different relationships do you have with other family members? To what extent do those relationships affect each other?
This was my question for the then-president of Jewish Funders Network at a meeting in Melbourne, Australia, in 2004 that would be the genesis of Australian Jewish Funders, a local sister organization of JFN.
Everyone in the room knew I was asking about giving to Jewish causes, but the president deftly sidestepped my point.
“Our members give as an expression of their Jewishness,” he answered.
The debate about whether Jewish funders should prioritize Jewish causes has only been going on for a couple thousand years. The Talmud (Bava Metzia 71a, drawing on Exodus 22:24) lays out the guidelines if one is approached for a loan: Jew before gentile, poor before rich and your own city before another place. It concludes with the well-known adage that the poor people in your own city take precedence.
Of course, decisions are rarely that binary. Furthermore, that was an era of Jews living in hostile environments, without the rule of law and basic rights that we now take for granted. In modern Western democracies, we are integrated with wider society and enjoy the same rights as other citizens.
One argument, which we can term particularist, is that we should prioritize Jewish causes because non-Jewish funders don’t generally give to Jewish causes. Our own charities need far more of our support than they would ever get from sources outside the community.
The other, universalist argument is often guided by the mission of tikkun olam — to repair the world, be global citizens, look after the stranger and the refugee (because we were strangers and refugees) and generally make the world a better place. For some, this puts advocating for the rights of minority and indigenous communities above supporting Jews and/or Israel.
Again, this is not a binary decision. We do indeed give as an expression of our Jewishness, and that means very different things to different Jews. Rabbi Lord Jonathan Sacks noted that straddling the line between particularism and universalism is the quintessential Jewish challenge.
When it comes to life as a Diaspora Jew, other factors come into play. Many of us live a life highly integrated with the secular world, whether professionally or personally or both. We are largely accepted as equals. Some giving is in part motivated by the desire for acceptance: Jewish names proudly adorn the walls of hospitals and universities, and Jews actively supporting the arts is surely a sign that we are a genuine part of society.
For decades, Jewish funders have developed and adapted their approach to giving in line with their values and purpose as individuals, as families and as Jews.
And then, on Oct. 7, everything changed.
Since the brazen and barbaric attack on Israel by Hamas, and Israel’s necessary response, we have seen a surge of antisemitism around the globe. The shouts of “f–k the Jews” and worse at a demonstration at the Sydney Opera House on Oct. 9 – before Israel had even framed its military response – clearly show that these views about Jews and our state are not a function of what Israel does. Later that month, the arts community in Melbourne hosted a workshop that produced banners with antisemitic and anti-Israel slurs as a crafts project. The wave of pro-Palestinian protests that feature antisemitic and anti-Israel messaging, as well as general antisemitic incidents have left many Jews not feeling safe walking the street in their own home cities; and many university campuses, despite the generosity of Jewish donors, are no longer safe for Jewish students.
The worst part? It is unlikely that anyone suddenly changed their views of Jews and Israel after Oct. 7; rather, they are now unafraid to say publicly what they really thought of us all along. That really hurts. It also serves as a reality check about what our so-called integrated life in wider society really was before Oct. 7.
Jews are wondering about their future in some parts of the world. Interest in aliyah from Europe and the U.S. has surged. Students are considering alternatives to the prized places in Ivy League universities.
With all of this in mind, it’s time for Jewish philanthropists to revisit allocations and strategy. Our idyllic views on Jews being accepted in the Diaspora may be fantasy. While some organizations in wider society have affirmed their support for Israel, others that we have supported so generously have turned their backs on us. How should we deal with them, and how should we adjust our approach to giving moving forward? How can we be more strategic about our giving?
One approach is to turn inward and focus on what our own people need ahead of others — to move our dial toward particularism. This might translate to increased allocation to Israel, whose needs for support have increased dramatically, as well as strengthening the Diaspora communities where we live.
Another approach — and these are not mutually exclusive — is to audit the organizations we currently support and stress test our values alignment.
In Australia we have seen a number of Jewish supporters resign from board and committee positions in the wake of anti-Israel activism within those organizations. How many other such situations are on the verge of erupting? Looking at the organization’s mission and values doesn’t tell the whole story. More comprehensive due diligence should extend to key personnel, board and committee members and executives who may use their roles to further a personal agenda. We have seen this in Australia as a number of local councils have proposed ostensibly pro-Palestinian support motions that are littered with antisemitic tropes. Foreign policy is not within the remit of local government in Australia. This is coming from activist council members.
Asking people about their views about Israel and the conflict can be too direct; what I am proposing requires a softer touch and some nuance to determine what people really think about the issues. Hunting through years of someone’s social media feed is overkill, but browsing to get a sense of the things that are important to them can be very telling.
Scenario testing is another tool funders and nonprofits can use, and it can often be straightforward: Organization X did Y, and Z happened — how might you deal with such a situation? A more subtle form would be to ask loaded questions of individuals to test what they think of incidents that have occurred elsewhere. One of the best tests of an organization’s and individual’s values is exploring the boundaries — what they would not do or support because of their values. This serves as a test of their commitment to said values and what they mean in practice.
Good philanthropy isn’t about writing checks; it’s about using our resources to connect with the world around us in a meaningful way that brings meaningful change. Doing it well keeps getting harder. To paraphrase Hillel (Ethics of the Fathers 1:14), if we do not support our own, who will? But if we only support our own, what are we? And if not now, when?
The author of this article – a family enterprise advisor, author, lecturer, tech entrepreneur and nascent family office principal – took away a set of ideas from a symposium in New York. Here’s what he learned.
The following article comes from David Werdiger, who describes himself as “a family enterprise advisor, author/speaker/lecturer, former tech entrepreneur, nascent family office principal.” His article stems from a UHNW Institute symposium held in November last year (in which Family Wealth Report was involved as exclusive media partner).
We are very pleased to share these insights from Werdiger and, of course, welcome any responses. Jump into the conversation! You can email tom.burroughes@wealthbriefing.com. Remember, the usual editorial disclaimers apply to views of guest writers.
Remember the Great Wealth Transfer? You know – all those retiring Baby Boomers and the trillions of dollars that were going to be controlled by their children? The impact on advisors was expected to be significant – from the need to engage with a rising generation with different attitudes to their parents, to the risks of being dumped for being “our father’s advisor.” While the wealth transfer has been taking longer than expected, the effects are being felt by the advisor community. Not many firms have undertaken a systematic assessment of the risk of this generational transition. Indeed, the industry has largely been operating in a certain way for the past 20 to 30 years, in the false belief that things will largely stay as they have been. In the meantime, a group of family wealth advisors from a leading think tank have been thinking big about how advisors can more effectively serve families of significant financial capital.
About Wealth 3.0 This story starts with the UHNW Institute, a nonprofit think tank and learning exchange seeking to raise the wealth management industry to a new standard so that families and their advisors can have more meaningful and multigenerational relationships. Three senior faculty members from the Institute have published Wealth 3.0 – a clarion call for a new approach by advisors to ultra-high net worth families.
Over the past few decades, in what they describe as Wealth 2.0, the advisor narrative has been (a) based on fear and negativity, and (b) dominated by the financial aspects of family wealth. The adage “shirtsleeves to shirtsleeves” has been branded a “curse” and used to strike fear in the hearts of family incumbents: spoil your children and they will lose it all. But it is not a curse – rather a statement about how different generations relate to family wealth. And one of the most quoted statistics about the survival of family business – that only 30 per cent of family businesses make it to the second generation etc. – is based on flawed research that has not been replicated.
It’s time for both of those narratives to be disrupted. The negative tropes need to be discarded: family wealth can, in fact, keep families together and bring benefits to society. We should stop conflating family business with family wealth – they are different and need distinct approaches. And the focus of family wealth advisory needs to widen and consider the other forms of family capital behind the financial: a family’s human capital, its knowledge, networks, and purpose. A more integrated advisory approach draws on the Institute’s Ten Domains of Family Wealth model, and is articulated in the acclaimed paper The Rise of the Integrated Advisor.
Why it matters This is the call of Wealth 3.0. The wealth industry is shifting. This is not just about “alts” and large allocations to illiquid asset classes. It’s not just about the rising generation’s different approach to investment and impact. Rather, it’s a major “upgrade” to the way advisors serve families. As an advisor, are you ready for this?
One way to find out is to do a “SWOT” on your advisory practice: examine your internal strengths and weaknesses in the context of this emerging trend, and the external opportunities and threats that will come with it.
Strengths These are the internal capabilities that you will be need to leverage and build upon to be an effective advisor in this new paradigm.
While the idea of integrated family advisory is very important, there is no expectation that every advisor will transform into a generalist. Nor will there necessarily be a wave of M&A that will bring together disparate disciplines such as wealth management, law, and family dynamics into fully integrated advisory firms. There are levels of integration, and some firms may choose to stick to their lanes. If they do, they will need to develop existing collaboration skills. Practitioners may also need additional training in other disciplines – not to become experts but rather to know enough about adjacent and complementary disciplines to know when to bring in outside help. In a time of great change, the species that survive are not the strongest or the fastest, but rather the most adaptable.
The key strengths you will need in Wealth 3.0 are: collaboration, learning, and adaptability.
Weaknesses Some firms are overly protective of their client relationships to the point of blocking other professionals – even if their expertise is different and non-competitive – for fear of losing a client or weakening their standing with the client. Some firms purport to offer a full suite of services to clients when in fact they are very strong in one of two and mediocre in others (or dismissive of their importance).
Wealth 3.0 demands that advisors increase the emphasis on what is best for their clients. Family clients often have complex needs that cannot be met with a single firm, or in an environment that is overly competitive between firms that are servicing the same client. The client will often be better served by the mix of providers that meet their needs. That is a reality that firms need to accept. Would you rather have a larger “share of wallet” with a client that is not being served well and is therefore at risk of leaving, or a smaller share but a sticky client who loves you for what you do? It’s time to think about customer lifetime value rather than margin maximization. This is especially true for clients with generational wealth who in theory could be with you as a client for decades.
The weaknesses you will need to address are competitiveness, short-termism, and zero-sum game thinking.
Opportunities In any industry going through disruption, there are opportunities both for incumbents and startups. For incumbents there is an important decision regarding what level of integration they seek, and with whom they will choose to form alliances. There may be some M&A as firms seek to bring capabilities in-house rather than collaborate and look for economies of scale. We are a long way from understanding what service models are optimal both from a client and a firm perspective, and indeed there may not be any single “optimal” or “best practice.”
Larger advisory firms that are slow to adapt may be disrupted by startups, built “from the ground up” to serve clients using approaches inspired by Wealth 3.0. Such firms already exist.
The industry opportunities will likely be around collaboration and partnerships.
Threats Mike Tyson famously said: “Everyone has a plan until they get punched in the mouth.” Wealth 3.0 is a call to the industry, not yet a fully developed client engagement strategy. As such, the industry will be in a state of flux for a period of time as firms and advisors consider how to take aspects of this new paradigm, and families consider what changes if any they should make to how they are served.
This is happening in parallel with a significant wealth transition, which means that rising generation family members are coming to the table with their own ideas about how things should be done. In some cases, there is a deliberate push against incumbents simply because they are “my father’s advisor.”
While you might think the threats are coming from competitors of all shapes and sizes (see ‘opportunities’ above), perhaps the biggest threat to look out for is from your clients. Between the inherent churn risk of the rising generation, and the greater awareness of the need to nurture non-financial family capital, clients may be looking for more. Understanding your clients more deeply as family systems (not just the people you deal with) may help you assess their broader needs as well as their risk of leaving.
The most challenging threats often come from where they are least expected.
Putting this into action When faced with the prospect of significant change, some firms devolve into a flight/fight/freeze response: a hurried response (“quick, let’s …”), defensiveness or denial (“there’s no way our customers will just leave us like that”), or paralysis by analysis (“let’s conduct another review”). They would be better served by a process that helps them navigate through the changing environment. While a SWOT like this is a good place to start, it’s just that: the start. Firms will need to be proactive and decisive regarding what to do next. Frameworks like start/stop/continue will be helpful, as well as a good hard look at remuneration policies. The behavior you get is the behavior you reward, so the key to changing how you do business is changing how you reward your team members.
It’s still early days in the Wealth 3.0 journey. One of its calls is for better industry research, and one area will be research about advisory firms. If you want to participate in a longitudinal study of how firms are responding to Wealth 3.0, please contact this writer.
Conclusion The only constant thing in life is change itself. If your relationship with your client is transactional and shallow, then it is at risk. Families of significant wealth think not in timeframes of five years, but 25 years or more. If your firm wants to remain a good fit with your clients, they you need to think more like your clients.
Forthcoming: Editor Tom Burroughes of Family Wealth Report is joining language strategist Michael Maslansky in conversation to discuss how firms and family members are thinking about the Language of Wealth, how it may evolve and how capturing stories of wealth creators and beneficiaries might change the greater narrative.
David will be interviewed on R. Adam Smith’s Family Business Audiocast at 4pm ET on 20 Feb 2024 (corresponding to 8am 21 Feb AEDT). Adam and David talk entrepreneurial legacy, risk in family business, how to know if your business is ready for succession, and anything else that happens to cross our minds at the time.
The Family Business Audiocast series – founded in 2022 – includes inspiring guest experts in the global family office ecosystem.
Where we start, whether it’s in life or each new day, is a key driver of where and how far we go.
“When you ain’t got nothing, you got nothing to lose”, crooned Bob Dylan. It’s a phrase often used to describe sport teams toward the end a terrible season, yet who manage to upset a leading team with plenty on the line. The underdog may be down on talent and seem to have nothing to play for, yet they are able to rise above their level and outplay a superior team. People sometimes need to hit “rock bottom” before they can begin the climb up.
The other side of this coin is the team or player who continues to win, and each time the pressure builds to maintain that success. Rare is the player who gives it all up in their prime at the top of their game (Australian tennis player Ash Barty, who battled depression throughout her short career, is a notable exception).
There seems to be something liberating about reaching the point when there is nothing left to lose (cue Janis Joplin: “Freedom’s just another word for nothin’ left to lose”) – where the only direction is up. And the burden to remain at the top is palpable and can lead to all sorts of negative emotions and consequent behaviours.
Continuing the sports metaphors, Barry Switzer said “some people are born on third base and go through life thinking they hit a triple”. This succinctly describes unearned advantage, or “privilege”. Further, once on third base, scoring is actually the result of another person’s hit. So even if you acknowledge the contribution of others in giving you a head start, your own progress can be both limited and tainted because they are not the result of your own effort. That’s an awful way to live.
The common element in all these cases is one thing we instinctively do as humans: compare ourselves to others. We look at each other’s clothes, possessions, occupations and social media feeds and position ourselves relative to them. While we may be perfectly happy with our car, seeing someone who we’d consider a peer in a better car leads to feelings of inadequacy and jealousy.
The fact that we compare based on the superficial and external (and in the case of social media, possibly the fake) aspects of others’ lives doesn’t matter. The driver of the fancy car may be suffering from terminal cancer, clinical depression or be in an awful relationship. We point to rankings in rich lists as a measure of someone’s worth. Our minds are ‘cognitive misers’ – we seek shortcuts and simple ways to explain complex things. That translates to selective comparison with others, rather than viewing life as a package that has both positives and negatives.
This leads to one final lesson from the world of sport, and perhaps the most important one: few successful Olympic athletes compare themselves to others. Rather than seeking to run faster than others, they are constantly looking for their next “PB” – their personal best. Every day they aim to be a better version of themselves.
The burden of expectation is largely because of a focus on others – our position relative to them, and their expectations of us. But that position is an illusion we create. How we view our starting position (in life or each new day) is entirely up to us. Being our best is about being the best version of ourselves.
“Envy is inversely correlated with self-examination. The less you know yourself, the more you look to others to get an idea of your worth. But the more you delve into who you are, the less you seek from others, and the dissolution of envy begins.” – Lawrence Yeo
Conversation Starters: What are the expectations associated with being part of your family? Are these implicit or explicit? Do they come from the family? the community? What does being part of your family mean (aside from the financial)?
