As advisors to wealthy families, we have a responsibility to help clients plan for the future and prepare for unpredictable events. The start of a new year is the perfect time to begin discussing a more intentional planning process that families with multi-generational wealth should consider. We've all heard the nightmare scenario of the wealthy matriarch or patriarch who dies unexpectedly with a will that's so outdated that all of the assets go to a long-ago divorced spouse, leaving the current spouse without resources or recourse. As advisors, none of us want this to happen to any of our clients.

This scenario stands out because it's a concrete example of failing to ensure that financial assets are properly bequeathed — an unfortunate, devastating event for future generations that could have been avoided with relatively little effort. Yet, while many families work with their advisors on the straightforward aspects of future planning, very few elevate their strategic thinking to a higher level — and initiate planning that encompasses far more than transfer of financial assets — where they define their past, decide where they want to go in the future and determine how they plan to get there.

Long-term Focus

Family Office Exchange (FOX) has long maintained that strategic or intentional planning can make a significant difference for a family with multi-generational wealth, both in terms of harmony within the family and in enabling family members to recognize risks and leverage opportunities. One of the defining characteristics of families that maintain their wealth and identity into the fifth and sixth generation is that they come together on a regular basis, along with their advisors, to analyze their current situation (financial, human, philanthropic and business capital) in a strategic manner and evaluate their plans for meeting long-term goals. While this advice seems simple, it's very difficult to initiate this process.

Maintaining a long-term focus requires all parties, family members, as well as their advisors, to think beyond current circumstances and incorporate longer term goals into all aspects of decisionmaking. It also requires ongoing communication and cooperation between the family members and their network of advisors, which can add time and effort to the decision-making process. Therefore, the incentive for taking this approach has to be more than an intellectual belief that long-term planning is valuable. The family members must be strongly motivated to justify the additional time, expense and personal commitment required by this approach to generational wealth planning.

Tangible Benefits

Realistically, family members need to see tangible benefits (as opposed to philosophical ones) to find the motivation to begin and maintain this intentional planning process. In “Getting Motivated,” p. 19, the benefits of long-range planning are laid out both in terms of family member engagement and future strategy. These benefits summarize the comments of more than 100 family groups that have undertaken strategic planning, and they emphasize the consequences of failing to commit to a long-term planning process. What are the risks of having poor leadership in future generations or a lack of understanding or respect for different views within a family? What are the risks of the family going through a transition with poor communications or misunderstandings about the end goals and objectives? Neither family members nor their advisors would agree that these are acceptable risks, but by failing to do long-term planning, many families are taking these risks nonetheless.

In many cases, getting family members to the planning table requires a catalyst, usually an impending “trigger event,” that's imminent and powerful enough to hold the attention of the family members and prompt them to action. The most powerful examples include the sale of a business, termination of a trust or death of a family member, because these events have an immediate impact on personal finances.

Understanding the Roles

To gain widespread participation in a planning process, everyone has to understand his own role. “Roadmap for Advisors,” this page, demonstrates the different roles and players in the process. The family's shared vision and objectives inform the family office on the strategic deployment of the capital it's overseeing. This interconnected process provides a roadmap for external advisors to determine the optimal strategies and structures for the family office and the family to consider.

Action Plans

Finally, the family must have action plans that prioritize and clarify what needs to be done, along with the anticipated outcomes of this work. The more concrete the action plans, the more family members will get behind them and commit to the planning process.

In the end, intentional planning provides a family and its advisors with a more integrated view of the family's current situation, as well as an understanding of how different issues overlap and relate. Having a better command of these issues and recognizing their connectivity give family members the ability to better predict risks and the courage to tackle problems before they lead to a crisis. In a time of shifting demographics, with baby boomers retiring and the next generation coming into leadership, advisors to families with multi-generational wealth now have a real opportunity to encourage clients to take a more comprehensive, long-term planning approach. The end result could mean the difference between a client whose family wealth predictably disintegrates in three generations and a client who beats the odds.


Sara Hamilton is founder and CEO of Family Office Exchange in Chicago

Getting Motivated

Families need to see the benefits of long-term planning

FAMILY ENGAGEMENT

  • More family members involved in the enterprise
  • Better understanding of other family members
  • Greater respect for different views and ways to manage the differences
  • Fewer questions about the future decision-making process
  • Fostering development of future leaders

FUTURE STRATEGY FOR THE FAMILY

  • Better understanding of common family goals and objectives
  • Clear understanding of issues and options
  • Isolation of important questions that need to be discussed
  • Ability to understand transitions before they occur
  • Developing a clear path for the family enterprise's future

Family Office Exchange Research