Wealth Management as a Second Family Business

Date: Mar 25 2019

Family Office Exchange

Evolving from Business Owner to Financial Family

Families held together by a family-controlled business share a feeling of pride about the business. Their identity as a family is tightly woven into the fabric of the business that houses the history of their hard work and success. 

Many entrepreneurs who have enjoyed the challenge of building a family business face the decision to sell or take significant liquidity out of the business with mixed feelings—and a certain amount of trepidation. While liquidity has its benefits, it is important to recognize the reality of this life-changing transition and take the time to ask the important questions, evaluate the alternatives and plan accordingly.

Being in the wealth management business involves much more than hiring money managers to invest the proceeds of the sale. Preserving wealth requires owners to think of the wealth management process as a shared family business.

While there are no magic formulas, successful families tend to do the following:

  • Create a shared vision for the family's future together
    Clearly defined core values for the family and goals for the shared wealth are important elements for sustaining the family legacy. What is your vision for the family a generation from now? What are your goals for the wealth that is the result of your life's work?
  • Formalize family governance
    Documenting the family's mission and a process for decision-making are critical first steps in developing a family structure process. How involved will family members be in the wealth management process? Who will make important decisions and how will these be communicated to the rest of the family?
  • Select appropriate ownership structures
    Structuring assets properly has a greater long-term impact on your wealth than investing the assets properly. How will the decisions you make today affect your children's grandchildren? What are your goals for the wealth?
  • Balance risk and opportunity
    Every financial family faces its own unique set of risks. Documenting, discussing, and creating plans to handle these risks arms the family with the skills they need to weather times of crisis and/or transition. What keeps you awake at night? What are the shared risks that accompany shared ownership?
  • Teach responsibilities of ownership
    With wealth comes responsibility, as experienced financial families have learned. Family members who are taught that they are stewards or protectors of the wealth tend not to be shortsighted in their thinking about what is best for the family at large over the long-term. What are the characteristics of a "responsible owner" in your family?
  • Foster leadership skills
    Responsibility can be delegated, but true leadership authority must be earned gradually through the testing of skills and demonstrations of achievement. How can younger members of your family test their leadership skills and earn the respect of their cousins, aunts, uncles, parents and grandparents?
  • Establish metrics/benchmarks of success
    It is important to periodically stop and assess the family's performance relative to its wealth management goals and family mission. How does your family define long-term success and short-term value added?

Taking the time at the front end of this process to consider these important issues, to learn from other families who have "been there and done that," and to involve your family in the process, will save you time and money in the long-term.


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