Family Office Services: Heir ‘readiness’ key to successful Family Wealth Transfer

Establishing a Family Wealth Charter will determine the Family Office services required for achieving wealthy family group objectives. It’s the first, and most important step in successful family wealth transfer. Equally important is heir ‘readiness’.

Given 70% of intergenerational wealth transfers fail¹, getting the family ground rules right usually involves ironing out any issues that may exist with and between family members. Matters of trust and fairness rank highly as common bones of contention and must be addressed in family office strategies for growing, protecting and ultimately transferring family wealth to following generations.

$3.5 trillion in family money is currently in the process of being transferred to Generation-X and their Millennial offspring and it’s for this reason Family Office services have never been more important.

However, the type of services necessary for each wealthy family group can only be determined following a process that examines all aspects of the family, in particular the dynamics and relationships between family members, along with understanding everyone’s goals and expectations.

Advising wealthy families and establishing the family office services they need, requires a delicate touch when addressing difficult matters affecting the personal lives of family members, while a firm hand for forming strategies that reflect the family’s enduring charter and achieve continuous intergenerational wealth transfer.

The fact is, most families have skeletons in the cupboard and when considerable wealth and reputations are at stake, family leaders need to know what they’re dealing with and accommodate it in their strategic planning.

Shoring up the family’s future means there can be no sugarcoating on significant issues (these might include criminal behaviours, gambling and debt, separation and divorce, ill health, mental health and premature death), as all have potential to derail achievement of family wealth objectives.

As a family office professional advising wealthy multi-family groups, my role includes but extends well beyond accountancy, tax management and business advice.

I am a mentor, extractor of information (from all parts of the family group) and a collaborator working alongside other highly skilled professionals whose expertise is integral to achieving family wealth goals.

In my experience, the absence of clear communication is the key cause of family wealth transfer failure.

Even if it’s not intentional, lack of or miscommunication, creates fairness and trust issues along with uncertainty.

For many wealthy family groups, it’s often a case of Mum and Dad building an empire and because they’ve managed everything themselves, they simply didn’t see the need or found it too difficult to communicate their wealth details to their kids.

It’s also common for one spouse in a partnership to have more involvement in the family business activities and greater wealth knowledge than the other. This can result in difficulty for the family when things change.

When the kids are growing up, they usually know their parents are wealthy, but often don’t know the scale of the family’s wealth.

However, as everyone gets older, family wealth responsibilities need to be shared and for the most basic of reasons: Mum and dad aren’t going to be around forever.

Whether they live to a grand old age or they die way too young, readiness to take control will be the difference between the family empire carrying on or collapsing.

Of course, family readiness doesn’t just happen, and it is tightly tethered to establishing a Family Group Charter.

For wealthy families at the beginning of intergenerational wealth transfer planning, there’s a structured process for establishing the facts about the family group and clarifying where it is now and how it is likely to evolve in future.

An initial meeting, usually with Mum and Dad, aims to explain the need and value of a family group charter, the process for establishing it and of course, identifying the individuals who make up the family group.

These family members or stakeholders are individually interviewed. While we cover a lot of ground, fundamentally our aim is to expose what each family member knows or doesn’t know about their family wealth, their individual strengths and weaknesses, willingness to be involved in future family group leadership, their own wealth and lifestyle goals and trustworthiness.

There are also anonymous interviews that are designed to reveal any family relationship issues or secrets that need further investigation.

Once all stakeholders are on board and the family group leaders are identified, we facilitate a family meeting with an agenda based on our investigations and which underpins drafting a family charter. This must be considered by all family members, amended as required and ultimately agreed upon.

Matters relating to trust and fairness are also addressed along with solving the riddle of ‘what happens next’ when circumstances change.

Discussions are initiated relating to the pros and cons of family members working together, how different individuals may be involved and to what extent.

The benefits and consequences of financial, tax, commercial and legal outcomes of staying together and strategies for breaking everything apart if necessary, are also discussed.

The point is, as facilitators of wealthy family office services, we deal in facts rather than perceptions, and facts underpin heir readiness which is ultimately the key to smooth wealth transfer.

With the family charter set, strategies agreed upon, family office services can then be curated.

Among them family wealth education, training and mentoring as this is crucial for enabling family members to take the reins when the wealth transfers to them.

As described in this series of articles, each family group is different and effective family wealth management requires a curated multidisciplinary approach.

Actively managing family wealth across its many and diverse asset classes while understanding investment policies and approaches to philanthropy can be a demanding task for both family members and their advisers.

The key is to compile an ‘advice team’ that delivers Family Office services collaboratively.

Wealthy family groups need professionals from different disciplines who actively share their knowledge, experiences and perspectives. Similarly, advice team collaborators should proactively challenge common thinking and strive to make the most of the family group’s wealth now and for perpetuity.

These are the hallmarks of an effective Family Office.

For more information and arrange a 20-minute discussion with Craig Barry, please contact Resources Unearthed on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.