All families pass wealth on from one generation to the next, but two variables fundamentally affect this generational transfer of wealth; the quantum thereof and whether the transfer is positive or negative wealth. Business planning and the management of family wealth should not only be for the purvey of the Rockefeller and Rupert family’s, but for every family.
Activ8 suggests that every family should have an office, a “family office”. By this we mean, not just a room in the home that is a designated study or work area.But rather, a metaphorical business concept that manages the family’s wealth in conjunction with sound and trusted business principles.
The hallmarks of a successful business are strategy, focus, accountability, and profitability. Why should the measure of success for a family be any different? Successful businesses ensure that their products and value proposition move with the times and are cutting edge for the markets in which they operate. A family investment portfolio should not be any different.
What are the fundamental principles of a good “family office”?
- Strategy: Every family is unique and the strategy for family wealth should incorporate their defined objectives and goals. This strategy should be reviewed annually, and measured against predetermined goals and objectives.
- Inclusivity: Include family members from a young age. Family offices that fail often have a dominant family member who may make unilateral decisions to the detriment of the family wealth. Preparing the next generation for their roles is crucial in ensuring that family wealth survives into future generations.
- Non Execs: Listed companies are forced by law to have non-executive directors. These are directors not involved in the day to day running of the company. They bring an independent perspective to the business. Families are no different, external independent expertise is invaluable.
- Accountability: Accurate record keeping of meetings and decisions as well as measuring investment performance against predefined goals and objectives.
To ensure that negative wealth transfer resulting in investment drag on the younger generation does not happen, families often need to have tough conversations. Parents living beyond their means is detrimental for the next generation as it is often the children who end up shouldering financial responsibility for their parents poor decision making.
Families in the fortunate position of a positively transferring wealth need to work at ensuring that the tax and estate duty leakage effects upon death are efficiently managed. It is also pertinent to ensure that the family investment portfolio is appropriately risk profiled to manage the capital required to fund the current generation, whilst also maximising the growth potential of the future generations’ capital.
The Activ8 group through its wealth management, fiduciary and offshore skill set are ideally placed to be your family office advisors. We are independent and align our advice to the family’s overall strategy, goals and objectives.
If your family office is only a room in your home, in which you review your bills and payments, why not make an appointment with an Activ8 advisor?
