"Advisors should remember that families measure success differently," says Jane Flanagan, senior consultant at Family Office Exchange specializing in family governance, "Advisors tend to think of numbers on a report card, but families are often more interested in intangibles. For them, having peace of mind and family harmony is a definition of success."
How can financial advisors working with wealthy families who have a family office - and even those without a formal structure - achieve better governance to reach their goals?
Start with a family mission statement, says Beth Landin, vice president, client and strategic relationships, for Market Street Trust Company.
"Document the family's purpose and goals," Landin says. "Articulate the family's primary goals - whether it's keeping the family together, education, financial and cultural sustainability or promoting a favorite philanthropy."
Next, establish an effective system of governance, beginning with a governing board.
Leadership development is particularly important, says Flanagan.
"You want to prepare family members to be effective board members," she counsels. "They should look into training programs and education in financial literacy and investing. Advisors should also encourage the family to bring in outsiders, non-family members with unique expertise, to become board members."
Focusing on the next generation of family members is critical, says Marianne Young, Market Street president and chief executive. "One of the biggest challenges is the transition to a new generation to take over family leadership. A line of leadership needs to be established and cultivated."
The family's governing board, FOX advises its members, needs to make sure family values are aligned with the mission of the family enterprise and that all family members are engaged in decision-making. The board must also communicate effectively and resolve family conflicts fairly.
In addition, guidelines need to be set for how decisions are made, how board members are elected and compensated and how terms and term limits are set. "A good structure eliminates a lot of conflict later on," Flanagan notes.
There should also be an annual assessment of the value of the family's enterprise activities, she suggests. Areas to examine, she recommends, should include the family's wealth sustainability; the complexity and costs of wealth management services; the experience of all family members and review of satisfaction and performance of staff working for the family.
Advisors working with families on governance should also have patience, Young says.
"It often feels like ten steps forward and great progress, and then something happens and you take five steps back," she says. "Keep in mind that [family governance] can be a slow laborious process, but as long as you keep moving in the right direction, you're making progress."
- 4 Key Ways to Help Wealthiest Families
- Targeting Wealthy Clients: Understand Their Source of Wealth
- How to Manage Concierge Services for HNW Clients
- For Wealthiest Clients, a Rise in Direct Investing
- Legacy Planning: Beyond the Wealth Transfer