August 28, 2019

As a business owner, you wouldn't operate without a clear vision and strategic plan. You wouldn't embark on a new initiative without first reviewing your cash flow and income statement to know how realistic your plans are. And certainly, you wouldn't make long-range plans if you didn't feel you had the best team to execute them.

For ultra-high net worth families, looking at family wealth through a similar lens can be instructive. Treating your wealth as a business, with the same cadence, infrastructure and strategic approach, can help you achieve your wealth goals and objectives.

“Many of our clients were once or are still active in the business leading to their personal wealth,” explains Tina Milligan, managing director and head of family wealth strategies, BMO Family Office. “They are used to being in charge and understanding their business intimately, so having personal wealth they don’t necessarily control and understand can be unsettling. Framing their money in language like their business lets them see that they're still at the helm.”

Of course, your family wealth may not be about the next big product launch, rather your concerns probably center around preserving and growing your wealth. Yet in order to achieve your objectives and increase the chances of success for the next generation, try applying the same mindset to your wealth as you do your business.

It all starts with values, vision and mission

Before you get down to brass tacks, you need to tease out what matters most to you and your family. In other words, what are your family’s goals and objectives? What does success, happiness and legacy mean to your family?   Your values should be the guiding principle behind many decisions, whether they’re investing, philanthropy or wealth transfer. It's a similar process that you probably underwent when you first launched your business. 

Only by being able to articulate what you hope to achieve and the core premise behind those goals and objectives can you demonstrate what makes you different. Everything else flows from this foundation.

“You can't get far without a concrete and measurable mission and vision,” Milligan says.

A good place to start is with a family blueprint. A family blueprint begins by describing the goals and objectives, values, vision and mission of your family. It also incorporates the family tree, family entities, as well as family members’ roles and responsibilities.

Then it delves deeper by spelling out an inventory of family assets and their corresponding owners. It presents the family balance sheet by outlining assets includible and non-includible in the estate, cash flow and tax projections and a plan for estate disposition. “The blueprint will be an evolving vehicle to measure strategic success,” Milligan says.

Assemble the right team

Businesses are only as good as the talent they attract and retain. Talent is the backbone of their success. You can think of managing your wealth in similar terms.

As the head of the family, you might cast yourself in the role of president and chief executive officer because you are the person who takes a big-picture view of your family's overall wealth. Next, seek out a chief investment officer to oversee the investments and conduct the due diligence and research on them. A chief financial officer and chief operations officer are crucial to putting together the reporting and reporting platform. These people make sure that the operations of the family wealth run smoothly.

“You might want to add additional roles depending on your family's needs,” says Milligan. “For example, I've seen families have a need for a family communication officer or a chief learning officer for coordinating family communication, family meetings, leadership and financial training.”

Naturally, not every family has all the skillsets among its members to manage their wealth most effectively. Do what any savvy business owner would do in that situation: hire non-family members or outsource.  Seek out professionals who have the experience so you can build the best team.

Do you have a risk mitigation plan?

We all like to hope for the best, but planning for the worst is just commonsense. That's why businesses use commercial insurance, life insurance and hedging instruments to mitigate the risks they might encounter.

“Instead of insuring equipment and inventory, you need to think about insuring assets that are more personal in nature,” says Milligan. Think homes instead of production plants, cars, boats and planes instead of equipment.

To be sure, you need robust property and casualty, life, cybersecurity and kidnap/ransom insurance to cover the major risks that families of wealth encounter. In addition, consider using insurance to provide for taxes.

“Taxes can be one of the biggest risks of assets not sustaining for future generations,” Milligan says. “You want to make sure you have sufficient life insurance to make sure the estate has sufficient liquidity to pay taxes so that heirs wouldn’t be forced to sell illiquid assets possibly at a discount to cover taxes.”

An insurance policy that provides a big enough death benefit to cover estate taxes can help your heirs retain as much of their family wealth as possible.

In addition, think about succession risk. Just as a business needs to plan for the continuity of its leadership and operation in the event of the retirement, illness or death of its owner, a family must make a roadmap for how its wealth will be managed after the passing of the senior generation. 

Find your place in the community (or world)

More businesses today are tying their philanthropic and impact investment activities to their corporate mission. You might feel similarly. To do that, you need to develop a strategic plan about your charitable and impact investment intent, so you can ensure that your wishes are carried out.

“It's part of a conversation families need to have,” says Milligan. “You want to answer the question, 'What do we want our wealth to do?' For many families, philanthropy and impact investment becomes such a big part of their mission that it takes on a life of its own.”

In many cases, families opt for a charitable entity to meet these objectives.  A charitable entity can have business-like qualities itself and be a powerful way for a family to share their values with the next generation.

Which charitable vehicle is best for you involves an evaluation of your mission, goals and values—in addition to your other financial, tax and estate planning needs. Input from your advisory team can help make sure your charitable endeavors align with all these considerations.

Final thoughts

Managing a business is likely second nature to you, but family wealth might leave you scratching your head. By couching your wealth in business terms, you can see the many similarities and how to approach your wealth in a similar way. Connect with a team that has experience in working with wealth owners, so you can put all the pieces in place.

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