Family Wealth Planning

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Credit: Niko photos

Protecting wealth is just as important as making it in the first place, if not a little more important. After all, the average legacy can vanish due to various factors, including inflation, bad investments, or even just classic human mismanagement. 

Not every generation is as wise or visionary as the last one, so family wealth planning has to become a serious undertaking. This is the case for family-run businesses, where the value of the business exists even after its sale to another entity.

Why Family Wealth Management Becomes Overly Complicated

The first solution that many family-run businesses opt for is a fully in-house solution. After all, who knows a family like its own members? Unfortunately, this is difficult for multiple reasons: 

  • Interfamily power dynamics often come into play, causing difficulties in terms of major decisions. 
  • Family wealth must be managed strategically; personal emotions around the business income can create additional strife between family members.
  • Family wealth advisors have access to information that many family business operators do not; lack of quality information leads to suboptimal wealth management outcomes. 
  • If the focus is on inheritance, business is often impacted by conflicting interests within the greater family unit. 
  • Family company wealth management has enough moving parts that it is best left to a family wealth advisor experienced in the matter.

A financial professional is a neutral 3rd party that brings expertise in terms of financial planning, estate planning, dynamic wealth planning, and a unique understanding of business owners' challenges.

Can the Family Office Model Solve the Trickiest Problems of Wealth Planning?

The needs of today’s wealthy families are changing and becoming more complex. According to Ernst & Young, there are more than 10,000 family offices globally, and some estimates put the figure in the U.S. at 6,000.

Assets of a certain size make it clear that long-term family wealth planning is more of a priority than ever before, but how do families shift their thinking from theory to action? 

Enter the family office model, which addresses concerns around the transfer of wealth and can scale; even if 25 million dollars are involved, the family office model can still address concerns at that level. 

Traditionally, $100M was the minimum net worth that drove the creation of the Single Family Officemodel, but with the onset of providers offering the Multi-family Office model, assets to entertain this type of model have come down significantly.

Defining the Family Office in Detail

It’s important to understand that starting a family office is a great way to plan for a bold financial future. But what does it really mean? A family office can fall under two categories: single-family offices and multi-family offices. 

Ultimately, the aim is the same: it’s a separate company completely devoted to advisory services offered to high net worth individuals. Every aspect of managing the family assets are addressed, from retirement plans, to bill pay and risk-mangement all the way up to assigning a specific financial advisor to walk through these aspects.

Sometimes family wealth advisory groups work together when assets begin to pile up, trading expertise and ensuring that all family business objectives are addressed properly. It is important to have one firm to coordinate efforts and provide a dashboard that overlays all activities.

A Strong Case for Family Governance

It’s important to understand that scaling asset management to higher levels means implementing systems. Family governance goes along with the outsourced office model, as it involves continuing to systematize the activities of the family and the family business at large. 

For example, a family meeting is often suggested to address concerns around intra family conflicts. However, it's easier to communicate and work together with a family governance document that outlines how the family business will be managed and who will handle things. 

It’s important to note that while the document is fairly formal, it is still a living document that can be amended and revised at any point. Gaining acceptance of the document by highlighting its flexibility is often encouraged as the best place to start.

Selling a Family Business Requires Even More Strategy Than Building It

The decision to sell the family business is never an easy one, but families looking to liquidate assets contained in a business often find an odd truth: selling the business requires a plan as intricate as the original business plan, if not more so. 

When it comes to assets of great size, trying to go it alone is not a good idea for reasons referenced in the previous section of this guide. 

The better option is to use the family wealth office model to also coordinate not just the sale of the business but how the liquidated assets will be used to continue to amplify the family’s lifestyle, long-term goals, and legacy.

Transitioning From Theory to Action With Professional Advice

The weight of legacy is heavy to bear. Even if the ultimate goal is to keep the family business, strong business and wealth advisory services are strongly recommended. 

One family simply cannot keep up with all of the regulations, policies, and changes that impact asset monitoring, management, and expansion. 

The Sharp Financial Group’s internal team of wealth management and business advisors are well versed in the intricacies of large-scale family business management and have the consolidated expertise to build a family office. 

Let us know how we can help you today.

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