Managing wealth is never easy. Market fluctuations bring unpredictable dips and rises. Global events wreak havoc on strategic plans. Shareholders want to move assets in different directions. Now try factoring in differing views on wealth within the family.
As anyone who has watched the hit TV show Succession knows, family wealth comes with unique challenges. Decisions about spending, saving and investing can be complicated by interpersonal dynamics, conflicts of interest and differences in opinion that, in worst-case scenarios, can lead to financial disaster or litigation. To make sure everyone’s voices and perspectives are heard, it’s important to create a family governance plan that can also coordinate with enterprise and ownership governance to lay out a shared vision for the continuity of wealth through successive generations.
Done well, governance plans can help family members establish shared goals and stay focused and aligned on agreed-upon objectives. But how do you come up with a plan without raising hackles and igniting conflict? Shelley Forsythe, Director of Family Enterprise Planning at BMO Family Office, cautions that there’s no one-size-fits-all solution, just like there’s no single definition of family or family wealth. In some cases, a governance plan might involve only one or two generations and a handful of individuals (think Succession’s back-stabbing siblings), while a more-established affluent family might have more than 100 members and/or stakeholders.
Regardless of family size, it can be helpful to bring in an independent advisor to facilitate the creation or amendment of details for a plan with the family. “People often behave a little bit better if there’s an objective third party in the room,” Forsythe says.
To assist family members with alignment, the following steps can help create a plan everyone will be willing to buy in to. Some families are just at the beginning of this journey and want to start wealth related conversations, while others have “infrastructure” in place already to guide them and are looking for continuity planning assistance.
Begin identifying priorities and purpose
Forsythe does plenty of groundwork before bringing the family together. She usually starts the process by talking to the founders, if there’s a family business involved, or the parents; however, sometimes one or more of the kids want to initiate a conversation. In the case of multi-generational wealth intentions, defining what they hope to achieve, along with the purpose of the wealth and family is important. Do they want successive generations to inherit money and make their own legacy decisions or do they want them to be stewards of the wealth that may include philanthropy? How involved do they want individuals to be in making investing and spending decisions, perhaps alongside subject matter experts and advisory team members? What are the current family dynamics like? What roles and responsibilities need to be considered now and in the future from a succession perspective?
After that, she engages with the rest of the family, often by starting with a questionnaire and follow up interviews aimed at identifying individual values, passions and priorities – as well as the topics, conversations and issues they’d like to see explored as a group. “It’s like a ‘temperature check’ of the family,” she says. “You want them to feel empowered and engaged.”
Establish mutually shared values and experiences
A foundational step once the family is gathered together is finding common or shared values. Some families can immediately identify the values they share, especially if they grew up in the same household with many of the same shared experiences. Others may require more time depending on who is included in their definition of family where they have different roots and family branches.
When shared values aren’t clear, Forsythe often takes members through exercises to identify and articulate why the values are important to them. That’s important, she says, because sometimes “it’s the first opportunity for the family’s younger generation (or spouses) to be heard and to have their values incorporated into the family goals and vision.” She’s done the exercise for groups as large as 50, and says each family comes up with a unique set of values that reflects their backgrounds, priorities, and interests.
Create a family mission statement
Once the values are clear, family members draw on them to write a mission statement together. It might be something that speaks directly to finances, such as, “We value our family’s good fortune and prosperity and commit to preserving wealth for future generations.” Or it might reflect values that are centered around family relationships, community, and philanthropy.
Be prepared for differing perspectives and identities
“This work isn’t for the faint of heart,” Forsythe says. Family get-togethers can take time and intentionality to ensure a good balance of content and process for the conversations. Especially when money is involved – and some members arrive with preconceived notions about the meeting, themselves and others. (Forsythe recalls working with a family with 30 members in which three different people identified themselves as the black sheep of the family.)
To establish ground rules for constructive discussion, she typically develops a code of conduct with the group to define clear expectations around behaviour, and how they will communicate and interact together. “Every family has their own dynamics and patterns. You just have to meet them where they are, help them as much as you can help them,” and provide other resources when necessary. Sometimes, she says, that even includes recommendations for mental health support or family counselling and therapy.
Start putting plans in place
After some of the foundational work is in place, family members are usually aligned enough to begin making plans for follow-up sessions. Some families require minimal guidance at this point – they may already feel aligned and empowered to make plans and decisions together. Others identify areas they need help with – financial literacy, for example, or estate planning, succession and philanthropy. When that’s the case, Forsythe co-ordinates curated workshops to address specific needs, often bringing in other BMO or external advisors who specialize in these areas.
Some families develop formal decision-making processes or establish various committees and/or boards – which could include non-family members – to vet proposals. “At this point, the family is looking to decide what are we handling well internally, and where do we need help and strategic guidance where outsourcing is required?”
Set a follow-up schedule
Family governance planning never really stops. “It’s not one and done,” Forsythe says. But there’s no magic formula for deciding how often to meet or continue the conversation. Some families get together annually, while others find more regular contact helpful and plan quarterly or even monthly check-ins.
“There’s no end to a “flexible” family roadmap. It’s going to have twists and turns generationally, depending on what’s going on,” she explains. “I like to use a house analogy. As your family grows, you will want to think about renovations. As more generations come along, maybe you need to adapt and make a few tweaks to allow for more voices to be heard.”
