When families suddenly find themselves with new wealth—from the sale of their business or a large inheritance, for example—it can be challenging to manage the complexities that come with it. Changes to wealth can land families in unfamiliar territory, requiring them to draw a new roadmap to help them navigate their options and the key decisions they’ll need to make to manage and protect their wealth over time.
Two potential scenarios come to mind:
- The entrepreneur who wants to invest the proceeds from the sale of the business wisely to fund the next venture while also generating enough passive income to support their family
- And a next-generation family business owner who has critical decisions to make about their inherited wealth during a highly emotional period.
I was recently introduced to a couple who sold their business and were experiencing the dynamics that go along with this kind of liquidity event. While they had in-depth knowledge of their specific industry, they weren’t sure where to start when it came to deploying capital. The options seemed endless. Our first meeting focused on understanding the purpose of their wealth, providing information and building ongoing customized education. We wanted them to feel confident and supported when creating a plan. This involved answering all their questions, including: What is the right investment? How will they evaluate performance? When should the next generation be included in the decision-making process?
These questions are very common and building a wealth roadmap early—before a transition occurs—not only contributes to financial success but also the peace of mind that comes from feeling secure in your decisions. As the saying goes: “Failing to plan is planning to fail.” While many agree this idea can be applied to building wealth, it can also be applied to change and transition, because it’s just as important to think ahead for these scenarios.
Setting out in the right direction
Many situations require a thoughtful and clearly planned route—one that not only aligns with the family business model but also functions independently from the business itself. This helps to ensure the family’s legacy continues to grow, seamlessly transitions between generations, is pointed in the right direction, and guides the way from destination to destination.
Most importantly, the goals and policies of a well-designed roadmap—more literally, an “investment policy statement (IPS)”—are a way of tracking and measuring wealth over time and can guide the actions taken by the generations that follow as they continue to sustain the family’s wealth.
My colleague Nicole Osolinsky, in a blog post about the longevity of family businesses, highlights the importance of understanding the family’s dynamics as a way to make sure their business plans consistently reflect the unique emotional aspects of the business. This has been my experience as well, and I believe that families in business have a distinct competitive advantage over other ownership types precisely for this reason.
For one, families in business operate with a clear sense of purpose that often dates to the founder’s original intent and their entrepreneurial ambition. It’s not uncommon to hear the next generation proudly refer to carrying out their grandparents’ mission. Second, this purpose is fully embedded in the culture of the business, and you see it reflected in the family’s shared values—especially as they pass those values forward from generation to generation. In a wealth roadmap, these include the distinct investment philosophies and purpose for wealth that is defined within the IPS.
Making the transitions
One of the greatest challenges facing many family businesses right now, however, is business succession. We’re currently on the cusp of a multi-trillion-dollar transition of wealth and leadership in family businesses across Canada, and there are concerns about the impact these transitions may have on these businesses’ long-term continuity.
While succession issues may be top of mind, business owners and their families will encounter many transition points in their lives. Therefore, it’s never too early to start thinking about your roadmap—one that will steer you to the bright future you envision. After all, a sustainable wealth strategy isn’t just about growing a bigger nest egg or an expanded investment portfolio. It’s about asking the right questions about the values, priorities and goals of both the family and the business, then fully integrating the ones that matter.
As you embark on this journey, here are some itinerary suggestions to help you achieve not only sustainable wealth but also a sustainable business—and peace of mind.
- Start as early as possible. Even if changes to your wealth are not imminent, it’s never too early to start planning. Make sure you have all the information needed for clear decision making and give yourself time to reflect and reevaluate if necessary. Continuity plans for the succession of family wealth are generally most successful when discussed long before the transfer happens.
- Focus on ‘big picture’ planning. Begin the journey with a clear understanding of your starting point. This includes creating a comprehensive list of assets—financial, social, and human capital. Consider how to foster growth in all these categories and what allocation provides the right balance for your family. This process will provide you with the necessary insight to clearly navigate—even anticipate—the road ahead.
- Define family roles and responsibilities. Simply put, ask the next generation if they are committed to taking on stewardship of the family’s wealth. Families may provide the opportunity to acquire or grow foundational knowledge to manage intergenerational wealth as a tool to help determine who is both willing and capable. To heighten your ongoing success, clearly define who will be involved and in what capacity.
- Articulate your values, goals and shared purpose. Define what’s important to create a meaningful legacy for your family and how you will accomplish it. Depending on the context, this may be an IPS or a family constitution. Both provide a foundation to unite around a shared purpose with tangible goals. Keeping this relevant will ensure progress at each milestone.
- Set a regular review cadence. Remember that your roadmap isn’t static but rather a reflection of your family’s aspirations. As change occurs in the economy, the environment or the family, it will be important to revisit your map and ensure it’s still pointing you where you want to go. An expectation to include all family members’ opinions is a key ingredient to long-term harmony.
With these and many other practices that a family office can help you establish, I’m confident your wealth roadmap will guide your unique path. But if you still have questions, don’t hesitate to give me a call.
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