As discussed in our previous article, any structures designed to support a family of some affluence need to be designed & personalised to meet the specific family’s circumstances.
In a recent Purposeful Planning Institute symposium, a supported view was that there are 10 domains of Family wealth falling under three main banners:
Wealth creation, Stewardship and Cultivation of family capital.
As depicted in this diagram, the yellow segments (wealth creation) refer to assets, while the blue are people-related.
Credit: The UHNW Institute
Let us guide your planning to ensure all domains are considered when undertaking your planning. It's too easy and common that great asset management, stewardship and planning occur without considering the more human and far-reaching aspects that are fundamental to any chance of establishing intergenerational value. This may simply mean ensuring there is fund access & understanding for educational endeavours for future generations, be it a French cooking school, an Italian design course, more traditional academia or anything in between.
Traditionally, a family office is an entity established by a wealthy individual to manage the family's wealth. Generally, it has a staff of experts who protect and grow the wealth. The team might include a financial advisor, tax specialist, estate planner, accountant, etc. The family employs all, so there aren't conflicts of interest with products and services that might be found if they worked for other financial institutions. The overarching objective is to serve the family's demanding financial interests.
Investopedia defines this as a private wealth management situation that serves ultra-high-net-worth individuals. Key functions generally include investment management, budgeting, tax planning, insurance, wealth transfer planning, charitable giving, etc. In short, the focus is on assets and their fundamental management. As a family office is primarily tasked with providing advice and services under a comprehensive wealth management plan, it's likely to require a well-coordinated, collaborative effort by a team of professionals from various disciplines such as legal, property, investment, estate, business, and tax disciplines. As a general rule, the cost of running a structured, comprehensive family office can be circa $1m, pa. Family Office structures are focused primarily on the wealth creation & stewardship aspects of the above diagram and generally have little significant part to play in the broader human aspects, which leads us to Family councils.
A family council is a structured and organised forum or advisory body within a family, The structure and responsibilities of a family council can vary based on the specific needs and objectives of the family involved.
Its primary purpose is to address and manage various family-related matters, such as family governance, wealth management, succession planning, and other shared interests. Key to the structure design is the facilitation of decision-making, communication, and collaboration among family members, which are used to promote cohesion and address potential challenges that may arise in the context of family dynamics, wealth transfer, and intergenerational relationships.
A family council's overarching objective is to foster unity, preserve family values, and create a framework for effective family governance and decision-making.
As such, the family council members are tasked with ensuring they understand the wishes, values, and intent of the previous generation and guiding the next generation. It is fundamentally family governance focused.
Council members will likely include family members, trustees, and/or trusted advisors, with activity levels ebbing and flowing through different stages of the family’s journey. So, while there’s likely a business governance /management function, there is also an underlying role to interact with the next generation to be a sounding board, give perspective, and just try to keep everything calm & as harmonious as possible while protecting and growing the overall net financial value.
Utilising the Merrill table from our previous article as you plan the construct of an overall structure, ensure you consider all the aspects required to maintain & continue to build- asset management, communication and family member development that optimise key driving forces while recognising founders' desires.
Here in NZ, the most commonly referenced structure is a family office. Posing the question of when a family office comes into its own, I hear starting net worth holding figures ranging from $200m to as high as $500m. Here in NZ, the quoted figures are more likely to start at $50m. Regardless of the number, before launching into a formal family office structure with well-remunerated executives, the first step is always the consideration of what’s required, starting with the family charter and then the family’s key objectives guiding the rest.
To discuss what level of Family Governance and various options could be right for
your circumstances, contact Kimpton & Co. for a confidential chat.