Families today are changing. Some shifts are obvious, from shrinking sizes to blended composition. Others are less so, regarding traditional roles within them and how households operate.
These trends are having a dramatic impact on how wealthy families manage their fortunes, experts say. The old assumptions that dad would handle financial affairs and that decisions could be made behind closed doors are giving way to new roles, greater transparency and complex dynamics.
“We’ve unleashed change in a massive way,” says Bill Tharp, CEO of Tangerine Tango, an asset-management advisory in Toronto for families and entrepreneurs. He notes that “each family has got a very different framework,” but for the most part they are no longer tied to the old “baggage” of one person controlling the family finances. “That generation is slowly dying.”
Rather than taking a snapshot of a family today and trying to forecast what’s ahead, Tharp has developed a tool that he calls an “agecast.” It allows family members to look deep into the past, map where they fit in the existing configuration and then plan for what’s coming.
“Take a deep breath and look out 50 to 100 years,” Tharp tells clients, which particularly helps them cope with the volatility of today’s world. “The agecast can start the discussion moving.”
Gregory Moore, a family enterprise adviser and partner with Richter Family Office in Toronto, notes that family businesses often fail because “there hasn’t been a bridging of family vision and objectives so that people understand what’s trying to be achieved.” In such cases, he says, it’s the adviser’s role to “help families through that evolution.”
Families look to engage the next gen
In the past, patriarchal “prevailing wealth-holders” kept financial matters from their wives and children, Mr. Moore says. The younger generation was especially kept in the dark out of concern that they could not be trusted, were not ready for the family wealth and might become spoiled or ruined by even knowing about it.
At the same time, investments were less complex and could be kept at arm’s length, Moore points out. “Now you’ve got estate planning, tax planning, liquidity management, risk management,” and wealth transition is also “not as straightforward as it used to be.”
The families holding on to what is often a paternal-centric, closed-loop system are often making shorter-term decisions.Lee Fernandes, Cidel Asset Management
Today’s older generation is increasingly vowing, “I’m not leaving a legacy of a can of worms to sift through upon my passing,” Moore comments. “We see a lot more families that are open and looking for ways to engage the next generation.”
This can bring complications and tensions, Moore says, especially as the group expands beyond the family unit to include partners and blended families with different backgrounds, cultures, influences and perspectives on wealth.
“Now is the time to start having discussions around areas where potentially there could be conflict down the road,” he advises. Families could hold regular meetings, even create a family constitution. The key is “to make sure that that emerging generation is there to help continue the vision of the founder, and be their own wealth creators, because absent that, the wealth just gets dissipated and it’s gone.”
Tharp says changing family dynamics mean that “what we thought was a very linear structure is a much more complex structure.”
More progressive and innovative family offices
Indeed, with smaller family sizes, members of wealthy families often build a peer group or sphere of influence that includes legal, accounting and financial advisers from outside the family. In some cases, these “non-blood” members are brought into the family unit, through governance structures or even inheritances, which Tharp calls the “family-plus” trend.
Lee Fernandes, a senior wealth consultant at Cidel Asset Management in Toronto, says that wealthy families today “take a more thoughtful and well-researched approach” in how they structure themselves.
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Often taking inspiration from comparable families in the United States and Asia, they are pushing to build more progressive and innovative single-family offices, “especially as the rising generation gains a bigger seat at the table.”
Women have a larger voice, and there is “much more open-mindedness to female spouses of the family members being included in decision making,” Fernandes says. Many of them have worked in fields such as investment banking, law or technology, so they add “serious value to how the family operates.” They also champion a “much more progressive approach to both investing and philanthropy,” which manifests itself in the rise of impact investing and “boundary pushing” family foundations, he says.
Paternal-centric approach can be harmful
Families that embrace transparency and seek input from a wider swath of family members and external advisors tend to “have a more defined long-term vision that translates into better decisions,” Fernandes says.
“The families holding on to what is often a paternal-centric, closed-loop system are often making shorter-term decisions,” which can be destructive “both in terms of their balance sheet and their relationships.”
The virtual technologies that have arisen with the COVID-19 pandemic have also led to family shifts. Having an ongoing, evolving conversation on pertinent issues – rather than “isolating” such discussions at annual family gatherings – can be constructive if managed well, Fernandes says, although that should not replace face-to-face encounters.
Tharp says that “information has been flowing better” with the family chat groups and Zoom calls that are so common today. “We’ve unleashed a network effect.”
The pandemic has also “permitted conversations around mortality,” Tharp says, and some families are “living inter-generationally” with the concerns about assisted living. Both of these trends are opening up helpful discussions around issues such as estate planning, he adds.