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Fractured families are just a few years away from losing their livelihood

Shared values can make a huge difference between financial success and failure for wealthy families

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Creating family harmony often comes down to setting values and living by them. This foundation is especially critical to the success of wealthy families.

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In fact, defining and maintaining common convictions, principles and visions are key to both the personal and professional well-being of ultra-high-net-worth individuals, say family office advisers.

“Every family has issues, every family has ‘a pebble in their shoe,’” says Neil Nisker, co-founder, executive chair and chief investment officer of Our Family Office in Toronto.

“But in families where there are issues of jealousy, or if the children don’t talk to each other, or a parent doesn’t talk to a child, this normal human behaviour is magnified when there’s more money.”

Both single-family offices (working with one family) and multi-family offices (working with many) are one-stop, private wealth-management advisory firms handling the financial, business, estate planning, succession and other needs of wealthy clients.

A big part of the job is helping them align their values so they can make tough decisions and steer both themselves and their businesses in the right direction.

“A family’s investments and financial needs are inextricably woven with all aspects of their lives,” says Doug Byblow, Calgary-based president of Forthlane Partners Ltd., a multi-family office headquartered in Toronto.

“There are complexities that come with significant wealth – managing and being an effective steward of that wealth, reputational issues for the family or perhaps the family’s core operating business, the expectations to live up to the achievements of the patriarch or matriarch, or maybe even uncertainty about whom you can trust.

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“All of this becomes a perfect recipe for stress and anxiety, and all of this can manifest into interpersonal relationship challenges and conflict for the family unit itself.”

In fact, communication breakdowns among family members are commonly tied to eroding values, says Nisker. In an address to the CAASA Family Office Summit last month, he said that 70 per cent of extremely wealthy families fail to pass on assets to the next generation and often stop speaking to each other; 85 per cent of family business failure is directly attributable to a breakdown in communication, trust and failure to prepare heirs; and 90 per cent of family businesses don’t make it to the third generation.

Conflict and differing points of view can actually be quite positive, but if you don’t know how to manage it well, it can become destructive.

Doug Byblow, president, Forthlane Partners Ltd.

Chris Reichert is a partner with Blackwood Family Enterprise Services, a Canadian consultancy that works with wealthy individuals as well as family offices, law firms and other businesses.

“If we can help a family reach a consensus on what their values are, what is most important to them, then the next challenge is how to set up structures to instill these values in the rising generation and across the family.” This also must be done as a family grows, he says, “like when spouses are introduced, because that’s when it becomes complicated.”

There’s no one-size-fits-all approach that family offices use to set clients on the same wavelength – each firm is as unique as each family.

Our Family Office advisers start by doing a “discovery,” a process that can take five to 15 hours and includes having the family complete a questionnaire to gain clarity and identify any issues, says Nisker.

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“When we meet with the family, we talk about their mission, vision, values and goals,” says Nisker. “Then we look to see how we can help using strategy, tactics and tools, and we go from clarity to now making decisions. When implementing the solutions, we will receive results, and then we look at managing the results, which is about sustainability and continuity, and gives the family confidence.”

On the investment and financial side, says Mr. Byblow, “the more that we can understand the circumstances, the challenges, the aspirations of the individual family members and the families as a unit, the more effective we can be in that role.” His firm also needs to understand the family’s external challenges, be they business, personal or financial.

Every family has issues, every family has a pebble in their shoe.

Neil Nisker, co-founder, executive chair and CIO of Our Family Office

Annie Boivin is managing director, tax and estate planning, at Samara, a Montreal-based multi-family office that launched in May. The firm performs a “deep analysis” of each family’s situation to help them reach “prosperity objectives across generations,” Ms. Boivin said in an email interview.

The most high-profile fights among wealthy families often come down to two things: money and power, says Nisker.

Power struggles can also result from marriage breakdowns, which are a common trigger of conflict, says Boivin. “Based on each individual family situation, we will analyze the legal document and provide recommendations to protect the family and their wealth.”

Reichert says some of the biggest fights he has mediated relate to hiring family members and not having a policy that governs the process.

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He gave the example of two brothers, co-owners of a construction business. The son of Brother A did physical labour for years, while the much younger son of Brother B worked for a big accounting firm for three years after university, then asked to join the family firm.

“Brother B said, ‘Absolutely,’ but Brother A said, ‘Are you kidding me? My son has been in the field with a shovel and wheelbarrow and he’s still not in our head office. Why don’t you give him a shovel and wheelbarrow for 15 years and then we can talk about it.’”

How to create family harmony

Answering questions related to the following three “systems” can help in forming values and reducing friction, Reichert says:

  • The family system: Is there a common vision? Are there any sibling rivalries or issues of entitlement? What are the policies for ownership, like how are dividends or the transfer of shares handled? In the area of estate planning, what happens to the shares of a company if mom, dad or both die?
  • The business system: Is there clarity of the roles for each family member? What are the programs for management succession? What are the expectations, and how do you communicate about performance or the lack of performance of family members?
  • The ownership system: What are the policies for ownership? How are dividends handled, and what are the terms for family members to redeem or transfer shares?

Family office experts also offer these value-added tips relating to the establishment of family values:

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  • Disagreements aren’t always a bad thing. “Conflict and differing points of view can actually be quite positive, but if you don’t know how to manage it well, it can become destructive,” says Byblow. “We work with families to help them understand how to manage conflict productively.”
  • Family meetings are meaningful. Reichert says regular meetings can serve as a key process for communication. Adds Boivin: “We actively participate in family meetings and help with conceptualizing an agenda.”
  • Don’t underestimate the power of impartiality. Reichert is among advisers who suggest family businesses establish an independent advisory board consisting of both family and non-family members so there’s a diversity of opinions that can foster more balanced, impartial decision making. That’s especially important in encouraging family members to speak out without fear of alienating other relatives. “You want members of the family to not be afraid of getting fired.”
  • Don’t jump into saviour mode too quickly. “What’s really critical for an effective family office support structure is to build a thorough and deep understanding of the family … and resist the urge to jump immediately into solution mode,” says Byblow. “It is a slow, trust-building process.”