Sometimes we hear of those with wealth and it’s hard to imagine them making a mistake. But Simone Foxman of Bloomberg surveyed family office leaders who identified key mistakes wealthy people make (and I’ve added one of my own):
Avy Stein of Cresset Capital Management writes that family governance is a key miss.
Governance provides direction, structure, education, communication and a plan for resolving disputes.
And there will be disputes. My own experience echoes this key principle.
Success is not just financial. Portfolio success, notes Rich Henry of PNC Financial, is not the key driver.
Success can be measured in terms of values transfer and life goals.
Charitable Giving Strategy
Make money first, then give it away.
But the giving is often not tied to a strategy, says Kris Putnam-Walkerly of the Putnam Consulting Group.
From my vantage point, one of the real opportunities is for a family to identify the problems they can solve with their giving and then solutions to meet those needs.
The Tax Avoidance Mirage
Stephen Antion of Winston & Strawn correctly notes that the wealthy can make tax avoidance their idol. They end up with plans driven by taxes instead of the family and its values.
Even worse, tax avoidance can end up with questionable practices that could lead to problems later.
Determining Advisors on Fee Alone
Stewart Kosmodel of UBS Group AG notes that some families become so obsessed with fee reduction that they end up with a bare-bones crew, but still worse, inefficiency.
In my own experience, I had one client so driven by cutting costs that he wouldn’t even turn over documents for review until the 11th hour. By then it was too late, and he had to pay the tax bill.
As Elizabeth Glasgow of Venable LLP states, “The entire purpose, generally, of using a single family office is the privacy, the anonymity, the protection. So a successful cyberattack undermines the family office structure at a baseline level.”
Above are common mistakes wealthy people make in the family office context. Many are money mistakes that financial advisors with lots of experience and perspective can spot and fix. (Defining success would be one exception.)
But the mistake I’d like to add to this list is one that falls outside traditional financial planning, yet is vitally important to a family’s long-term success.
It’s shocking how much time and effort families will invest to grow financial wealth, and further, the great lengths that they will go to work on financial wealth transfer, but how little time they’ll spend on family communication.
The key to great wealth transfer is not the money—it’s all the other forms of wealth—intellectual, social, emotional, and spiritual capital. That takes time, effort and lots of communication.
In my consulting work with families, I spend considerable time helping to increase understanding and effective communication between members of the family.
Understanding, accepting, and listening to one another—these are related to our values. But they’re also skills that help build the strong relationships necessary for a family to move forward together.
Photo by Bobby Burch on Unsplash
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Published April 5, 2019
Topics: Culture Commentary