Posts in Family Wealth

Fiducia Partners Insights - What Happens After Selling The Family Business

What Comes After Selling The Family Business?

August 30th, 2019 Posted by Business, Family Wealth, Planning 0 thoughts on “What Comes After Selling The Family Business?”

Succession planning can be one of the most challenging aspects of owning and operating a family business and sometimes the right succession plan is to sell. This might be the case for multiple reasons including destructive family dynamics, conflicts in vision, lack of interest by the next generation, lack of passion by the current generation but also reasons that any business might face such as concern about increased regulation or exposure to potential liabilities. 

Whatever the reason, after the decision is made to sell and the deal is done, both the family and individuals within it can struggle with the loss. Having worked with many family businesses over my life it is very clear that business and personal aspects are deeply interwoven in family-owned businesses. The business is often the result of generations of a family’s hard work and devotion and may have created expectations about continuity, tradition, unity, dividends and family employment.

On the positive side if the business is sold for a substantial sum it can provide financial freedom for the family or individuals within it to accomplish other goals. Some families may choose to create a family office and channel their shared goals and vision into its management and investment decisions. Other families might choose to start a new family venture, without the problems that led to the sale of the previous business. Others may choose to manage their money individually. 

Whether or not family members choose to create a family office or manage their money individually, a large amount of liquidity presents its own issues including how to preserve it. This would usually involve making decisions about setting up trusts, diversifying assets across industries and markets and how philanthropic they want to be. 

But even with a plan for what to do after the sale of the business, it is very likely that members of the family may struggle with feeling like they’ve lost a part of their identity. Particularly if the business was founded several generations ago, it can be hard not to feel a sense of failure and guilt of letting down the family or failing to fulfill the legacy passed to them. Without the company, the family’s perception of itself and its purpose can change. A company often holds families together by giving members a shared identity and closeness established by previous generations. It’s an unfortunate reality that selling the business that glues the family together may mean some members of the family slip away but it also provides an opportunity to create opportunities to connect with one another around social events rather than in the boardroom. 

Of course for some families, the sale of the family business is a welcome opportunity for individuals to choose their own paths. Whatever comes after the sale of the business, one thing that is certain is that having a solid plan for how to work, live and invest following the sale of the business is key. The family’s success may no longer be tied to having its name on the wall but its success may continue in other ways with family members following their passions or working together to preserve a financial legacy for the next generation.  

If you’re considering your options for business succession and would benefit from outside help please do get in touch with me via Michael@fiduciapartners.com. Among our services as a multi family office Fiducia Partners provides discreet introductions and expert support for strategic challenges.

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For more of my insights into the world of investments and family wealth visit the Fiducia Partners website

Fiducia Partners Insights - How the 0.01% travel

How The 0.01% Travel

August 15th, 2019 Posted by Family Wealth 0 thoughts on “How The 0.01% Travel”

It’s August, which means London is empty as people fly off to enjoy sunshine, sea and relaxation. And for ultra-ultra-wealthy families this doesn’t involve a delayed flight and disappointing hotel, it means skipping the security queue and jumping on a private jet to arrive at their destination unflustered and well rested. It might also mean staying on a superyacht and enjoying the waters of Saint-Tropez or Santorini in complete privacy.

It’s reported that the mean average wealth of a private jet owner is around $1.5 billion, so those in a position to own one aren’t even the 1%, or 0.1%, they’re the 0.01%. The costs associated with owning a private jet only begin with the purchase price which can be anywhere between $3 million to $90 million. Depending on the size of the aircraft the annual running costs from the pilot, ground rent, fuel, air stewards, and insurance can be anywhere between $700,000 to $4 million. Then there’s the fact that according to The Jet Business founder, Steve Varsano, (you may have seen their magnificent showroom on Hyde Park corner) most jet owners change their aircraft every four to five years.

So while the idea of flying in unhassled luxury is a very nice one, with such enormous costs involved what makes owning a private jet worth it, even for a billionaire? The answer, I think, is that while it’s lovely to be able to have a private jet on hand to take you to your holiday, the reality is that most private jet owners use it to save precious time on business travel. Not only does it enable you to skip the security queues but also gives you the flexibility to fly at a moment’s notice and take off and land in an airfield close to home and the destination. It also means meetings can be conducted during travel, in total privacy and security. That said, it’s still not a purchase most billionaires choose to make with chartering private jets and memberships to clubs being big business.  

So, if owning a private plane is costly but does have its practical uses, what about owning a superyacht? I think it’s no exaggeration to say that of all the things a billionaire’s money can buy, none is more decadent than a superyacht, usually defined as being 80ft or longer. Britons actually own the second largest share of the world’s superyachts and unlike property or rare art, superyacht values depreciate so they’re certainly not a smart investment decision. For those that can afford one, they represent the ultimate in luxury, privacy and status. Head to Cannes, Positano, St Barts or Capri and you’ll probably see a superyacht, or two, out in the bay.

Eight out of the ten most expensive luxury acquisitions of all time fall in the superyacht category, led by the $600 million 180-meter Azzam, owned by Khalifa bin Zayed Al Nahyan, President of the UAE. The Azzam has 70 crew members and even its own missile defence system but is so large it can only dock at certain locations. I once heard someone say that owning a superyacht is like running a business except the balance sheet shows you in the red. The enormous costs involved include year-round employees, insurance, maintenance, fuel and dockage which in high season at the most sought after marinas can easily cost over £3,000 a night. When in use, stewards need to be hired with a ratio of one guest to one steward considered optimal. The rule of thumb is that the annual operating and maintenance costs will run at 10-15% of the boat’s purchase price. 

But for those that have the means to take on all these costs, the joy of owning a superyacht lies in the incredibly private and exclusive experience it affords, highly valued by the ultra-wealthy. Increasingly, they’re also being used to explore lesser travelled exotic places where luxury accommodation is lacking, unless you bring it with you. And the other reason the ultra-wealthy might buy a superyacht? Because they can. 

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Fiducia Partners Insights - Investing For Your Great-Grandchildren

Investing For Your Great-Grandchildren

August 2nd, 2019 Posted by Family Wealth, Investment 0 thoughts on “Investing For Your Great-Grandchildren”

For many ultra-wealthy families a successful investment is one that lasts decades and benefits generations. Making investments that will still generate income for your great-grandchildren is not easy but it is the way that many family offices need to think. Such investments don’t tend to be exciting and high-risk but are wellconsidered and require patience.

I see a lot in the news about how so-called millennials are shortsighted, wanting instant gratification and not looking beyond short-term goals. In other words, they don’t have patience. But in some ultra-wealthy families, millenials will now be inheriting investments and investment strategies that have spanned generations. They will become stewards of wealth that may have been preserved for 5, 6, or 7 generations. With this kind of wealth and legacy there is no short-term thinking and holding investments for 100 years or more and creating strategies to match is not uncommon. 

Creating an investment strategy that covers the next 100 years forces you think about how you might weather all the difficulties that could hit the market, be it a war, depression, economic crash, or climate change. Take family owned wine and champagne houses as examples. Many have been owned for generations and still nurture the soil in the vineyards that their great great grandparents bought. The Codorníu family has been producing wine for four hundred and fifty years and has had vineyards on their property since 1551. While the company leaders in each generation will have taken the business in a slightly different direction the overall aim to be able to pass the company to the next generation hasn’t changed. They may not have a detailed investment strategy that looks beyond 20 years but decisions about planting grape vines takes long term vision, as they can produce for hundreds of years. At the family owned Louis Roederer champagne house, they began preparing for climate change in 1999 by developing techniques to train the vine roots to push further down into the soil and started farming organically and biodynamically to adapt to the more extreme weather conditions that we’re seeing and will likely only intensify. Without this long-term view the increasingly dry summers and flash downpours could have ruined their much-prized vines. 

In other industries too you often see influential families leading innovation in the knowledge that it may benefit them in the long term. The Swedish Wallenberg family has recently invested around €300 million in AI programs in Sweden because it wants the country to catch up in the global AI arms race which is not only necessary for the country as a whole but also the companies that they control. Two of their companies, Ericsson and Saab use a lot of advanced software and antenna technology so if Sweden’s infrastructure falls behind in those areas so too does their company. The large investment they have made doesn’t directly benefit them and their company in the short term but will do in the long term, which is the time frame in which they are thinking. 

Outside of ultra-wealthy families very long-term investments are common in large institutions such as churches, universities and schools. Oxford and Cambridge university colleges collectively own 126,000 acres and have held on to some of their property assets for hundreds of years or plan to. Oxford University Queen’s College owns an Isle of Wight farm bought from Henry VIII and Trinity College owns a 999-year lease on the O2 arena indicating their long-term ambitions for the asset. 

Like Oxford and Cambridge, family offices also tend to favour growth assets like property, which often make up a large portion of their portfolios as they have historically performed the strongest over many decades. Such assets may be subject to market fluctuations in the short-term but in the long-term the trend has been up.

These are just a few of the ways ultra-wealthy families may use their investments to benefit their great grandchildren and beyond. It is sad however that I have also seen some families fail to think long term and preserve their wealth with one of the main reasons for failure due to a lack of preparedness on the younger generation’s part. It’s my opinion that families must fully prepare the next generation for the wealth transfer as if training them for any skilled profession. Managing and growing wealth is not a project that can be done on the weekends, it takes dedication, skill and of course patience. 

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Fiducia Partners Insights - What is a family office?

What is a family office?

July 4th, 2019 Posted by Family Wealth, Investment, Planning 0 thoughts on “What is a family office?”

The term ‘family office’ is not widely known, and for good reason. While there is no strict definition, a family office is a wealth management company which invests assets on behalf of wealthy individuals or families. The term is not well known because quite understandably these families don’t need, or want, to advertise the fact that they have money to invest. If they did they would be inundated with requests. There are both single and multi family offices, single are normally run by a family member or appointed CFO who looks after one family’s wealth and multi are run by professionals who serve more than one family. 

Family offices tend to be so discreet they are only really contactable through highly selective referrals and trusted networks. As one executive said at a family office conference in Dubai last year, “we’re the most important part of the investment landscape most people have never heard of”.

And not only do family offices discreetly manage the family’s investments, they manage all the financial affairs of a family such as staff wages, accounting and tax planning, property and estate management and succession planning – while running businesses and making investments generates wealth, without proper financial planning and succession planning, preserving wealth is very challenging. Therefore family offices do everything it takes to generate and manage wealth to ensure it will be passed safely down from generation to generation.

Now, not every wealthy family has a family office, but those that do often choose to have one to avoid having to pay someone else to manage and invest their money, thereby increasing their margins. It also allows them to invest without the sector and time constraints that traditional VC firms have, usually trying to exit in 5 years or less. Because of the emphasis on passing wealth down through the generations, family offices tend to make long-term investments which is why real estate often makes up a significant part of family office portfolios. 

How do you find family offices for investment?

For those seeking investment from family offices, you will have to work hard to find them, let alone get in contact. Finding family offices is really a case of networking and receiving personal introductions. Without already knowing the right people finding a credible person, such as a capital raiser, to introduce you to family offices is a good way of starting. There are also several family office conferences each year which can provide a ‘way in’ however I am aware of several families who tend to avoid conferences, particularly those where start-ups pay a fee to present in front of investors. 

When seeking family offices for funding, to avoid wasting your and their time, it’s important to ensure that your business aligns with the family office’s investment criteria and philosophy. Many tend to invest in companies that directly or indirectly relate to the core business upon which their success is built. Also unlike VCs, who are often brutally focused on the figures, family offices value having good chemistry with the person they are funding. Therefore after having received an introduction, getting along with the family office decision makers, usually the investment manager and family patriarch, is essential to receiving their backing.

From my knowledge of family offices, however, all the hard work it takes to be introduced is worth it. Family offices make great investors for entrepreneurs because of their focus on relationships. Of course they want to see a return on their investment but because they take a long-term approach they tend to have more patience than institutional and private equity investors while also serving as experienced mentors with excellent connections. 

For more of my insights into the world of family wealth visit Fiducia Partners insights

Fiducia Partners Insights - Billionaires Giving Money To Charity Not Children - LI-W

Billionaires are giving their money to charity instead of their children

June 20th, 2019 Posted by Family Wealth, Planning 0 thoughts on “Billionaires are giving their money to charity instead of their children”

Children of ultra-wealthy families can usually grow up safe in the knowledge that a sizable inheritance will come to them. But now, it seems that many ultra-wealthy families are choosing to give their wealth away to charities rather than to their children. While charitable giving is often part of a person’s will, more and more families are deciding to give everything (or almost everything) to charity, leaving their children to make their own way and fortunes. It’s also a popular notion to leave enough for children to live “comfortably” but not so much that they will lead an idle, privileged lifestyle.

The idea of giving large chunks of wealth to charity instead of heirs was given lots of attention in 2010 when Bill Gates and Warren Buffett set up the Giving Pledge where wealthy families promise to dedicate at least half of their fortunes to charitable causes during their lifetimes or in their wills. Co-founder Warren Buffett is often hailed as the ‘most charitable billionaire’ and has planned for 85% of his wealth to go to charitable organiations with the remaining 15% to go to his children – although 15% of Warren Buffett’s wealth is still around $12.6bn. And Bill Gates, worth over $80bn, is reportedly leaving his three children $10m each explaining “I definitely think leaving kids massive amounts of money is not a favour to them”. 

Among the 200+ high-profile signatories who have joined the Giving Pledge are Richard Branson, Elon Musk, and MacKenzie Bexos, the ex-wife of Amazon founder Jeff Bezos and one of the wealthiest women in the world. 

While supporting charitable causes is one motivation for such a decision, another motivation that drives many ultra-wealthy people to make this decision is to protect their children from wealth’s pitfalls, as the examples below demonstrate. 

The action film star Jackie Chan, worth around $350m, isn’t planning to leave any inheritance to his only son saying; “If he is capable, he can make his own money. If he is not, then he will just be wasting my money.” Simon Cowell too, who is worth an estimated $550m says; “I don’t believe in passing on from one generation to another” and plans to leave his fortune to charities. 

I can well understand the concern that multi-billionaires may have with leaving such vast fortunes to their children without them having worked for it but families of more modest fortunes (although still multi-millions) are also considering limiting the funds they will pass down to the next generation. Having spoken with some of my families about their feelings on inheritance, some are concerned about the security of a large inheritance leading their children to lack purpose and the ambition to achieve their own success.

These are legitimate concerns but one has to execute such plans carefully. Limiting children’s inheritance without discussing it as a family can create unnecessary confusion and discord but working together to decide on core family values and how the money might be used instead is a good course of action to take. Richard and Joan Branson for example will leave most of their money to charity which their children are in favour of, both of whom already build their careers on working to make a positive difference to other people’s lives. 

Equally, gifting the money to a foundation of your creation can be a good course of action. As a family you can decide on how the money is used and what causes you want to support. It also allows children to have a say and to work for the foundation, should they wish. For example Chuck Feeney, once worth $8bn, has donated 99.99% of his fortune to his charitable foundation and is down to just $2m. His children are understanding having said about his plan; “It is eccentric, but he sheltered us from people using the money to treat us differently. It made us normal people”.

The advice I give to my families on this subject is that if they make the decision to limit inheritance and give a large portion to philanthropic causes, their decision should be properly communicated to all heirs so as to promote harmony and avoid any surprise or confusion.

Fiducia Partners Insights - Sibling Rivalry in the Family Business

Sibling Rivalry In The Family Business

June 14th, 2019 Posted by Business, Family Wealth, Planning 0 thoughts on “Sibling Rivalry In The Family Business”

Over my many years of working with wealthy families and their businesses, sibling rivalry is a problem I have seen all too often and has the potential to devastate both the family and the business if not properly managed. Family business leaders are usually most concerned about sibling rivalry when they start to consider succession planning and what will happen when they are not there to mediate disputes. But where siblings are actively involved in the family business before succession if sibling rivalry can be managed and squashed early on then the matter of dealing with it after the death of the business leader becomes far easier. 

When rivalling siblings are actively involved in the family business it is often either emotional or strategic and to find solutions to the rivalry it is first important to determine the underlying causes.

Emotional Rivalry

A common example of emotional rivalry that I have seen is where siblings compete for their parents’ approval or recognition. While this is common in personal family lives and particularly when children are young, it can extend into adulthood and competition in the family business. And as the siblings are in competition with one another, they are not working together to further the interests of the business as a whole. They may actively avoid working together so they can prove the success is theirs alone. In cases such as this, the solution is to work on the parent/child relationship rather than the sibling relationship. This might mean formalising recognition and reward to remove any potential for favouritism, or the perception of it. 

It might also mean putting in place the requirement that family members must take employment outside the family business before joining. While I often recommend this as a good way of gaining exposure to alternative business techniques, in the case of sibling rivalry it also allows siblings to achieve success that is recognised outside of the family. Where siblings have achieved success separate from the family, respect for one another and for oneself supersedes the desire for parental approval. 

Strategic Rivalry

Strategic rivalry in family businesses often occurs when siblings have conflicting values and business styles and perhaps different attitudes towards risk. While such differences may not matter in their personal lives, when working together in the family business and with their livelihoods depending on one another these differences can present problems. 

I suggest that the solution to dealing with strategic rivalry is found in solid business and strategic planning. Drawing up a solid business plan and then sticking to it should help to avoid disagreements over strategic direction. It’s also crucial to avoid relying on handshake agreements. Formalised contracts, job descriptions and operating procedures can’t be misinterpreted and therefore set out expectations from the beginning. 

One high profile case of sibling rivalry over the family business that I recall is when Reliance Industriesfounder Dhirubhai Ambani died in 2002 without leaving a will, let alone a succession plan for the business. His eldest son, Mukesh, took up the role of Chairman while his youngest son, Anil, was made vice-chairman. Mukesh reportedly tried to push Anil off the board which led to a nasty legal battle resulting in a de-merger of the company in 2005, led by their mother. Even when heading their own businesses their feud continued until 2010 when their mother intervened again to issue a non-compete agreement. Today, Mukesh is personally worth around $43bn whereas Anil is worth around $1.5bn. While it is unclear why the two brothers’ feud first started it is likely that their rivalry was both emotional and strategic and without solid agreements about how they would work together once their father past away their rivalry was free to spiral out of control. While no one can know for sure, it wouldn’t be unrealistic to speculate that the two arms of the split up business would have faired much better if it hadn’t broken up and the two brothers had been able to work together.

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Blue-Marble-Private-Titanic

Ultimate Travel Experiences For Extraordinary People

May 9th, 2019 Posted by Family Wealth 0 thoughts on “Ultimate Travel Experiences For Extraordinary People”

With spring now in full swing I’m starting to think about taking some time away from London, which for me often means escaping to my beloved Mallorca. But what about when you’re looking to go somewhere off the beaten path or have a completely unique experience?

For many of my clients, this is what travelling is all about as they work extremely hard to create and sustain their family legacy so when they take a break, they want to use it to do something or go somewhere truly amazing. 

I am therefore delighted to announce that Fiducia Partners has formed an alliance with luxury travel company, Blue Marble Private, which curates some of the world’s most extraordinary and unique travel experiences I have come across and that we can now offer to Fiducia Partners’ extraordinary clients. 

When I had the great pleasure of meeting Elizabeth Ellis, the founder of Blue Marble Private, it quickly became clear that for those on a never ending quest to go one step further than most, Elizabeth is the person to go to. Before founding Blue Marble Private she spent two years travelling the world, making global contacts and expanding mindsets on what’s possible to be able to offer unique, creative and thrilling travel experiences.

One such unique experience Blue Marble Private offers is to take a submarine to 3,800 metres below sea level to reach the wreck of the Titanic. Elizabeth, a certified OceanGate Affiliate has been working with OceanGate Expeditions, the US firm who is operating the six-week scientific and exploratory expedition that provides adventurous citizen explorers an opportunity to work alongside researchers and content experts in an effort to document and preserve the historic site. This trip is the ultimate for those wanting an exclusive experience as far fewer people have visited the wreck of the Titanic than the number of people who have been to space or summited Mount Everest. As a certified OceanGate Affiliate, Blue Marble Private is authorised to offer space on the 2019 expeditions and whilst space is limited for this year there is space on the 2020 expedition. This trip is made even more exclusive by the fact that rust forming bacteria is rapidly consuming the Titanic which is expected to be eaten away within 15 to 20 years, so it really is a sight that not many people will be able to see. 

And for another trip of a lifetime, Blue Marble Private’s Antarctica trips sounds otherworldly. Elizabeth spoke of coming up close to Emperor penguins and flying over the frozen Antarctic Ocean to see its blue ice tunnels. I’m told that access to the interior of Antarctica is severely limited each year so this isn’t a trip many people can say they have done.

For something closer to home but no less exciting, Blue Marble Private also recently organised an experience where clients flew in formation with Breitling’s fighter jet team. Their clients flew at 400mph over France’s Burgundy wine region and continued the experience on the ground with the region’s exquisite food and wine – a perfect combination of exhilaration and relaxation.

If I’ve tempted you into forgoing the usual and wanting to take an extraordinary trip you can take advantage of our alliance and contact Elizabeth Ellis – Founder of Blue Marble Private – on elizabeth@bluemarbleprivate.com or +44 203 411 2191.

Fiducia Partners Insights - How To Begin Succession Planning In A Family Business

How To Begin Succession Planning In A Family Business

January 31st, 2019 Posted by Family Wealth, Planning 0 thoughts on “How To Begin Succession Planning In A Family Business”

Every year 70% of family businesses fail to successfully transition from the first generation to the second. It’s not surprising considering that PwC recently found that just 18% of family businesses have a robust, formalised and communicated succession plan in place.

In my experience this is often due to a perceived lack of urgency where business leaders would rather push on with running and growing the business than face up to the fact that they can’t run it forever. There are other reasons too why business leaders would rather not begin succession planning. While each family is unique, these are some of the more common ones I see:

  • Time pressure – business leaders are invariably busy and other matters are often prioritised.

  • Interpersonal conflict – family unity can be stretched when it comes to handing down the family business. Complex family dynamics can make the subject of succession a difficult topic and can create factions among family groups or staff loyal to one member or another. Instead of taking steps to try and stop this happening many avoid the subject altogether.

  • Communication difficulties – if communication within the business and family is already difficult this presents a problem for communicating succession plans.

As with many things, getting started can be the hardest part so while I always recommend drawing up a formal succession plan and making sure to communicate with everyone affected, there are a few ways you can begin that are better than doing nothing at all. 

First, create a plan detailing the key operational elements of the business in the event that you aren’t able to run the business, either temporarily or permanently. In the event of succession being triggered ahead of plan, this acts like an emergency backstop that should prevent early succession from being a crisis event for the business.  

Second, communicate with your ideal successor and other family stakeholders. Writing a succession plan without involving other family members (as well as key non-family members of the business) is likely to invite upset and discord therefore communication is paramount and should ideally happen long before a planned departure. Communicating such plans gives likely successors and other stakeholders a chance to voice their opinions and become excited about the business before they bear its weight. It’s also possible that likely or willing successors don’t yet have the skills or knowledge to take over and so early communication gives them time to seek the right experience, nurture the necessary skills and build their knowledge.  

Third, nuture potential successors to ensure they are ready to take over. Spending a year or two working closely with your successor before you step down should help make for a smooth and successful transition.

These three steps are just the beginning but I think they are the absolute minimum any family business leader should undertake to ensure the continued success of their business and family. If you would like to discuss succession plans in more detail with me please do get in touch.

If you found this week’s article useful, please let me know by clicking the thumbs up icon above or writing a comment. I really do appreciate it. 

Fiducia Partners Insights - Is Investing In Art A Good Or Terrible Idea?

Is Investing In Art A Good Or Terrible Idea?

January 17th, 2019 Posted by Family Wealth, Investment 0 thoughts on “Is Investing In Art A Good Or Terrible Idea?”

Art and visiting exhibitions is one of my greatest enjoyments and so this week I decided to write about the fine art investment market. Often referred to as a passion investment, investing in fine art generally has more to do with the joy of owning a particular piece than it does about financial gain. Owning a rare or well-known piece evokes feelings of prestige and status, an attractive lure for many of the world’s wealthiest people.

Investing in art is particularly popular right now, helped by high profile sales like 2017’s auction of Leonardo da Vinci’s Salvator Mundi at Christie’s. The painting sold for $450.3 million, setting a new record for the most expensive painting ever sold and creating an astounding profit for the seller who bought it for $127.5 million in 2013.

However most art investors will tell you that despite the potential for return, you should only buy a piece of art if you love it. Unless you’re buying the most rare and coveted pieces like Salvator Mundi (and even some dispute that painting’s authenticity) you really cannot know if the value will go up or down so buying it because you love it is important.  

As with any investment, there are some big risks to investing in fine art so it is not a decision to take lightly. In many ways, the risks are bigger than that of investments in stocks or bonds which can easily be liquidated unlike art where owners often have to wait a long time before the right buyer comes along. The value of a piece of art is also highly subjective and because of the secrecy in the market it can be hard to determine what similar pieces or other works by the same artist are valued at or were last sold at. If buying (and selling) fine art using a specialist auction house this also means adding huge fees to the price with commission commonly in the region of 20%-50%. Once bought there are other costs to consider such as insurance premiums and storage costs. For example a very valuable painting should be kept in a temperature and humidity controlled strong room to ensure its future value.

Also, as many will know, one of the biggest risks in the art market is that of fraud or forgery. Both are common and the onus is on the buyer to check a piece’s authenticity, provenance and legal ownership meaning due diligence is crucial. Even when an investor or organisation has the best resources at their disposal to steer them away from fraudulent and forged pieces it can still happen. Last year for example the Metropolitan Museum of Art had to give up two pieces within a month of purchase after it was found that one, a vase, was looted by tomb raiders in Italy in the 1970s and the other, a bull’s head, was stolen from a warehouse in Lebanon during the civil war in the 1980s. 

Minimising Risk

To minimise the risks of investing in fine art, the first thing to do when considering a piece is to find out all the information you can about its condition, its provenance, its history, any ongoing maintenance costs, if there are any restrictions and if it is still within copyright etc.

You also need to check on the reputation of the seller and if they have any protections in place for buyers. You want to avoid anything that could jepodise the purchase or cause you to lose your investment. For example if the seller is insolvent at the time you purchase the piece, the seller’s creditors might be able to seize the piece, even after it has been paid for.

In order to determine provenance there are a lot of details to collect and the seller should normally provide records such as a certificate of authenticity, any export licences and documents like wills and estate inventories. International databases of lost and stolen art should also be checked. Note that the art market is a largely unregulated industry and there is no central record of art sales and ownership, which can make it hard to find out about a piece’s history (and easy for fraudsters).

This lack of regulation may seem alien to many investors where in the financial market, heavy regulation makes it illegal to trade on nonpublic information and publicly traded companies must disclose relevant information to investors at the same time to avoid some gaining an advantage. However in the art market insider information is traded all the time, making it hard for a newcomer to join in without seeking advice from established insiders. Far from being an illegal activity, using insider information is a staple of the art market and is a key reason why some make a success of it and others don’t. An example would be if an art dealer has prior knowledge that a major museum plans to show a lesser-known artist they could use that information to sell some pieces to a prospective collector.

If you’re considering delving into the world of fine art investments please do get in touch with me as I have many trusted contacts in the art world and would be delighted to provide an introduction. 

As always, I am very grateful when people who like my articles click on the thumbs up icon above or leave a comment.

Fiducia Partners Insights - Ensuring Good Relationships Between Active and Non-Active Family Shareholders

Preventing Standoffs Between Active and Non-Active Family Shareholders

November 22nd, 2018 Posted by Business, Family Wealth 0 thoughts on “Preventing Standoffs Between Active and Non-Active Family Shareholders”

A few months ago I wrote about preventing feuds from becoming fatal for the family business. In that piece I focused on family members who are actively involved in the business and how they separate their roles at work and their roles in the family. Now I want to look at the relationship between active and non-active members of the family business. The dynamics here need to be carefully managed particularly when a family business has survived several generations as there are likely to be many family members who have shares in the business and while some may be actively involved in it as employees or directors some won’t be and this has the potential to cause tension. And whether involved or not, in a family business every family member feels some degree of responsibility because the business is often interwoven with the family’s history, future and financial wellbeing.

To ensure harmony between all family shareholders for the benefit of the business, here are a few suggestions:

 

  1. Be practical with voting stock

Where the voting power lies can have a big impact on the smooth running of the business. Problems can arise when all shares have equal voting power and active and non-active shareholders vote different ways on key decisions because of differing priorities, risk tolerance or levels of knowledge. One solution is to have multiple classes of stock which enable certain members of the family to maintain control over the company. For example active members of the family business could be allowed to hold a class of stock with one or more votes per share and a different class of stock with reduced or no voting power can then be held by family members who are not actively involved in the running of the business. This ensures decision making about the business will remain with those most familiar with it, but the economic benefit of the business is still shared evenly throughout the family.

While this can be a practical option, in the name of fairness and equality many families prefer to have one class of share. In this case a solution I know that many families use is for non-active family members who do not feel informed enough about the business to make key voting decisions to appoint an active family member as their proxy. However this can only happen with consent and trust and so only tends to work in well functioning families.

 

  1. Draw up an enforceable shareholders agreement

Whether you have different classes of shares or not, there may still be other issues about control of the company that you need to address. This can be done with an enforceable shareholders agreement. Depending on the issues you want to avoid or resolve, you can include certain stipulations such as restrictions on the appointment and removal of directors and of their remuneration. Another area that may need clarity relates to dividends which for some non-active shareholders may be their sole source of funds.

 

  1. Promote inclusion

Because a family business is often intertwined with the family’s identity it is vitally important for active family members not to dismiss input from non-active family members. While there is the potential for issue where non-active members begin to unduly interfere, in general any contributions and sacrifices made should be acknowledged and appreciated, and ideally remunerated. It is important to remember that even if a family member has chosen not to be actively involved in the business they are still likely to interested in it and would appreciate being included in some way. Therefore, active family members need to take responsibility for communicating updates about the business with non-active family members just as non-active family members should show an interest in the business, offering opinions and advice, but without unduly interfering.

For many families, holding an annual or bi-annual family shareholders meeting serves several purposes:

  • it gives everyone an update on how the business is doing and makes them feel included;
  • it allows advice or concerns to be heard in a constructive way; and
  • it reaffirms positive family relationships which can only be good for the business.

 

Particularly in the case of large families, it can be difficult to include everyone in the business in a meaningful way but offering opportunities to be heard and promising to listen is something that active members have a responsibility to do and non-active family members have a responsibility not to take advantage of.

 

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