Posts by Fiducia Partners

Fiducia Partners Insights - Firing A Family Member From The Family Business

Firing A Family Member From The Family Business

November 7th, 2019 Posted by Business, Planning 0 thoughts on “Firing A Family Member From The Family Business”

Firing a long-term employee is difficult. Now imagine firing a family member. Unfortunately, this is sometimes necessary and while it will always be difficult, handling the situation in the right way will limit the damage, both to the business and the relationship. 

Prevention

To prevent this situation from arising in the first place would of course be ideal and when thinking about prevention I think family businesses should start with a clear policy detailing how employees, family or otherwise, can gain employment in the business, be promoted, how they must conduct themselves and what kind of behaviour would lead to review and termination. You might include a rule that no family member can work in the business unless they have had at least 5 years of work experience outside the business, or that they must hold a degree in a relevant subject. And even if they meet the criteria, asking family members to apply to the role like any other candidate allows executives to assess their readiness and aptitude for the role before hiring. As with any employee, you should have an employment contract and role description that their performance can be measured against. All this helps to put the emphasis on merit rather than family status. It must be clear that no family member is owed any position in the company and even once they have a position, they must work to keep it. If such values and procedures are established early on, if termination becomes necessary, they can be referred to and the termination process will be less personal and more procedural.  

In general, unless there has been an incident of gross misconduct, the behaviours that lead to a termination usually take place over a long period of time. Regular performance reviews will also help keep employees on track and prevent a termination from being a surprise to any party. They also provide a useful back-up if the termination is disputed. 360-degree reviews can also work well in a family business by helping to ensure objectivity that can be difficult when family members work together.

Termination

Even with a solid prevention strategy there might still come a time when a family member needs to be fired and while this won’t ever be easy, for the business or the family, it can be eased.

You might first consider damage limitation and your immediate thought will likely be about how you to keep the relationship intact but as the business leader it’s also important to consider the wider perception and impact of the termination to the company. Any major firing can disrupt a business and create fear among employees but firing a family member will do so ten-fold. That said, keeping a family member on when they’re not performing is also damaging by either making non-family employees feel that there is an unfair difference in expected performance or by lowering performance across the staff who follow by example. 

It’s also crucial to make it clear that the business and family are separate and that the reasons for which the person might be terminated do not affect their worthiness as a member of the family. In the business, the needs of the business must come first and firing the person from the business does not mean firing them from the family. Equally, avoid talking about the situation with other family members who are uninvolved in the management of the business. This will only cause people to take sides and increase tension around the subject.

The board of directors can be a useful tool to provide advice and support, particularly if there are non-family members on the board as it helps to ensure impartiality. However, the board should not be used as an excuse or proxy to carry out the termination. The final decision rests with the CEO and they should be the one to deliver the news, whether they’re a family member or not. 

However, before serving a termination notice it’s a good idea to offer the person an honourable way out by suggesting resignation. If it has reached the point where termination is necessary one would hope that all parties know the reasons and it is not a surprise. The conversation about resignation would include an honest conversation about performance and also reassurance that it doesn’t affect their status in the family. Having an impartial third person in the room, be that a board member or outside consultant, can also help to temper emotions and keep the conversation on track.

If the resignation offer is not accepted and a termination notice must be delivered, be as specific as possible and utilise evidence such as performance reviews. With clear, empirical reasons the person may recognise the reason to leave and do so without the family relationship being damaged.

In summary, the process of firing a family member will never be damage-free or emotion-free for any of the people involved or the business but being open and honest will go a long way to limiting the damage. 

Fiducia Partners insights - Bringing A Non-Family CEO Into The Family Business

Bringing A Non-Family CEO Into The Family Business

October 18th, 2019 Posted by Business 0 thoughts on “Bringing A Non-Family CEO Into The Family Business”

There are times in the life of a multigenerational family business when it might be suitable to appoint a non-family member to lead it. There could be many reasons for this with the most common being that when a succession is due to take place there are no family members qualified or willing to take up the role. In this case some families may hire non-family CEOs to serve as a “bridge” while the rising generation acquires the necessary experience or knowledge, whereas other families may choose to fully transition into the role of owner-investors, ceding ongoing management to non-family professionals.

Needing to source a CEO from outside the family shouldn’t be seen as a failure, rather an opportunity. It’s a chance for fresh eyes to consider new areas of business or growth opportunities that family members, having learnt from other family members, may not see. They can bring expertise not available in the family and depending on what the family wants for the business they can choose a CEO with the right skills and experience from a far wider pool than if only looking within the family. 

One significant advantage of bringing in a non-family CEO is that it also opens up an opportunity for better communication. The CEO can act as an effective liaison between generations to ensure mutual understanding. Where there are several branches of the family with an interest in the business it may also widen options for the next successor. Even inside the same family there can be factions, with each faction interested in their branch succeeding in the family business. A non-family CEO is able to impartially appraise who in the family might be suited to certain roles without bias, unconscious or otherwise.  

However, the benefits of appointing a non-family CEO can only be achieved if family members respect the authority of the CEO, and don’t undermine him or her. This is easier said than done, as I have witnessed several times. Bringing in a non-family CEO is a big transition for most family businesses and is therefore challenging. 

As well as being willing to accept the change the family should also look to mend fractured relationships and resolve tensions before appointing the new CEO. While a non-family CEO can perform a certain amount of mediation it is not their main job and spending all their time managing difficult family relationships will make it much too difficult to perform their role as CEO effectively. 

Once the family is prepared for the introduction of the non-family CEO, the CEO must also play their part to make a success of the situation. I’ve worked with many wealthy families and their businesses over my working life and where I’ve seen successful non-family CEOs they all seem to establish these key principles early on:

First, that they are separate from family affairs and family politics. Maintaining impartiality and not getting involved in family matters ensures that both family members and other staff trust the non-family CEO and respect their authority.  

Second, that they establish clear rules that focus on equality. In many family businesses there aren’t the formal structures and rules that may exist in a non-family business. While this can work for smaller businesses, where a non-family CEO is appointed it is important to implement policies that clarify the rules for everyone to follow, whatever their status or seniority. This is key to maintaining impartiality and independence throughout the CEOs tenure. 

Such an approach is likely to move the business towards a structure much more formal than the family might be used to. However, I argue that this should be a welcome change for most family businesses. It not only opens up opportunities for growth but also makes working in the business more attractive to other, non-family talent who might not usually consider a family business where their growth opportunities are traditionally limited. 

Fiducia Partners Insights - Family Office Trends

Family Office Trends: Outsourcing, Cash and Sustainability

October 4th, 2019 Posted by Family Wealth, Planning 0 thoughts on “Family Office Trends: Outsourcing, Cash and Sustainability”

Family Offices are known to be very discreet and don’t often share much about their inner workings in the public sphere. However there are a few reports throughout the year that reveal what’s happening in the family office space and the rising and falling trends. One such report is the UBS Global Family Office Report in partnership with Campden Wealth. For this year’s report, released last week, Campden Research surveyed the executives of 360 family offices across the world, with an average of $917 million assets under management. 

The report revealed some useful information about how investment portfolios have been performing over the last 12 months and what family offices are focusing on and preparing for. This week I’ve pulled together some of the key trends the report highlights and those I found most interesting. 

Assets to Cash

One of the key findings of this year’s report was that it revealed more than half of respondents believe that a market downturn will occur by 2020. As a result, 45% of family offices are preparing by reviewing their investment strategies and taking measures to minimise potential losses. 

42% also said that in order to be in a position to capitalise on opportunistic investments they are increasing their cash reserves. Increasing reserves of cash and gold is a common strategy that many investors take in times of economic downturn but it should be noted that those with a long term investment view may still be able to ride out short and medium term volatility. Families with large cash balances also need to be aware that some banks are planning to charge negative interest rates. For example, UBS Switzerland will from November charge 0.75% a year on individual cash balances above CHF 2m (£1.6m). Credit Suisse is expected to follow suit.  

Sustainable Investing

The report also indicated that sustainable and impact investing is no longer seen as a ‘side project’ or something only focused on by the next generation of principles. It’s becoming a priority. In fact 33% of family offices currently dedicate between 10%-49% of their portfolios to sustainable investments. This trend is expected to keep growing with 85% of all sustainable investments meeting or exceeding investors’ expectations in the past year.

Remote Working

While globalisation and technology have made remote working possible for many years now, this year seems to be the year that remote working has really been embraced. One family office principle quoted in the report said that he and his staff only went in to the physical office one or two days a week with the rest spent working remotely. Anecdotally, I’ve also noticed a shift in colleagues in the family office and wealth sphere spending less time in a physical office, beyond the usual Friday. 

Professional Services

A final revelation from the report I thought worth including, that family offices are spending more on professional services including support for succession planning, new business areas, security, governance and asset management. Family Offices’ total average spend on services in 2019 was $11.8 million and while this is not necessarily radical, it is interesting to know that not everything is being done in-house. I posit that there are two main reasons that family offices outsource. First, on the basis that it reduces costs and allows greater control. Second, that outsourcing may be done out of necessity. A World Economic Forum report revealed that nearly one-third of family offices lack in-house expertise. Particularly for small family offices that run with only a handful of staff, finding talent with the multiple and varied skills necessary to carry out all the functions of a family office is becoming increasingly difficult. 

Fiducia Partners Insights - Fundamental Principles for Investing Success

Fundamental Principles for Investing Success

September 13th, 2019 Posted by Investment, Planning 0 thoughts on “Fundamental Principles for Investing Success”

No investment is without risk but as seasoned investors will tell you there are a few principles you can follow for making better investment decisions. The principles I have listed below all try to help you to focus on that which is in your control rather than taking chances on that which isn’t. 

1.Define your investment targets

Investing is not an end in itself. Whether you’re looking to meet a specific need or investing for future generations the target will define the strategy. However when defining targets I would never recommend investing for the ‘short’ term. Short term usually means high risk. When buying an investment at a favourable price it may take time for the market to recognise its true value and for you to make a healthy return. 

As Warren Buffet says, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

2.Find your risk tolerance

No one enjoys losing money but some can tolerate the risk of losing money more than others. I’ve spent a lifetime investing and working with investors and most set their expectations on returns too high but are not prepared to take the corresponding risks. Finding your risk tolerance should include an assessment of what you could withstand to lose, should your investments not pan out, and still remain in a stable financial position. If you’re not prepared to risk even that then you’re on the low risk, low reward path. 

3.Don’t be blinded by greed

No one likes to think of themselves as greedy yet it often blinds people from seeing reason. Many investors have regretted investments that supposedly offer high and safe returns but what they fail to see are the hidden costs and risks involved. It goes back to the saying, if something seems too good to be true, it probably is.

4.Diversification is vital

Diversifying so you’re not over-exposed to any given asset type, country, sector or stock is critical and a small amount of diversification provides enormous benefits. Five investments are better than two, ten are better than five but this is only true until you get to the point where the costs for adding additional investments become greater than the benefits. 

5.Think and act intelligently

Many investors are successful in building a sound investment portfolio but fall when they fail to stick with it when the markets falter. Successful investors don’t allow themselves to be swayed by the latest news and short-term variables. Patience and stamina are required. 

6.Review regularly

As asset values rise and fall your portfolio can shift away from your risk profile and objectives. You may need to adjust your original weighting and regular reviews also give you a chance to consider your own circumstances.

7.Remember what your money is there for

While there’s a lot to be gained from a good investment strategy and careful money management, remember, not every penny must be invested for profit. Money is also there to be spent on what makes you happy, on what makes other happy. That too is valuable. 

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

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.

If you enjoyed this article, please let me know by clicking on the thumbs up icon above. I really appreciate receiving the feedback.

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 - Investing in AI

Investing in AI: The Potential and the Pitfalls

July 18th, 2019 Posted by Entrepreneurship, Investment 0 thoughts on “Investing in AI: The Potential and the Pitfalls”

This week I wanted to write about something that might provoke you to think about a new investment area. Artificial Intelligence. I can’t profess to be an expert in this sector however AI is a technology many investors and entrepreneurs are very excited about so I have done my research and am continuing to do so as the technology evolves. 

Artificial Intelligence has been big these last few years and is only set to grow as the technology evolves. According to industry research firm TechEmergence, AI technology will have the single most radical, transformational impact on business and society. We all already have virtual assistants like Siri and Alexa in our phones and in our homes. But beyond virtual assistants, a PwC report estimates that between revenue from new services and the cost savings it delivers due to improved productivity, AI will add $15.7 trillion to the global economy by 2030

For personal use Google, Microsoft and Apple have been integrating AI technology across their products but it’s also a key technology in the development of self-driving cars and algorithms that e-commerce companies use to predict what you might want to buy based on your online behaviour. It’s also already being used in healthcare to preempt health issues – I read that in one UK hospital it managed to reduce cardiac arrests by 20%. And last month Amazon was granted a US patent for drones to provide “surveillance as a service” looking for signs of break-ins or people lurking around the property so it could inform the police. 

Industrial companies are using AI to automate machinery, monitor data about production processes and make adjustments in real time, learn and operate machinery and equipment without needing human help. With the advancement of the technology there are possibilities for autonomous trucks, which will allow for 24/7 runtimes. 

There is also huge potential in the water and electricity industries where companies are looking to replace aging and no longer fit for use infrastructure with smart solutions that integrate AI, sensors and internet communication. Such solutions are likely to allow for better data and analytics leading to more efficient use of resources and reduced costs.  

But however exciting the prospects for AI are, there are still lots of unknowns about it and how the technology will evolve and be used in households and businesses in the future. As many others will be, I am cautious about the future of AI and how its use will be governed. In terms of its commercial use, it seems to be being used in some fantastic ways but the debate often comes back to its negative role in society by making jobs redundant. In the news only this week the IPPR think-tank released a report projecting that 10% of women, and 4% of men are at high-risk of losing their jobs to machines. 

Beyond the risk of job losses, there are other concerns too about how far we go with the technology.  Elon Musk this week revealed plans to connect human brains to a computer as part of his vision to allow for “symbiosis with artificial intelligence”, as he put it. This to me seems quite alarming. Elon Musk is well known to be an eccentric entrepreneur with a high-risk appetite for investing but there’s no doubt he’s involved in the cutting-edge of future technology. Perhaps what for most of us seems futuristic and alarming right now could well be the norm in 10, 20, or 50 years time. As investors we have to decide whether we’ll take the risk and invest in the unknown or if we’ll stay true to our core industries. 

One family that has taken a giant leap into AI investments is Sweden’s Wallenberg family. The family is one of the foremost investors of artificial intelligence in Europe, investing around €300m in its AI program WASP, in a mixture of AI startups and a business transformation company. Their large investment is motivated by their hope that Sweden will catch up in the global AI race which they think is necessary for the country as a whole, but also the companies they control. They can’t afford to lag behind. 

I would suggest that for most investors AI remains a niche investment area that if they can tolerate high-risk they might consider entry into. Laith Khalaf, a senior analyst at Hargreaves Lansdown, advises caution saying that investors need to try and remember the lessons of the tech stock boom which had largely been littered with failure. In essence, I think it’s not for the uninformed or those who just have a ‘fear of missing out’. Early investors of success stories will no doubt make large profits but AI is here to stay so there will also be future opportunities to get involved when there are less unknowns. 

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.

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