Posts in Family Wealth

Knight Frank’s Wealth Report 2020 Published

March 6th, 2020 Posted by Family Wealth 0 thoughts on “Knight Frank’s Wealth Report 2020 Published”

Knight Frank published its 2020 Wealth Report this week and as usual, it contains some interesting insights into the mindset and investment trends of the global UHNW community. Below I’ve summarised some of the key findings I think will be of interest to my clients and colleagues also operating in the family wealth industry.

To begin with, the report shows that the number of global UHNWIs (those with assets of more than $30m(£26.5m)) rose by 6% in 2019 to 513,244. This number is expected to increase to 650,000 by 2024 with wealth growing in India, Egypt, Vietnam, China and Indonesia. It’s worth noting however that the Wealth Report is based on information Knight Frank gathered before the Coronavirus was known about and so it remains to be seen how that will affect business in 2020, particularly in China. 

Looking at where these 513,244 UHNWIs are investing their money, property remains the most attractive asset class with 4 out of 5 UHNWIs planning to increase or maintain their current allocations to property in 2020.

Private capital was responsible for $333 billion of commercial real estate purchases in 2020 which was an increase of 5% on the previous year. And while for 2020 24% of UHNWIs plan to invest in domestic commercial property many have also allocated capital for international purchases. Wealthy Middle East investors have the greatest appetite for overseas commercial property with 32% actively targeting commercial property abroad with the UK high on their list of targets.

The office sector remains the primary target for private capital investors, with healthcare, hotels and leisure following closely behind.

ESG investments are also growing in popularity and in the luxury investment market rare whisky has been overtaken by designer handbags as the highest growing luxury asset. An Hermès Kelly bag was sold at Hong Kong Christies in 2019 for US$241,000, setting a new auction record for a non-diamond bag of its type. The value of collectable handbags has risen by an impressive 13% over the last 12 months while whisky and fine art only provided a 5% return on average. 

Also of interest is that 70% of wealth managers responding to the report’s survey said their clients’ philanthropic activities were increasing and 75% are becoming more concerned about climate change. 80% of UHNWIs are also spending more time and money on their personal wellbeing.

It remains to be seen if some of the predictions the report has made will be realised in 2020, or whether a global outbreak of Coronavirus will have a lasting impact, particularly on wealth in China.

Fiducia Partners Insights - Wealth Preservation and Succession in China

Wealth Preservation and Succession In China

January 24th, 2020 Posted by Family Wealth 0 thoughts on “Wealth Preservation and Succession In China”

According to Wealth-X’s most recent Billionaire Census report, there are currently around 285 billionaires in China although other reports suggest the figure is more like 400 with two more created every week – a growth rate almost double that of the US and Europe. 

That there is such vast wealth held by individuals is down to the Chinese culture and the policy measures that encourage and support the private sector. Such support began in 1978 when the then-leader delivered a speech proposing that China learn from richer countries, allow workers and peasants to get ahead and give enterprises the power to make decisions. This was the start for almost all mainland Chinese enterprises that are successful today. And with Chinese culture valuing family so highly, most of these private companies are family-owned, around 80%. Major Chinese companies that are family-owned include the Pacific Construction Group (90% owned by the Yan family), Amer International Group (100% owned by the Wang Wen-Yin family) and GTI Holdings Ltd (100% owned by the Sum Poon family). The collective yearly revenues for these three companies alone hits over $220 billion.

With this relatively recent freedom for enterprise, 97% of Chinese billionaires are self-made with an average age of just 56. This means that many are now thinking about succession likely to occur in the next 10-15 years leading to a phenomenal rate of new family offices being set up. Principles are ageing and so their priorities are shifting from wealth creation to preservation. And due to this wealth being relatively new, the concept of a family office is also new in China compared with Europe, the United States and other parts of Asia, where wealthy families have long used privately help firms to handle investment and wealth management decisions.

But this hasn’t put Chinese families off. On the contrary, in Campden Wealth’s recently released Chinese Family Office and Wealth Management Report 2020 they report that more than 75% of UHNW Chinese families established or joined a family office since 2010. The average net wealth of the families they studied was $943 million and of those not yet using family office services, 75% are interested in doing so. 

According to Campden’s report, most families have opted to manage their wealth through a single-family office (30%), 16% use a commercial multi-family office, 16% use a private multi-family office and 9% use a hybrid vehicle. But there are some key challenges with setting up a family office in China, the most pressing being a lack of experienced talent, which not surprising with it being a relatively new concept. 

And another key problem that many wealthy Chinese principles are facing is how to manage succession into the second generation. China’s One-Child policy that lasted for 35 years until 2016 has left many ageing principles with just one heir. Research shows that there are around three million entrepreneurs reaching the age of retirement and 80% of second-generation heirs have no desire to join their family’s business meaning many will have to look outside of the family for successors.

Aware of these challenges, I will follow with interest the development of family offices in China and how ageing principles will overcome the difficulties of sourcing talent and managing succession. I wonder if, in 30 years, the percentage of wholly and majority-owned family businesses will drop right down as families struggle to interest their sole heirs in taking over. 

Fiducia Partners Insights - Stewarding Your Family's Wealth.png

Stewarding Your Family’s Wealth

December 10th, 2019 Posted by Family Wealth 0 thoughts on “Stewarding Your Family’s Wealth”

Managing your family’s wealth is a great responsibility, especially when it has accumulated over several generations. You don’t want to be the generation that loses it. Where I know families that have made a success of passing on wealth for many generations what they all have in common is that they don’t view the wealth as theirs to do with as they please. Instead it is a legacy that they are entrusted with until the next generation takes over. In essence, they are stewarding the wealth, maintaining and growing it for the next generation to do the same.

But not all families succeed in this way. Where wealth is made, it is often lost in the second or third generation. Successful stewardship requires careful planning and a long-term view. I have previously written about long-term investments that don’t just span 10 years, but 50 or 100 years and multi-generational families whose goal it is to nurture wealth for future generations can make investments and plans for this length of time. They are not investing for their own retirement, but rather for the wellbeing of their children’s children and beyond. It’s one of the reasons why land and property are often staples of family office portfolios. 

But as well as investing smartly and for the long term, I would argue that the hard work required to nurture the wealth for the next generation would be for nothing unless you also take the time to prepare the next generation, both practically and mentally. Inheriting a financial legacy comes with a lot of pressure and responsibility so in terms of practical preparations, discussing your investment plan and strategy behind it, letting the next generation attend meetings with financial advisors and nurturing their financial acumen are all helpful means of preparation. And starting this preparation early not only gives the upcoming generation the best chance of success, it also means they will have at least some preparation if they inherit prematurely. I also know of families that establish ‘subfunds’ where the next generation can gain practical experience in managing money and investments, determining asset allocations, establishing goals and reporting to the family. 

Mental preparation too must not be overlooked. One of the key challenges facing wealthy families is the feeling of entitlement. Particularly when the family has held the wealth for several generations, and children grow up in privilege, it can be challenging to instil the message that creating and maintaining wealth is difficult and requires hard work and dedication. This is where exposing the upcoming generation to the hard work and responsibility that befalls the wealth managers is important. Children often hear that ‘money doesn’t grow on trees’ but seeing really is believing. Educating the upcoming generation about the family history and how the wealth was made and managed in the past also helps to instil a sense of responsibility and legacy. You want them to also think of themselves as stewards whose goal is to preserve the wealth rather than squander it. 

I also think it’s worth being mindful that the preservation of multi-generational wealth also depends on family dynamics. This is because depending on your management structure there may be several other family members on the board of directors or with decision making power and so nurturing family relationships and fostering consensus is important. A coherent family vision can be impeded by generational differences, geographical dispersion or different philanthropic philosophies. It is often helpful to have established governance processes within the family that can help promote a coherent vision and smooth transition to successive generations. Both informal family reunions and formal family stakeholder meetings to discuss values and plans are also key to preserving your legacy. 

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 - 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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