The Role of the Family Office in Building a Foundation for Financial Independence

Posted by Dr. Kirby Rosplock on 7 January 2015

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The desire for progeny of wealth families to develop an appreciation for financial independence is often top of mind for the family office. Especially families seeking to preserve their wealth for generations yet to be born appreciate the need for all of their members to be thoroughly educated and prepared for the responsibilities of family wealth. Without this preparation, families may not be adequately prepared to make shared decisions as owners. Family Office Exchange (FOX) has found that wealth education activities can help increase the odds of producing next generation family entrepreneurs; Through cultivate the knowledge, commitment and unity among family members, fostering a sense of engagement and ownership, maintaining family wealth while encouraging their philanthropic endeavors, and grooming the next generation to successfully take responsibility for their wealth, the question of sustaining the family wealth may not be as feared.

During a FOX conference, 12 experienced family office groups shared their experiences supporting families of great wealth. Five major themes emerged from their discussions. First, owners who take responsibility for their financial education are better able to sustain their wealth and avoid the shirtsleeves-to-shirtsleeves cycle. Second, owners as well as their advisors must develop an education strategy for the responsibilities of ownership for the progeny of the family. Third, education should be engaging in order to be of interest to the younger generations. Shared learning experiences that involve entertainment or travel can reinforce the family’s values and provide education. Fourth, education should be age appropriate and suit the individual needs and learning styles of those engaging in it.  And last, educational activities should be carefully planned and part of a sustained, ongoing process, and not sporadic or unconnected.

A family office should assess a family’s current education needs annually by looking at their priorities, visions, goals, strategic plan and business strategy. It is important to determine the needs of the individual participants by measuring their skills, competencies, attitudes and behaviors. Based on this information, educational goals for the year can be established, and experts in the field can be sought. Once the family office develops the curriculum, schedules the educational training, and delivers it then evaluating the results is important. This evaluation should measure the business and personal impact of the education on the family member and be a part of the planning for each family member and their respective household

Some multi-family offices (MFOs) may offer educational experiences and learning events typically on a more scalable platform. Through webinars, shared learning events with other families, or in retreats, MFOs desire to provide memorable, interactive learning experiences that grab the attention, interest and commitment of the families it serves. Through living case studies and interactive work sessions, MFOs have been leaders in providing learning experiences in a scalable fashion for affluent families. For example, an MFO held a large client event and collaborated with Shaking the Tree, a theatrical company specializing in family wealth topics and interactive learning case studies. Participants were able to be both a part of the experience, and personally reflect on how these issues of wealth played out in their own family experience. Other MFOs may outsource their education and mentoring experiences to outfits such as Redwoods Initiative, a nonprofit focused on family wealth education to promote sustainability. From next generation education, to women’s investing series, to workshops on philanthropy and impact investing, Redwoods provides a high-touch, tailored coaching and mentoring to prepare all members of the family.

If not provided in house, where do families and family offices go to get help preparing family members for the responsibilities of wealth?

Not all family offices may have the expertise, bandwidth or capabilities to offer a broad educationalprogram in house. Sometimes the family office executives may find that outsourcing this mentoring, education and coaching can reduce stress, increase a commitment by next generation members and create a sense of customization that perhaps the family office could not offer internally. I have worked with several next generation family members and found that many are intimidated and/or embarrassedby what they don’t know. Facing the family office executive who typically is the gatekeeper to the family wealth can bring a sense of fear, resentment, frustration, judgment and paralysis. For many family office roles, particularly those with a heavy fiduciary responsibility, providing education may simply be out of their wheelhouse. Partnering with an outside consultant can be a great opportunity to devise a learning strategy that works for both the family member, the trustee(s), the family office executive as well as the senior leadership in the families.

What educational needs are most common to foster financial literacy?

In 2011, the Canadian Institute of Chartered Accountants (CICA) surveyed 1,200 young people aged 16 to 22 about their financial literacy. They found that young people seek money management education from their parents (83 percent) and that parents initiate money management education, too (87 percent). A third (33 percent) surveyed had sought advice from financial professionals. Other information sources they used were the Internet (32 percent), friends (32 percent), other family members (30 percent), teachers (21 percent, books (20 percent), and TV/Radio (8 percent). Only 8 percent of those surveyed had never sought money management advice. The most popular topic addressed was limiting spending, and other topics were general money management, saving for a major purchase, responsible use of credit cards, developing a budget and sticking to it, keeping a good credit rating, managing cell phone expenses, and investing.

In Joline Godfrey’s book, Raising Financially Fit Kids, she highlights Ten Money Skills that are the cornerstone of sustainable financial management

1.  How to save.
2.  How to keep track of money.
3.  How to get paid what you are worth.
4.  How to spend wisely.
5.  How to talk about money.
6.  How to live on a budget
7.  How to invest.
8.  How to exercise the entrepreneurial spirit.
9.  How to handle credit.
10. How to use money to change the world.

Additionally, Godfrey offers several tools for creating an educational plan. The table below presents one example of how to create a Big Vision of what family members need to know and learn that is age appropriate. This tool helps families create specific plans for each life stage related to four different areas: self-development, family and parenting, stewardship and financial competency.

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The family should foster an expectation with next generation family members that the family office advisor and/or outside family wealth educators have a role in educating youth, young adults and parents along this journey. An established, customized education curriculum coupled with real world financial experiences with peers can provide affluent youth opportunities to learn.