Spending your money on your people and their relationships should have no end. The result of all of that spending will be the most educated, wholesome, actualized, effective wealth stewards that family wealth has ever known. April Fools 😉… if only it were that easy!

The Wealth Equation:
FW = R (HC + RC)

Let’s talk spending; specifically distribution policies.

I have noticed that distribution policies are the battle line of family wealth strategy. To whatever degree that cash flow is reinvested in historical family investments, most commonly the family business, the decision is always seen as sound.

This is the root discipline of financially successful families (foreshadowing warning!)

Multiple activities converged this month to make distribution policies top-of-mind for me. It started with my work on the Family Bank; I’m excited that in the near future Daniel Trimarchi and I will have a STEP Journal article on the topic published.

The Family Bank establishes a formal distribution policy for families that desire governance discipline for their investment decisions in their human and relational capital pools. Going from an informal ad-hoc “bank of mum and dad” to a formal Family Bank is my favourite governance tactic as it combines family values, family goals, policy/procedure and strategy all towards my favourite aim; family flourishing.

Here are my Family Bank articles for Canadian Family Offices.

Another recent distribution task: I was asked about ownership strategy and how it relates to family wealth strategy. Family wealth strategy covers spending at all levels of the family enterprise. Ownership strategy is the shareholders of the holding company that must balance the business’ capital reinvestment strategy with dividends.

All owners are wealth stewards but not all wealth stewards are owners.

Once the complication of reinvestment versus dividends is settled, the use of the dividends requires some consensus: what is the budget for family-centric spending from the dividends? How will the family spend on matters like family retreat and shared property expenses before the owners receive money for their independent spending plans.

Lastly, a podcast interview of John Warwick included a story of a family with a remarkable distribution strategy: none! Over three generations, not a single dividend had been paid from this real estate family. Everyone lived within the means that their employment could support… and the cash flow of the business was entirely reinvested for decades!

The role modelling that each successive generation of this family showed within their stewardship is certainly admirable. Although I would not recommend it to any families myself, at least now I had a perfect example for an important metaphor in distribution policy:

The oak tree metaphor: when families focus on building the strongest of trees with the deepest of roots.

I love using trees as metaphors in distribution policy design, going back to the beginning of my trust law courses from law school.

In trust law, there is a distinction between income and capital beneficiaries. When we explain the difference, we use the “fruit and tree” analogy: income beneficiaries receive the fruit of the trust’s property and capital beneficiaries are entitled to cut down parts (or all) of the tree.

That real estate family with no distributions? They represent the deepest of roots. They invest in whatever it takes to make that tree stronger and stronger. They do not even have to consider seeds at this point; they are entirely focused on one big tree. Certainly no fruit!

But what happens when, despite the strength of that tree and it’s roots, it comes falling down? Where is the family then? There are always tradeoffs in family wealth strategy.

Families that diversify and invest in multiple areas address this risk by caring about populating the future of the family with new seeds. This diversification is valuable to the family long-term. Innovation (which begets family enterprise resilience) arises from the highs and lows of investing in new ideas. This carries more risk in the short term but as noted by Nassim Taleb, an anti-fragile goal requires these exposures to risks to grow stronger long-term.

Taking the tree metaphor to it’s anti-fragile extreme, a family might make their distribution policy metaphor to be that of a dandelion! They invest entirely in the distribution of the seeds and don’t set roots down anywhere. Now, that would be some chaotic capital investment strategy indeed!

I’m still waiting to hear of the family deploying the dandelion metaphor in their distribution policy; please let me know if you’ve heard of one marvellous Reader!

Family Office Perspectives uses the family wealth equation above, described in writing as: your family wealth (which, over time, is your family legacy) is equal to the product of your resources multiplied by the sum of your capital pools.

The Wealth Equation:
FW = R (HC + RC)

Investing for impact is a key strategic element in finding the right ways to deploy your financial resources.

The Wealth Equation:
FW = R (HC + RC)

In designing my family wealth strategic review, I distilled all of a family’s potential financial capital deployment goals to three categories. Two of those categories are moreso about each family member: well-being and flourishing. The third category is moreso about others and yet below I focus on how helping others is symbiotic for family cultures.

Today, I want to talk about investing for impact.

The term “impact investing” has become synonymous with ESG investing in some circles (not for me!) So I will stick to “investing for impact” to distinguish what I am driving at.

Investing for impact has a significant positive boost to family culture in my experience. Helping others helps you to.

Investing for impact will significantly improve your family culture.

I challenge families to articulate their “why”, their unique answer to the tricky question “so what is all this money actually good for?”.

Answers that relate to well-being and flourishing, I often compare to deploying financial resources in hopes of fulfilling the needs on Maslow’s hierarchy.

With impact, Abraham Maslow’s work is still illustrative but this time, it is his concept of transcendence. *** Transcendence is the stage where spiritual needs really shine. Transcendence occurs when putting others’ needs ahead of your own. I believe impact investing fulfills transcendent needs.

Yet capital deployment for impact can go beyond philanthropic endeavours. Families will thrive for generations if they can find ways for the money to support their family members’ transcendence.

Counterpoints to investing with impact 

For some, an investment policy statement that includes a concept like “impact” does not resonate. I certainly do not want you, dear Reader, to hear “ESG” when I talk about the role of investing with impact in family wealth strategy. **** So, from that view’s skepticism, I say:

• Purely altruistic investment ideas that do not materially grow your human capital are not what I’m talking about… I call that “missing the script” of investing for impact. Capitalism is an incredible tool for progress in our world, and applying capitalism to key human and environmental benefits is certainly worthy of us capitalists’ efforts.

Another skepticism of impact investing is the notion that non-financial goals should never be included in investment strategy. To those skeptics I say:

• Impact does not have to be a straight line to the most altruistic of investment goals. But if there is no line between investment goals and the non-financial values of the family, the family’s investment discipline (and commitment to core values) is far more likely to weaken through time. Consider the addition of non-financial goals to your investment strategy as still an investment; it is an investment in the quality of your Human Capital and Relational Capital.

Family Wealth = Resources (Human Capital + Relational Capital)

How the family perceives their investments counts for a lot 

I’m reminded of a conversation I had with a real estate family that did not like low-income housing (the financial models are difficult and usually require government intervention for the returns to work). The patriarch was clear; “we build homes to make money. We use philanthropy to do good. They do not overlap.”

One of the family’s Rising Gen stewards simply could not agree; if the financial capital did not do good, it was bad. You can’t just want to make money.

And as a loving family with space for diversity of opinions, they dove right in.

It was a little messy and a lot confrontive. And that was only while I was still in the room.

The report back to me was that they indeed ended the discussion with complete alignment; consensus amongst the generations. Huzzah!

And the kicker? There was no change to the business. What they found was alignment of values around growing the local economy. They agreed on the role that real estate development has on economic progress, which pulls forward educational progress for the local citizens, and ultimately builds a stronger society. That alignment was more than strong enough for both generations to support the home building business.

Over to you, dear Reader; a challenge and request

Does your family know the “why” of your investment goals?

I’m very much looking forward to your description. Maybe you have specific non-financial goals written into your Investment Policy Statement. Maybe you have a Vision Statement that relates. Perhaps you, like many families, can tell me exactly what you do upon reflection, but do not have anything written down yet.

Well then why don’t you write it down in an email to me and then send it to your family members  😉

I’m learning from all the great (and varied!) answers that you incredible wealth stewards have to offer. Thanks as always for sharing.

It has been an absolute treat to write this Newsletter for two years now; I treasure your feedback (and referrals are the absolute best form of gratitude!)

We have used a family wealth equation in every Newsletter to add perspective to your definition of family wealth. Getting clear on your family’s why, your family’s unique answer to the tricky question “so what is all this money actually good for?”

The Wealth Equation:
FW = R (HC + RC)

I hope you have asked yourself at some point in this Newsletter’s journey, “ok! I get that my family wealth, my definition of success, requires utilizing my resources well to build stronger people and relationships, so now what?!”

“Now what” is my focus professional this coming year. Goals for the money naturally arise from your vision of family wealth success and aligned tactics should be deployed to accomplish those goals.

The task therefore turns to family wealth strategy. 

Most tactical advice is rightfully specific to key topics (investments, finances, tax and insurance) and yet those specific topics are tricky to optimize if it is unclear how they fit within your goals.

Goal setting for families with generational wealth is not given enough focus.

Family wealth strategic questions: where is the world heading, where is your world heading, and what do you want your family to become in that world? Similar to business strategy, these are tricky questions with unclear answers, yet thinking strategically is oh so valuable.

Family wealth strategy is where all great family wealth stewards operate from.  

Your family wealth goals will relate to three overarching topics:

1. well-being (principally, physical and mental health),
2. flourishing (principally, self-actualizing and taking meaningful action), and/or
3. impact (supporting others).

Here is my current working definition of family wealth strategy: 

Family wealth strategy aligns tactics with your ‘why’ (your family wealth goals) to ensure family wealth stewardship includes profound meaning, genuine affinity, and actualizes your ability to make a difference. 

Please let me know your thoughts on this definition…

While there are at least 50 tactical topic areas worth addressing within your family wealth strategy, none are as effective as they could be without clearly identifying your Why, then setting your goals and only then working on tactics.

Cheers to your calm, cool and collected wealth stewardship future! 

What is the value of effective family wealth strategy? I love the added meaning the wealth has for the family, I am astounded when families use their resources to build stronger people and relationships leading to more love, and I am impressed when families find their unique ways to make a difference but for me, the value of effective family wealth strategy: reduced stress.

Stress is a killer!

Sure, it is also eustress, but stress derived from family wealth is typically counterproductive. The money (and time) spent on wealth stewardship should be, to as great an extent as possible rewarding. That is my mission!

What’s next for me

In 2024, I embark on a year full of family wealth consultation. It is going to be an exciting year for me! To end 2023, I built a Family Wealth Strategic Review process and plan to complete it with 30 families this year. I hope you are one of them; building your family wealth strategy and aligning it with effective tactics is a fantastic journey.

Read on to learn how to work and plan well with your advisors in this month’s edition of Family Office Perspective.

The Wealth Equation:
FW = R (HC + RC)

Your family wealth is equal to the sum of your people and the quality of their relationships, as amplified by your resources.

Your family wealth strategy aligns your desired outcomes with your goals. To clarify your goals, keep answering the question:

“So what is all this money good for?”

To which no one says:

“To add stress to my life and make my tax professionals my closest advisors because of the complexity of my affairs.”

Like, literally, no one says something like that…

This month’s perspective is on working with advisors. Your relationship with your advisors is very important. Ideally, they bring calm to the complexity. There are too many topics regarding the importance of advisors to reduce them all to one digestible perspective, and so with the value of your time firmly in mind, let’s address the elephant in the room – alignment.

What are your advisors’ incentives and how do they align with accomplishing your goals?

Being paid by the hour or by the project breeds a peculiar incentive misalignment. Both client and professional are incentivized to reduce the time they spend together:

• the advisor is misaligned because they must exhibit efficiency, and
• the client is misaligned both because of cost management for by the hour engagements, but also, the feeling that if they are not efficient themselves, they are somehow wasting a busy person’s time.

This latter behaviour may be exclusively Canadian, to our foreign friends – (please tell me if this resonates at all?). We are generally careful about other people’s time.

I wanted to focus on this misalignment because these incentives can lead both parties astray on the extremely important matters that are not urgent, specifically on wealth planning and strategy.

Here are examples of ways that the client and professional often allow misaligned incentives to disrupt effective strategy execution:

1. Lawyers fail to explain key aspects of their documentation;
2. Accountants fail to explain key takeaways from their financial reporting;
3. Professionals miss opportunities to strategize with their clients proactively and help plan for future events;
4. Clients hesitate to approve interactions between their teams and their advisors; and
5. Actions are taken by professional advisors that don’t align with the client’s goals.

Invest your time and money into your understanding

Like preventative health, the client must take their planning affairs as seriously as their advisors, lean in, and work together on the matter. This can be daunting; an obligation to rise to the level of knowledge regarding a complex matter as their advisors’ knowledge.

Yes, there is a commitment to literacy required, but less than you probably believe. Certainly less than your advisors expect of you. Pretend (or actually!) present a planning concept to your kids as a measurement of an acceptable standard of understanding. Don’t seek and expect perfection.

By obtaining this level of understanding, you are setting yourself up for the most important aspect of working with advisors – ensuring they understand and are being held accountable to your goals during strategy planning.

Strategic planning sessions

Careful attention to goals alignment during major actions is more common but families get further by planning even without major tasks on the near horizon.

Take this from a former hourly rate professional: we love when our planning and strategy advice is valued. We love when clients want to take the extra time to understand what we are working on for them. But not all professionals will realize when to lean in.

Create the space for your advisors to help plan. Ideally, have quarterly meetings with integrated planning topics in mind. Bring the Agenda and let the pace create openings for matters previously unconsidered. Be curious. Bring a humble mindset. Ask the questions truly on your mind and not the “right questions”.

You will be surprised how well your advisors plan together to match efforts to your ideal outcomes.

I believe the quality of an advisor ecosystem correlates almost perfectly to effective generational wealth strategies. Understand their incentives and create the safe space for them to be a part of your future strategically. You will be rewarded.

And if you feel like strategic planning and collaboration are not tasks your trusted advisors would relish, you had better go find better ones. Don’t settle!

I’ve started to complete Family Wealth Strategic Reviews. It has been really rewarding so far and I’m just getting started. I will be launching this service on LinkedIn in January and have only 24 spots available for 2024 – just email me to get started!

To the journey,

Stewardship is a responsibility, not an accounting degree

In this month’s edition of Family Office Perspective, I’m translating a soapbox thought into a coherent perspective.

Life is complicated. Managing wealth does not have to be.

I write every month regarding the Family Wealth Equation because I like anchoring my thinking on it and in the writing I set a nice anchor for myself. Some might call this something of an affirmation.

FW = R (HC + RC)

Entrepreneurial Spirit – A Family Affair

We are back at the beginning of the school year – the real start to the year!

If you’ve been here awhile, reading and thinking along with me, I’m thrilled to still have you – and if you’re new, welcome! We’re here to explore the nuances of family wealth and perspectives on how to contribute to meaningful family legacies.

Last month, we delved into the role of entrepreneurship in family cultures and a recurring question popped up: “What about the family members who aren’t entrepreneurs?” I realized that my main point might have been missed. So, let’s set the record straight!

The essence of my mission statement is “empowering families to thrive for generations.” Entrepreneurship is a part of that, but not in the way you might think. It’s not about pushing every family member to start a business; it’s about fostering an entrepreneurial mindset that benefits everyone in the family, entrepreneur or not.

The Entrepreneurial Mindset: A Family Asset

Entrepreneurialism isn’t just about starting a venture; it’s a way of thinking, a way of living. It’s about resilience, adaptability, and a never-give-up attitude. It’s about a lot of things frankly, I’m still sharpening up my list.* It’s also about team-building, service to others, leadership, addressing fears and learning from failures.

These qualities are not exclusive to business; they are life skills. When a family adopts an entrepreneurial mindset, it creates a culture of problem-solving, risk-taking, and continuous learning. This culture is the bedrock upon which both entrepreneurs and non-entrepreneurs in the family can build their lives.

The Non-Entrepreneur’s Role in an Entrepreneurial Family

Non-entrepreneurs play a crucial role in an entrepreneurial family. They can be the supporters, the advisors, and most importantly they provide very effective diversity of opinion. They bring diverse skills and perspectives that enrich the family’s collective wisdom. In an entrepreneurial family, non-entrepreneurs equally learn to appreciate the value of hard work, the importance of calculated risks, and the beauty of failure as a stepping stone to success.

The Generational Impact

When you instill an entrepreneurial mindset in your family, you’re not just setting up your children for success; you’re setting up your grandchildren, and their children, and so on. You’re creating a legacy of thinkers, doers, and dreamers. Whether they become entrepreneurs, artists, scientists, or anything else, they will approach life with a mindset that turns challenges into opportunities and chase fulfilling lives.

The Fulfillment Factor: Individual Success in a Collective Culture

In an entrepreneurial family, the concept of contribution takes on a broader, more enriching meaning. It’s not just about financial gains or business milestones; it’s about individual fulfillment. When each family member is empowered to contribute in their unique way, they find a sense of purpose and satisfaction that money can’t buy. This leads to a family culture where fulfillment is the currency, and everyone is wealthy. A family full of people feeling fulfilled, however they individually define their success, creates the most nourishing of cultures. It’s a culture where everyone thrives, and that, in turn, strengthens the family legacy for generations to come.

Final Thoughts

So, to circle back to the question: “What about the family members who aren’t entrepreneurs?” My answer is, they are as much a part of this journey as anyone else. Entrepreneurship as a component of your family culture is the secret sauce that keeps your family legacy alive and well for generations to come, for everyone involved.

Sharpening our perspectives

Here we are again 🙂

Here to learn together about family wealth. I love writing as it helps me express important perspectives. I hope you are also learning. If you want to really lean in, please tell me what is on your mind! I will reply with an email, possibly a Loom video, maybe even a blog topic!

In the post-script, I will be summarizing the opening 18 issues of FO Perspective. A helpful resource if you want to revisit any of the prior topics. It dawned on me when summarizing the prior issues that perhaps my favourite topic regarding generational wealth has not been a blog topic yet!

I find this topic so critical that it is the central perspective within my personal mission statement! I first developed this mission statement to help filter the opportunities presented during my post tax-law career. That first mission statement was “empowering families to thrive for generations”.

I was recently improving my mission statement upon the advice of a mission-driven steward, and the result is:

I empower, connect and delight fellow wealth stewards who agree that entrepreneurialism is the key to meaningful family legacies.

Not every family member could or should build businesses from scratch, sure, but families that develop each steward’s interest in behaving like entrepreneurs are my inspiration. It is my key to meaningful family legacies.

Entrepreneurship is not just about starting a business and making money. If so, it would not be the key. Entrepreneurship is a mindset. Mindsets that can produce effective cultures. Entrepreneurship is about seeing opportunities where others see obstacles. It’s about taking risks, embracing failure, and never, ever giving up (unless of course failing fast is the better option!).

And I believe that the above qualities can develop an enduring family legacy for generations.

Fostering entrepreneurial spirit

The world is changing at an unprecedented pace, yet our world has always been changing rapidly. Financial capital and family businesses that were built up over decades can easily dissipate in a few years, sometimes through no fault of the family. Yet the family legacy can endure far longer than the peak of the family’s financial power.

By fostering an entrepreneurial spirit within your family, you are equipping your family members with the skills and mindset they need to navigate this ever-changing world. You’re teaching them to be resilient, adaptable, and forward-thinking. You’re encouraging them to take ownership of their future and make their own mark on the family. Entrepreneurs love and identify talent, which can only serve to improve the quality of the family’s ecosystem over time. Entrepreneurs understand how people have value in many different ways in building a business, and this understanding translates effectively over time to a family culture that fosters tolerance and diversity of it’s family members.

Adding to the family story

Family governance experts often speak to the importance of clarifying the family’s mission, vision and values. Entrepreneurs actualize that focus. Every entrepreneurial venture should be a reflection of the entrepreneur’s values, passions, and vision. So, when a family member starts a business, they’re not just contributing to the family’s financial capital (or contributing to the family’s human capital if the venture fails!), they are also actualizing the family’s story, identity, and legacy.

The family shadow. One of the hardest topics to tackle in family governance. Typically, the wealth creator is so talented, so unique, that the generations that follow cannot help but compare themselves and fall short.

The shadow looms greatly.

There is no single universal statement more commonly uttered by a successful entrepreneur than this: wealth creators wish their journey (not their success) could happen for all of their family members. They had a remarkable journey, a fulfilling ride. Yet wealth creators often struggle to beget entrepreneurs.

A wealth creator may struggle to figure out how to support their heirs because starting on third base is very different than their journey, but every wealth creator I’ve met wishes a similarly fulfilling ride for their children and grandchildren.

How to circle this square?

Celebrate their successes and failures

Encourage your children to start their own ventures. Celebrate their successes, and more importantly, their failures. Really go after those failures and ideally have family rituals that can be revisited in those times of failure so that the failures live together within the family legacy script.

Role model that business-building is about so much more than making money, it is about making an impact in a way that you know the world needs, than your family is getting far far ahead.

Describe the lows; far more important than the highs. Your family needs to hear about how the success included ample amounts of luck and difficult times. They need to know how you bounced back.

Entrepreneurship is not just starting businesses; it as a way of life. And my mission is to empower, delight and connect fellow heirs that also see entrepreneurship as the secret sauce that keeps your family legacy alive and well for generations to come.