Family Wealth requires perspective for success. This is why I call the Newsletter “Family Office Perspective” and the home page flashes the key question “so what is all this money actually good for?”. A slightly different question than “so what is money good for?”

I believe all answers to the question relate in some way to the decisions your family makes on financial capital and time deployment. Any family’s key resources including families just striving to make end’s meet.

If you are new to the Newsletter this month, hello! We use the following wealth equation as a helpful reminder of the perspective we are trying to explore every month:

FW = R (HC + RC)

Family Wealth is equal to your Resources multiplied by the quality of your people (Human Capital) and relationships (Relational Capital).

The Family Bank: the policies that govern “the bank of mum and dad”

I have long been an advocate for the Family Bank. It is a critical governance tool in successful families. It is the tool that compares non-financially rewarding capital deployments with financially rewarding ones.

One system to rule these two goals compete for resources. The balance is key.

To one extreme, I read about a family that has never taken a dividend out of their real estate business in three generations. All of the financial capital goes into growing more financial capital (and of course, this can be a great policy for building strong wealth stewards!) To the other extreme, all financial capital deployment decisions go to non-financially rewarding pursuits. I have seen these spending policies in action and they somewhat amusingly end up with the same result as the above thrifters; heirs with no capital to invest.

Striking the right balance is of course the difficult and ambitious goal. Long-term successful families build strong family members right alongside the financial capital’s growth. This happens while spending portions of the financial capital on non-financial rewards. These families will spend plenty of financial resources on philanthropy, health care, experiences and hey, they will even spend some of the money on the creature-comforts that only those with significant financial resources can enjoy.

So, the Family Bank comes into play. One (or two) generations will have control of financial capital and one (or two or three) generations will have need for it. Sometimes, they will be requesting capital for a business idea but often not; educational pursuits, athletic and artistic pursuits, a house and home and my favourite, entrepreneurial ventures. There are so many ways to deploy capital and invest in your people.

The Family Bank distilled to one paragraph

The Family Bank must be complicated right? How can one governance tool make decisions effective across all of these potential decisions? I was recently asked this question by a very strong wealth steward and her favourite consulting team.

Like all effective family governance tools though, the Family Bank can only be as complicated as those driving the wheel of the family enterprise can handle. You cannot put me in the seat of a Lamborghini and expect me to drive it safely (that is an inside joke for a select few readers!) The Family Bank can be quite simple and still be effective and my primary goal for this newsletter was to set out a one-paragraph Family Bank that we could all deploy tomorrow.

All Family Banks set out:

1) the purposes for the Bank’s capital deployment;

2) the process for the decision to deploy or not; and

3) the reporting and monitoring of the capital deployment.

So, here is a my example one-paragraph Family Bank:

We, the Strivers family, wish to deploy financial capital into activities that make our family members more fulfilled and gritty and in ways that align with our family virtues of prudence and courage. So, when a family member has a way to deploy capital that aligns with those goals, we congregate a council of Elders that will hear the pitch. The pitch must include a description of alignment with the above purpose, which capital pools are increased by the deployment (financial, human, spiritual, intellectual and social), and whether the family member desires a loan or gift. The council will seek independent advice from our trusted advisors and then deliver a written explanation back to the family member within three weeks on the decision. The decision is appealable to the Protector of the family’s largest trust.

Please share your Family Bank policy ideas!