Welcome to the FIRST edition of FO Perspective. Written especially for those that care deeply about all those fortunate families that should find their unique answer to the tricky question “So what is all this money good for?”
FW = FA (HC + RC)
No one likes reading about math. But I need to start with an equation as it frames the purpose of this newsletter. I discovered the consulting field of family governance through James E. Hughes. Which was very lucky – he’s the best in the business.
He uses a wealth equation to convey the importance of all aspects of what is important to a family. As many wealthy families tend to put too much weight into investment strategy, and because what you put your mind to tends to be your focus, families as a result put too little emphasis on the quality of their people and relationships.
So, his wealth equation:
FW = FA + HC + RC
Meaning your family wealth (FW) is equal to the sum of your financial assets (FA) plus your human capital (HC) plus your relational capital (RC).
I love the equation. In general, I like developing ways to effectively deliver important messages. I’ll try to do it often in this newsletter.
I like the message that properly valuing the growth of your people and their ability to relate to each other is as important as your assets. Developing strong wealth stewards is the most important thing since, well, what’s more important than people? Of course, strong relationships are oh so critical since we know that families, including wealthy families, must be strong. We all know family conflict.
So, your wealth is more than your money. That’s a key insight that most people say “duh” when I say it, but to be honest they still don’t align their actions with their intentions around the learning. They don’t change and they continue to overemphasize investment strategy and asset stewardship.
Here’s my spin on the equation. There’s a second lesson available with a slight change to the equation.
I believe money has the power to amplify pretty well any task or goal. It amplifies for good and for bad. Money can amplify good people into great people and bad relationships into terrible ones. Money is the gas on any fire.
My goal is to use that gas to fire up growth mindsets and family cultures. So, my family equation:
FW = FA ( HC + RC )
Your family wealth is equal to your financial assets multiplied by the sum of your human capital and relational capital. A family with all the money in the world but terrible people and an inability to relate to each other and live by common values and principles? That family has no wealth in my books. A family with low wealth but is committed to growing individually and as a collective? Now that family is wealthy!
This newsletter is an ongoing exploration of those four factors in the wealth equation through my lense as the President of a single family office (“SFO”) and the President of a wealth management firm. Our firm has a unique perspective within the industry as an Outsourced-Chief Investment Officer to a select few families (similar to how many multi-family offices (“MFO”) operate), and as an investment fund manager delivering alternative funds to the greater Canadian investment community. My timing is strong as the industry works through the increasing service expectations of UHNW families, and family offices and wealth management business models continue to adapt to UHNW family needs.
This newsletter is ultimately about the key consulting delivered to UHNW families by family governance experts. Many of the topics explored will come from the family governance perspective. A great example of the cross-section of topics covered by family governance is displayed in the Wealth of Wisdom book and podcast co-written by a fantastic family office leader in Canada, Tom McCullough.
I have the time and interest to distill the family governance industry’s views into this newsletter so you, heroic reader, get quick impactful thoughts that will shape your perspective on wealth stewardship.
In that sense I consider myself a “Sherpa” to the “Gurus” of family governance. I’d like to acknowledge the cultural appropriation I’m doing with those terms but to be honest in my life I’ve seen no better example of individuals empowering the lives of others than guides empowering hikers. I strive to make your climb up the family governance mountain your own journey, but empowered by my experience and interest in supporting you.
So, to review, the topics covered each month will be family wealth (I sometimes call “legacy”), financial assets, personal development and family culture.
FA: Money topics presented in a readily consumable manner and delivered by a non-finance professional
HC: Personal development is the key to effective family governance. Stronger people make stronger families.
RC: Culture eats strategy for breakfast. Family governance lessons on relationships between Elders, Rising Generations, burgeoning stewards and every relationship in between.
FW: What is all this money good for? Your family wealth is so much more than creating safety, security and luxury. It is a resource that can amplify strong families into 100-year families.