Family office expert provides an overview of the top challenges faced when seeking to add value to the lives of clients
When asked, multi-family office clients often express their top concerns in exclusively financial terms. Some of these include having an effective tax strategy in place, ensuring their estate planning is taken care of, or protecting and growing their current level of wealth. However, as we question further and delve deeper, we often find that their top concerns are found rather at the intersection of their family and their finances.
In our last article, we explored the services and expertise found in multi-family offices. This article will provide an overview of some of the top concerns and challenges of multi-family office clients. Within these challenges lies the opportunity for multi-family offices to benefit and add value to the lives of their clients in truly meaningful ways.
Multi-family office clients have a deep desire to understand best practices regarding financial gifting to family and friends. They often want to help their children purchase a home, with education costs, contribute towards business ventures, or provide memorable travel, entertainment, or cultural experiences. They want to understand the options open to them and ensure that they are gifting in a tax-efficient manner that meets their objectives and is of the utmost benefit to those receiving their gift.
There is another less practical, but equally important, set of concerns for multi-family office clients surrounding gifting. Families often associate gifting with love and may gift with the intention of benefiting their families or solving problems. However, gifting can also create problems, and multi-family office clients may have concerns over the potentially negative consequences. When gifting is mishandled, it could create negative relational dynamics between the recipient and the person giving the gift or even deny a child, grandchild, or other family member, significant life and financial lessons.
It’s important to help multi-family office clients understand that just because they have the resources to gift, does not mean that they should. An established multi-family office can use their expertise and tried and tested best practices to provide multi-family office clients with the clarity of when they can and should gift, and how best to do it.
Family wealth information: How and when to disclose this to children
A frank discussion with children on gifting, or any other wealth-related concern of ultra-high-net-worth families, may assume that another frank discussion has taken place – that of the family's financial circumstances. Of course, there is a practical element of this: children must reach an age where they can both understand and appreciate this disclosure. However, often adult children are not aware of the full extent of their family's financial situation until something like a pre-nuptial agreement forces the disclosure as a precursor to an already sensitive conversation.
This hesitancy to be forthcoming is understandable as, again, ultra-high-net-worth parents know the impact that this disclosure can have. They equally appreciate that it is necessary and aim to do this in the right way at the right time. However, the right way and the right time may not always be clear.
Successfully parenting young children and continuing to parent or inspire adult children of wealth does not happen by accident. Although each family is unique, there are best practices that can be learned and applied, and can also be great predictors of success. Well-established and experienced family office advisors who have studied this area extensively and walked life together with many families of wealth, can provide an excellent roadmap for their clients as to how to raise or inspire children of wealth.
The proportion of ‘self-made’ ultra-wealthy people has seen an increase over the last decade. These entrepreneurs accounted for over 72% of the ultra-wealthy in 2019, according to the Wealth-X World Ultra Wealth Report 2020. The parents at the helm of these families and businesses want what I would argue we all want for our children – for them to become happy, healthy, productive members of society. Having a family business can be a wonderful opportunity and contribute to the attainment of this. However, what if it feels more like an obligation than an opportunity?
When it comes to the family business, multi-family office clients must consider if the next generation is adequately prepared or has the same level of passion that their parents had in building the family business. Will they ensure the family business thrives and prospers, or will they simply be the sustainers of the family business? Should the next generation take over the family business at all? Do they want to?
Those with family businesses may feel that they want to involve their children and family members as much as possible in the family business, however it needs to make sense. Participation or inclusion due solely to a sense of obligation or an assumption on either part does not often spell success for the future of the enterprise.
Being a ‘family in business’ instead of ‘having a family business’ may allow the next generation to follow their passions. With the correlation between passion and success, this adjusted perspective may make the difference between sustainable success through the generations and a success solely focused on and measured by that of the family business. With most ultra-high-net-worth households created through entrepreneurship, family businesses or rather the convergence of family and business, is a top concern of ultra-high-net-worth clients and one that multi-family offices have the experience and expertise to help families navigate.
Family office clients generally have enough wealth to sustain their own needs and the needs of multiple generations. They understand the reach that their wealth can have to benefit others beyond their family and beyond their lifetime, and they desire to create impact through philanthropic endeavors. Indeed, in the Wealth X report on Interests, Passions, and Hobbies of the Wealthy 2021, philanthropy is by far the most widespread interest amongst ultra-high-net-worth women and second most popular (behind sports) for ultra-high-net-worth men.
Multi-family office clients often want to strike a balance between creating the greatest impact and remaining aligned to their values and beliefs when realizing their philanthropic pursuits. Should they create a private foundation, a public foundation, a charitable organization, a donor-advised fund, an endowment fund, or just gift directly to the causes that are important to them? What are the best practices to creating an enduring philanthropic strategy through the generations? What is the best process to determine which charities are most effective and most impactful with the donations they receive? How can the family's philanthropic strategy be multiplied through matching grant programs? These are many of the questions that ultra-high-net-worth families have that a well-established multi-family office can help navigate.
In the current climate, when you hear the word security, your mind may automatically preface it with cyber. Indeed, cybersecurity is a concern for ultra-high-net-worth families. However, at the centre of this concern is the security of their family as a whole. Physical security, at home and when travelling, is of course, a concern for all families. For ultra-high-net-worth families, criminals are further incentivized to threaten their security, cyber or otherwise. How to best keep families, their businesses, and their information secure and private is a critical concern for ultra-high-net-worth families because they are often targeted more than most in society.
Legacy means different things to different people. In its most traditional sense, it has come to mean property left in a will. For ultra-high-net-worth families, the fact that their financial success extends beyond their lifetime for their loved ones and for generations to come, is one element of their legacy concerns.
However, they understand that their legacy also includes the impact of this financial bequest on their families. They want this impact to be a positive one, a blessing rather than a curse. They want to ensure that it affords their families with opportunities that they appreciate with gratitude, rather than treat with entitlement. Included in their legacy concerns is the passing on of their values, beliefs, and attitudes that have afforded them the lives they have worked hard to create as a foundation for their families to add to, build on, and improve.
Though this is not a comprehensive list, it is indicative of the central theme of the concerns of ultra-high-net-worth clients – the concerns of their families. Family office clients understand that although addressing these concerns may be challenging, it is ultimately worth doing. It may even be critical to the sustainability of the success, financial and otherwise, of their family.
In our next series of articles, we will explore each of these concerns and considerations in more detail to provide information and resources for family offices and their clients. We will begin with gifting.
Marvin J. Schmidt (CIMA, CFP, TEP, B. Comm) is the Founder, First Vice-President and Senior Wealth Strategist of The Schmidt Investment Group at CIBC Private Wealth Management, an award-winning multi-family office and wealth management practice in Canada. Marvin is recognized as a top wealth strategist and leader in the investment industry in Canada. In 2020, he received the award for Canadian Advisor of the Year in the national Wealth Professional Awards.
Visit www.TheSchmidtInvestmentGroup.com to learn more about Marvin J. Schmidt and The Schmidt Investment Group.
CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. “CIBC Private Wealth Management” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. Marvin J. Schmidt is the Founder, Principal and Senior Wealth Advisor of The Schmidt Investment Group with CIBC Private Wealth. The views of Marvin J. Schmidt do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.
Copyright © 2022 The Schmidt Investment Group. All rights reserved. This article may not be reproduced without permission.