Keeping wealth all in the family

Image courtesy Stock.xchnge

Image courtesy Stock.xchnge

Continuity in building family wealth is undermined because 95% of inherited assets moves to a new financial advisor – all because the incumbent advisor has failed to build relationships with their client’s children.

This is according to Tom Deans, president of Canada-based Détente Financial Corp and author of Every Family’s Business, which challenges the idea that family businesses must keep business and family issues separate.

“About 70% of family businesses fail in the second generation,” Deans told the Discovery financial planning summit last week.

He said financial advisors often advised clients on their financial assets, but left the aspect of a family business out of these discussions – even where the clients’ financial assets were miniscule, compared to the assets sitting in an operating business.

“Wealth transfer will release potential in the next generation or accelerate its demise. It behooves you to help your clients understand what the future will be like for their family and their kids,” Deans emphasised. Financial advisors should include spouses and children in meetings with their top clients.

Too often, family businesses were gifted to children who did not share the same passion for the business to risk their own capital to build it. In these cases, businesses should rather be sold and the wealth transitioned.

Deans highlighted three questions financial advisors should ask those clients and their families who own businesses:

1. What will the business look like in five years?

“Watch how your clients’ children respond. They should have ideas of their own. I’m often heartened where there’s conflict in a family business, because that means there is passion,” Deans said.

2. Are you prepared to sell the business?

“This should be a ‘yes’ or ‘no’ answer. Every business should be sold and look for the end, before the end finds them.”

3. Are you prepared to risk your capital if you ever acquire control?

“This question is directed at junior. If he says yes, then we have a buyer in the house but tragically might have no seller. There are buyers and sellers in buildings the world over, but no one knows how to start this conversation within families.”

He believes there is a niche for advisors who could specialise in business-exit planning, which is helping business owners to emotionally detach themselves from their assets.

“Financial planners are in the business of family planning and need to step into the hard places, where their competitors don’t want to go,” Deans said.






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