The Adair family patriarch sold the business he built when his children were in their mid-20s. He had a long career ahead of him and channeled his entrepreneurial passions into investing in smaller, early-stage businesses where he could play an active role in mentoring management and participating on the board. Fast-forward 15 years and the patriarch wants to involve his children in the family office he has created. For estate planning purposes, he has passed down shares in the Family LLC that houses the investments. But more important to him is to create involvement and engagement in the next generation. 

During a meeting with the next generation to discuss their interest and involvement in building the family office, he was disappointed to learn that they didn’t have any interest in playing the role he had in governing the smaller business investments. Further, they were concerned about the risk level of the investments he had pursued. Their vision for the family office was one where they could be ensured a return that could help pay for their children’s education and prepare them for retirement. They all had careers of their own that they wanted to continue to pursue, and none were interested in playing an active role in family investments. 

While they have vastly different investment approaches, neither the Riveras nor the Adairs have achieved engagement with their wealth. With a few changes, both families could create more engagement by adjusting their approaches to meet the needs of their families.

Rivera family members who are not attracted to the market investing approach may be more engaged by smaller investments that could be made in areas that interest them. In the Adair family, they may be more engaged by shifting to the Rivera family approach that could provide secure returns for their family and minimize time commitment. 

There is no one-size-fits-all approach to guarantee family engagement. The key to success is initiating family dialogue about what types of investments are interesting to family members along with how much and what type of involvement they want with their wealth.

Typically, families measure the success of family investments solely by the returns they generate. Generating adequate returns is necessary but not sufficient to achieving wealth continuity. To ensure wealth continuity, both returns and family engagement are crucial. 

The Gambel Family

That said, returns cannot be ignored. Both measures need to go hand in hand to be successful. For example, the Gambel family recently created a holding company to house their investments in three operating companies. They have received an offer on one of the companies that will create enough liquidity for them to consider a broad range of investment opportunities. Family members have never had the opportunity to proactively consider where to invest. The three operating companies are legacy businesses the family has held for generations that never generated enough liquidity to pursue other investments. 

During a family meeting, a group of family members became very excited about the opportunity to invest in smaller businesses that aligned with their personal interests. They envisioned taking the investment returns to create a family investment fund where members could bring investment ideas to be funded by the family. While several family members were passionate about the idea, others were concerned about the level of risk involved with investing in businesses where they had limited experience. There was also the possibility of family discord if the investments didn’t provide desired returns. 

Through their continued discussions, they realized that while family passion and engagement were important, investments that generated interest should not be pursued at the expense of risking family capital. They understood that both returns and engagement were measures to be considered.