Family Governance Key To Wealth Preservation, Study Says
Creating a family governance structure to make financial decisions may be the best way to assure that wealth is preserved for future generations, according to new research by Federal Street Advisors, a Boston wealth advisory firm.
Families have conflicts and wealth often turns small problems into big disasters that affect the entire family, the firm says in a new white paper, Family Governance: The Key to Successful Wealth Transition by John Przybylski, the firm's director of financial planning, and Charles A. Walsh III, principal.
Any number of scenarios can play out that lead to problems within families about how to handle money. One way to help stop that is to create a family council or governance structure, according to the white paper.
"In small families, this council may include all family stakeholders. In large families, the council may include appointed or elected representatives from each branch of the family," the white paper authors said.
The authors acknowledge that some details of establishing a council can be explosive if not handled properly, including deciding who should be part of the council.
Among the duties of the council may be to write a formal mission statement that can take into account the family legacy and philanthropy efforts. The council could document the family history and hold educational events.
The mission statement can act as a tool to acknowledge shared family goals and establish a code of conduct based on shared values, according to the white paper.
"It reflects the family's history and attitudes about the relationship between financial capital and individual initiative, an often sensitive subject for hard-driving patriarchs with less financially motivated offspring," the authors said.
Most of all, "a family council or other governance structure can improve the quality of family interactions by keeping family members connected with each other and informed about the status of both the family and the family business," the authors said. The most successful structures foster communication between members and between generations, the authors said.
There also comes a time when it might be wise to bring in an impartial outside advisor to listen to all family members and help resolve conflicts, the paper noted.