Think Family Governance Has Nothing To Do With Your Business? Think Your Clients Don't Have A Governance System? Think Again On Both Counts

Tuesday, February 26, 2013 08:38
Think Family Governance Has Nothing To Do With Your Business? Think Your Clients Don't Have A Governance System? Think Again On Both Counts

Tags: Advisor businesses | investment management | investor behavior

We hear all sorts of stories about the wealthy and the trusts they set up. One particular story is highlighted in an Advisor One article on the reasons to employ family governance.
You may not think governance affects what you do for clients or that your clients even have a governance system. But all families make decisions about their assets. And those decisions directly impact your work.

This Website Is For Financial Professionals Only

In this instance, a loophole in a trust document set up as an incentive for an heir to get married inadvertently allowed the man to marry and divorce his wife six times to fund a high lifestyle.
There was no stipulation against divorcing. Divorce wouldn’t be a common consideration as an incentive. So the man milked the trust for all it was worth.
It’s another case of a well-meaning idea among wealthy families backfiring if plans are made on the part of grantors that fail to consider the needs and desires of heirs and involve their input.
One could say that manipulative parents, conditional love, and resentful children make the perfect recipe for such stories and that would largely be true.
But little is said about what happens to your advisory business as a result. The fact is, money taken out of a trust in large amounts causes assets under your management to disappear.
Normal distributions pale in comparison to the high lifestyle this man built by serially divorcing and remarrying his wife.
It doesn’t take that much in net worth for clients to have established trusts. It’s likely that more of your clients than you think have them.
Tom Rogerson, who is highlighted in the article, is correct when he reminds us that high-net-worth clients are often highly successful Type A entrepreneurs who think they can dictate what their children should do much as they instruct their employees.
The article points to family governance as a solution and to promote family harmony. But governance, like the trust mentioned above, will not cure dysfunctional family dynamics. Neither will using money as an incentive for a desired behavior.
A family council and other governing bodies that are created jointly with input from all is the way for family members to feel they have a stake in their own futures. Having input goes a long way toward preventing resentment on the part of heirs.
The last section in the Advisor One article describes the result of one family’s joint governance creation.
Of course, not every family result will be this positive. But any break in the manipulative-conditional-resentful cycle, no matter how small, will benefit everyone involved in the advisory relationship, including you.
Being a resource toward facilitating such outcomes will set you far in front of your competition, will help families preserve their wealth, and just might result in more assets for you to manage.
Having such a resource on your team as part of your service model puts you on an optimal path toward managing your clients’ assets in alignment with their fundamental needs. It might even put divorce attorneys out of business.

Comments (0)

Write comment

You must be logged in to post a comment. Please register if you do not have an account yet.