Returns from investments are notional until realized, but cash is real.
Cash is the lifeblood of a business and the ‘asset’ we fall back on in times of financial difficulty. Much like a round of chess, it is cash, the king, that keeps the game going.
However, the most powerful player in chess is the queen. The game is significantly weakened without her considerable might. Communication is that piece of the chessboard.
In a family office, the deployment of effective communication practices is two-fold:
- Between the principals and their families
- Between the family office professionals and family members
Between the principals and their families
Each generation has its own personality, objectives and risk appetite. Lamenting over ideological differences prevents the members from taking decisive actions. Just like we freely discuss if pasta sauce tastes better when it’s chunky or smooth, financial conversations too should flow with the same ease.
Sure, money talk is not that casual. But there is scope to resolve or accept alternative views and arrive at a consensus.
There is also an assumption that financial literacy is learned by simply coming from a place of wealth. If that were the case, the Chinese expression “Fu bu go san dai,” or “wealth never survives three generations” and the American version of this saying: “From shirtsleeves to shirtsleeves in three generations,” would not have had so many endorsers.
It is one thing to have wealth today and another thing to hold it over generations. A clear framework and conscious communication flow of financial matters are imperative to sustain wealth.
We underestimate how emotional money is. Therefore, families must normalize conversations over wealth and create a non-judgmental environment for every member to speak up.
Between the family office professionals and family members
As outsiders, family office professionals have the advantage of objectivity. This makes them better suited to advise families on matters of personal wealth. However, the lack of a formal investment framework and financial instruction of the family members can obstruct effective communication of the advice.
As a financial professional, you should take it upon yourself to institute a wealth framework in collaboration with the family. A framework such as an Investment Policy Statement defines the investment goals of a family and becomes a guideline for any financial conversations between members and advisors.
Professionals need to be able to tailor their communication and ground it in a framework to make family members comfortable sharing their financial objectives.
Develop a clear communication plan. Initiate periodic meetings with the family members to review their investment position. Stay up-to-date with their evolving goals so you can rebalance the portfolio suitably and in time.
Go beyond being an advisor and enforcer of decisions.
Bringing it together
Communication, akin to the queen in chess, boosts the security of your family’s wealth across generations. All the stakeholders – family principals, members, and advisors – need to talk regularly and within a framework agreed with the family office and the family principals. This will help lay the foundation for a strong long-term game strategy, be it chess or multi-generational wealth.