We have all heard the statistics that 70% of wealth transfers to the next generation fail. When this moves past 2nd generation and into the 3rd generation and beyond, this failure rate is above 90%.
However, we also know why they fail. In 95% of cases, the failure is 100% due to family dynamics. Trust and Communication are the major contributor, so too is simply the next generations readiness for their roles and responsibilities and the other major factor is a lack of a clear Purpose for the family wealth.
The remaining 5% is due to technical issues where we all spend much of our time, in seeking advice, including investment decisions, tax, structuring to name but a few.
Upon speaking with and working with many multi-generational families over the last couple of decades, the comments and feedback from families when they start to address and navigate these issues is overwhelmingly “Why didn’t we start this sooner”.
A key part of that process is a Family Charter or Constitution. However, we are often asked by families commencing this process, “Are they really worth the Paper they are written on?” or “Is the Hype Real?”
The answer is Yes, provided you are prepared to spend the time on the journey and engaging the family members.
A Family Charter or Constitution sets out the guidelines that your own family has agreed and discussed on how you will communicate, make decisions, handle family succession, avoid / manage conflict, prepare the next generation, provide opportunities for next gen in or out of the family business/family office, manage financial expectations as well as other topics.
We are therefore often asked, what are the main things a family should know, or do when considering a family charter / constitution. My top tips are therefore below:
- Don’t Wait. There will always be an excuse as to why you should wait. Kids not ready, selling asset, when I finish this trip, appoint CEO – I have heard it all. None of us ever know when we will no longer be here. Don’t Wait. Start Now. Remember: “Why didn’t we start this sooner”.
- Seek Independent advice to facilitate this initial process through to delivery and completion of your family charter – then reassess. Independence allows conversations to be had by family members who may not have been comfortable to raise anything prior, due to perceived responses. Independence largely removes emotion and roadblocks and provides a voice and confidence to all family members. A good independent person is an exceptional listener and not perceived by the family to be "Mum and Dad’s" adviser.
- Include all family members, and spouses/partners. “Mum and Dad’s plan is not the families plan”. Family engagement is critical to success. Remember, this is not an estate plan, or specific assets/business, this is about the family protecting their continuity, legacy and “wealth” for generations to come.
- Don’t Stop. This journey never ends. The Charter is a living breathing document that must evolve, be reviewed from time to time to ensure its applications are practical, beneficial to the family and can adapt through generations.
Written by Brad Scott
||Brad Scott, Founder, CEO and Managing Director EWM Group
Brad is the founder and Managing Director of EWM Group and has been in the finance and investment industry since 1986. Brad’s background and experience encompasses relationship and investment management, commercial, private and investment banking, Family Governance and Education and Philanthropic advice. The large majority of his time and experience has been focused towards affluent individuals, multi-generational families and the not-for-profit sector.
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Australia and New Zealand provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.