In Spanish, we say “La familia es la brújula que nos guía” – family is the compass that guides us. Often, however, that doesn’t stop families bickering when it comes to agreeing on which direction to take – compass or no compass. I recall the careful ‘negotiations’ in my family when deciding where to go on family holidays: my father wanted to go to the countryside, my mother to the beach, and my brother and I were simply waiting impatiently for the journey to finally begin!

In my role as a Wealth Planner, I’ve experienced many times since those days that it takes more than guesswork for family business owners to set the right direction for the future. One of the topics I support my private clients with, as part of Julius Baer’s Family Office Services, is how to bring the next generation into the company and family wealth. How can you align the family’s direction and prepare the impatient kids for the right journey?

Complexity calls for common purpose

During my discussions with clients, they often tell me about the difficulties of planning for the future of their family’s wealth, businesses, and the challenges they face in trying to navigate the greater complexity – the social, regulatory, tax and geographic obstacles – within their globalised, multigenerational families. This complexity, combined with the looming wealth handover to the millennial generation, means there is a greater need than ever to take a systematic approach to avoid conflict.

The potential costs of such conflict can be very high. Research consistently shows that 70% of families lose a big part of their wealth by the second generation, and 90% of families lose it by the third. And yet, rather than tackling the themes before conflict arises, families are sometimes tempted to opt for a reactive approach that lacks the coordination and focus of a thoughtful strategy.

Operating without a strategy is prone to satisfy some family members at the expense of others and sometimes even reduce the family’s wealth or jeopardise the educational needs of the next generation. A further danger, especially with investment ‘hot topics’ like responsible wealth management, is that without a clearly defined purpose, investment decisions may reflect short-term trends, and families could quickly lose their long-term vision and perspective.

Values-based governance

One tried-and-tested route that helps families evolve in harmony is to put in place a system of sound governance based on the family’s core values and objectives. After all, happy, prosperous families are not created by chance, but emerge out of constant efforts, alignment and rethinking one’s own values and purpose.

Once the individual members of the family have recognised that their family is stronger when they move forward with a common purpose and understand that it will take time and energy to make a meaningful change, I sit down with them to consider what values and priorities matter to them personally and, by employing various methods, we select a system of governance that will support their habits and behaviours.

The governance structures can span the whole value chain of managing the family’s wealth. We often find that families may express certain values through philanthropic efforts, but maintain different values when it comes to managing their overall wealth. However, families with a clear understanding of their purpose and values can opt for a more focused strategy under which both their investments and charitable activities reflect their unique family values.

Defining an effective strategy for wealth transfer and succession of key roles can help to professionalise the family business and also the approach towards wealth management by making sure that everyone’s needs are met and that all voices are heard. Even if future generations do not want to continue with the family business, good family governance can address this, preserve the family legacy and provide education for the stewardship of wealth.

Each family has its own set of distinct characteristics and requirements that make them one-of-a-kind. While a universal solution for all families may not exist, the six elements above mentioned can aid in the development of a customised strategy to cater to the specific requirements and needs of each family.

With the right knowledge and support, it is important that families aim to establish effective governance structures and create communication, legal and education platforms that enable family businesses to successfully protect and preserve their wealth for future generations.