While traveling in Australia some years ago, I was asked by a large national trade association to write a “how to” book documenting my years of experience as a wealth-transfer specialist, helping business-owning family members to transfer their wealth to succeeding generations. The association also wanted to be able to assist many of their members’ tax, insurance and legal advisors learn how to move beyond traditional wealth-transfer planning.
At the time, I thought this would be a relatively easy task, lasting perhaps a few months–certainly not more than a year. Several years later, I have finally concluded recording my work experiences with the help of many individuals, advisors and family member groups.
More than 200 high-net-worth family business owners, their family members and their trusted advisors have provided me with various perspectives during the past years. This resulted in an approach that has redefined the client from owner to an adult family. This approach recognizes that open communication is as essential to a profitable business as it is to a healthy family life.
Family businesses also helped me realize the value of moving beyond a traditional transaction orientation to a fee-based wealth transfer planning consulting model. The change has permitted greater objectivity in planning recommendations, because I no longer derive compensation solely from commissions.
The Three Phases and Nine-Step Model that I developed resulted in three benefits to assist family businesses: it minimizes the role of the IRS; it enhances open family communication; and it increases business profitability.
If you are actively working in the family business market, you probably spend all of your energy serving the business owner only. The typical business advisor treats the business owner as the only client and confines the fact-finding process to discovering what the owner needs and wants. The business owner, too, generally believes decisions affecting the business are his alone to make.
A better approach is to help the owner to make more informed decisions by hearing what the family needs and wants.
The Family As Client
To engage the entire family (step 2), and not just the business owner, as the client, the advisor should try to obtain agreement from the owner that every adult family member’s expectations and goals must be considered. That way, the owner can make a more informed decision.
My objective is to create a plan (step 6) for the preservation and transfer of the family’s entire wealth, not just the business. To do that, it is necessary to create a new plan that will reflect the needs, desires and expectations of the entire family. Contrast this approach with the typical business advisor who deals only with the business owner and focuses exclusively on the owner’s desires.
To develop the information needed (step 1), it is important to personally interview every member of the family, including spouses. Frequently, everyone in the family does not share the same objectives for the business as the owner does; and the only way to understand what the various attitudes are is to ask.
It is important to interview every family member in a “safe” setting where they can be comfortable sharing open, honest answers to the open-ended questions posed. I ask about past and current family relationships and communication concerns affecting family members. I also probe expectations related to the future of the business and the members’ perceived roles.
Step 3 provides the ability to study the current plan and step 4 determines alternate transfer options that need to be examined. Gathering opinions from the owner’s other trusted business advisors (step 5) is equally essential prior to establishing a new wealth transfer plan. The information obtained helps to understand the objectives of the family regarding the transfer of the family’s wealth and assists me in setting myself apart from competitors.
Once the business information, owner’s current plan, and personal, financial and business data is obtained, I work with other trusted advisors of the family to develop a new wealth transfer plan. Using computer software (step 6), I create a report that describes the current wealth transfer plan and make recommendations for the necessary changes to meet family client objectives. The report is written in layman’s language, so everyone in the family can easily identify family and business concerns and solutions.