The Importance of Family Governance
Keeping family wealth and relationships in good shape
The old saying “Shirtsleeves to shirtsleeves in three generations” means family wealth that’s built by the first generation is eroded or even destroyed by the third generation, which squanders the assets it inherits through reckless spending, poor investment decisions and other mistakes.
The result: The family ends up back where it started, with the same amount of wealth (or less than) it began with generations ago.
Unfortunately, it’s not just an adage.
We’ve seen this type of wealth destruction play out among many families—even those with relatively modest amounts of wealth—whose members tend to have their own conflicting agendas. They have (to varying degrees) different expectations, wants and preferences. Moreover, there are commonly clashing perspectives on how best to manage and spend the family wealth. There may be family-owned business interests, and different family members may have differing ideas about the future of the company.
The good news: You can take steps right now that can potentially help you avoid watching your family’s wealth diminish over time—or stop you from being part of the problem. The key is to implement a process known as family governance.
Here’s how family governance works—and how it may help your family preserve, protect and grow its assets for generations to come.
Formalizing family governance
Family governance at its core seeks to balance the competing needs of family members when there is substantial family wealth (and possibly business interests). But how family governance is structured can make a big difference. For example, addressing competing family members’ needs can happen by default without any real planning or formal structures. In such instances, control of the wealth is often concentrated in the hands of a matriarch or patriarch, or it changes as alliances among various family members shift.
The Importance of Family Governance
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
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