The Resilience Overlay
By Julie Neitzel
Being resilient requires process and fortitude, because it’s not necessarily a state of being. Judith Rodin of The Rockefeller Foundation describes it in her book, The Resilience Dividend, as “the capacity of any entity—an individual, a community, an organization or a natural system—to prepare for disruptions, to recover from shocks and stresses, and to adapt and grow from a disruptive experience.”
Let’s explore areas where applying the “resilience overlay” to family wealth serves as a greater probability of sustaining wealth.
RESILIENT FAMILY COMMUNICATION AND RELATIONSHIPS
The adage “some things are better left unsaid” is not a useful approach for resilient wealthy families. Best practices in family wealth management include periodic meetings to review the status of the family wealth enterprise, review family goals and objectives, and foster transparent and ongoing communication among family members.
Defining family wealth strategy and values collaboratively can become important ties to bind the family together. During family discussions, posing questions such as “What have we done to build resilience for the family members, people and places that we care about?” can drive elements of family resilience planning. Resilient family communication strategies include the following activities:
• Defining family values and wealth mission.
• Codifying family governance system and succession.
• Educating and preparing all wealth owners.
• Meeting regularly to review family wealth enterprise status.
RESILIENT WEALTH ENTERPRISE PLANNING
Wealth is rarely created accidentally. Strategy, hard work and vision typically create the foundation for wealth creation. Its growth and sustainability requires a defined strategy, addressing potential shocks and threats.
Wealth strategy evolves from important mapping of each component of the family wealth enterprise, including assets and liabilities, ownership structures and associated decision-makers, along with identification of cash sources and uses. This mapping process enables the family to maintain a greater sense of control while feeling more confident and competent with decision-making about wealth.
Families evolve over time and might experience conflict, tragedy or financial loss. Resilient wealth planning regularly assesses threats and opportunities to family wealth and possible paths to work together through risks. Resilient planning efforts include:
• Mapping all components of the family wealth enterprise.
• Detailing the family balance sheet and ongoing cash flow sources/uses.
• Identifying structure ownership, roles, decision-making and succession.
• Determining family wealth strategic goals and objectives.
• Reviewing regularly insurance, tax and estate planning matters.
RESILIENT INVESTMENT PLANNING
It is critical to define investment goals and sync them with the investment plan to determine critical needs and obligations, priorities and opportunities, and aspirational goals for family financial capital. The global markets historically have experienced sharp downturns at difficult-to-predict times, which necessitates positioning investment portfolios to withstand sharp market drops, preserve capital and manage market volatility.
Resilient portfolios will avoid panic selling and enable financial preparedness for emergency and ongoing needs, with possible better recovery after market shocks. Aligned and effective advisers enable successful family wealth investors given clarity on investment costs, appropriate asset allocation and investments as components of thoughtfully designed investment plans. Specific resilient investment planning activities include:
• Determining appropriate asset allocation and investment portfolio construction.
• Ensuring fee structures are reviewed and competitive across all financial providers.
• Reviewing and understanding portfolio risks.
• Identifying investment goals/objectives with regular review based on changes within family.
The “resilience overlay” for family wealth has no end state, and the family wealth ecosystem can benefit continuously from this approach. In her book, Rodin writes: “To be resilient is to be aware, adaptive, diverse, integrated and self-regulating.” These characteristics could benefit from discussion with the family office and wealth advisory team about their integration into the wealth vision and strategy, along with the family. Being resilient truly matters as all families can experience wealth enterprise shocks, but a resilience overlay approach can avert catastrophe. ↵
Julie Neitzel is a partner and adviser with WE Family Offices in Miami and a board member of the Miami Finance Forum, The Miami Foundation, NACD-Florida and Heico Corporation. Contact her at julie.neitzel@wefamilyoffices or 305.825.2225.