As we close another calendar year, it’s time to reflect and take stock of our financial health. Many of us undergo an annual health assessment; similarly, the family wealth enterprise can benefit from an annual “wealth checkup” in the following areas:
Is there a strategic wealth enterprise plan?
For successful families of wealth, the development and ongoing review of a strategic plan is a key best practice. Wealth is rarely created in an accidental way. Strategy, hard work and vision typically form the foundation for wealth creation.
Defining family wealth strategy is fundamental to the growth and sustainability of wealth. The strategy enables the creation of a vision and direction for the family, enables a greater understanding of the family’s core capabilities, identifies weaknesses and mitigate risks to wealth destruction, and enables a change in direction over time. The strategic plan should discuss governance and family decision-making succession. If a strategic wealth enterprise plan does not exist, the family office can facilitate this initiative.
Were estate plans reviewed?
Families and family assets are ever-changing, which necessitates ongoing review of wealth transfer plans to ensure current wealth transfer goals can be achieved. There are many cases of estate planning gone awry. Many South Floridians recall the well-known case involving Joe Robbie, former Miami Dolphins owner who amassed a fortune during his lifetime.
When Robbie died in 1990 (followed by his wife shortly thereafter), family infighting among his 11 children ensued. The only way to satisfy the IRS $45 million estate tax bill was to sell the team. With that, went a major piece of Robbie’s legacy when his name was stripped off the stadium he helped build.
Better and diligent estate planning, with regular wealth enterprise review, could have averted this dramatic wealth and legacy destruction.
Evaluation of advisors
Healthy and productive advisory relationships require ongoing communication. It is important for both wealth owners and their advisors to take the time each year to evaluate their relationship and discuss what is working and what is not.
Some of the evaluation metrics may include: Were the advisors responsive and proactive? Did they render sound advice, enable value preservation/creation for the family wealth enterprise? Are they working in transparent business models where fees I pay are fully disclosed? Do I have too many or the right specialists?
Evaluations of providers of products and services
Fees and expenses matter, particularly in the current low investment return environment. Large sectors of the financial services industry have grown and thrived because most clients don’t notice high fees or don’t do the math to determine what the financial products they own actually cost over time.
A 2011 Forbes article, “The Real Cost of Owning a Mutual Fund,” discusses all of the hidden fees associated with mutual funds, with the total cost of ownership estimated to be over
4 percent annually for a taxable account. The seemingly small investment fees and expenses ultimately are costly for investors and considerably deplete the value of their accounts over time and/or diminish the growth of their investments.
Determine family member engagement
Look not only at engagement, but what can be planned in the coming year to enhance family collaboration, cohesion and communication.
Most family wealth enterprises do not outlive the first generation. Few survive and beat the odds of depleting family wealth. There is a strong correlation between highly engaged and collaborative families and those who successfully transfer wealth. Activities to incorporate into the new calendar year would be family meetings, family retreats, philanthropy, family business and succession planning discussions, family governance planning discussions and strategies to enhance family communication.
For most wealthy individuals, the fundamental goals for their wealth revolve around its sustainability and enabling positive impact on the family. This does not happen by coincidence, but rather with intentional, planned actions followed by ongoing activities of the wealth decision-makers and owners, with support from the family office.
The discipline of an annual wealth enterprise assessment may reap important current and future benefits. Happy New Year! ?
Julie Neitzel is a partner and advisor with WE Family Offices in Miami and a board member of the Miami Finance Forum. Contact her at Julie.Neitzel@wefamilyoffices.com or 305.825.2225.