Episode 2 – Family Continuity and Wealth
Download MP3Welcome back to the Our Family Office podcast. Over the course of this season, we're exploring the areas of focus for a purpose built family office and the ways in which a family office can improve the lives and relationships of Canada's wealthiest families. On today's episode, we'll be discussing family continuity. I'm happy to be joined by Kevin Tran, our managing partner, wealth planning. Kevin, thanks for being here.
Kevin Tran:Thanks for having me, Adam.
Adam Fisch:So I think the right place to start is what is family continuity? What do we mean when we talk about that term?
Kevin Tran:Yeah. I think that's a great question, and, it's a very broad term, Adam. You know, I think when families come to us, there's often an issue when it comes to business succession or the transfer of wealth from one generation to another. And, obviously, within that scope, there's a lot of things to talk about. But in the general sense, I think, well, a lot of families ask or, well, a lot of, you know, 1st generation entrepreneurs ask is, is the next generation ready or equipped to take over from the 1st generation?
Kevin Tran:And oftentimes, I think that there are certain assumptions, whether that be yes or no, or perhaps there's an uncertainty as to whether they are. When we talk about family continuity, it's essentially finding out through a very structured regular conversation around those important aspects. And part of it is, first of all, gaining awareness. Finding out whether there is the right level of education, finding out if there's the right level of skill set, and talking about other broader issues like what are the values and wishes of the family. And I think that in a nutshell would be what would be called family continuity.
Adam Fisch:Yeah. So let's talk about what it means when the next generation is, ready. Right? That that can mean a few different things, and, you know, so if we think about the wealth creator looking to the next generation or even the 3rd generation, they're asking themselves kind of, is the future of my family in a position that they are prepared to be responsible and happy stewards of the family wealth. So if we think about what does it mean to be ready, there's you know, are they ready emotionally?
Adam Fisch:Right? And that can be, do they even know about the family's wealth? Right? That can be, are they ready, intellectually? Do they understand kind of the basics of finance, investing, protecting wealth?
Adam Fisch:Are they ready in terms of the relationship dynamics between the family members, between the next generation. Right? Like, all of that kind of goes to whether or not they are ready. It's really across a spectrum of characteristics that we would look at to see, you know, is the coming generation in a position that they're going to be well suited to look after this wealth.
Kevin Tran:And and you'll find that every individual, every family is different. There's no right or wrong starting point, but family continuity and the way we look at it, it's a process. It's a structured process where everyone gets around the table and talks about those important issues that make the difference in ensuring that the next generation are good stewards of the wealth that they're being left behind.
Adam Fisch:Yeah. And, you know, for me, when I think about the next generation and, you know, are they et's start with kind of being intellectually ready in the sense of, you know, do they have the tools? Do they have the skill set to look after family wealth? Now if a family is working with a family office, chances are they have offloaded at least a certain amount of wealth management, but I think it's still really incumbent on the next generation to at least have a basic understanding of what does it mean to make investments, what are reasonable expectations, you know, to know enough to navigate this field, to know at least be able to decipher kind of who's honest, who's good, who is making unrealistic promises. How do I know that the person looking after this wealth for me is doing a good job and and is gonna be setting me up for success. Right?
Kevin Tran:Absolutely agreed. I mean, you know, it's not just the education part, which is financial literacy. It's understanding basic concepts around decision making. It's understanding basic concepts around investments, what's risk, what's return. And oftentimes, you know, depending on the person, depending on the family, different individuals will be at different starting points.
Kevin Tran:And so I think one important aspect that we talk about is ensuring that the next generation has at least the basic understanding of these concepts so that they are prepared at least from a tools, skill set, education standpoint, to be able to talk intelligently about these topics and not just that, work with their advisors to number 1, assess for themselves whether they're getting the rest the the right advice, and number 2, whether they're working with the right professionals.
Adam Fisch:Right. And so in your view, what do you think is unique about kind of ultra high net worth families and people that have what we would call multigenerational wealth that where it's particularly important for them compared to, you know, maybe other families that don't have that same level of wealth to prepare the next generation for good stewardship?
Kevin Tran:Well, I think number 1 is there is an inherent level of complexity. And, you know, oftentimes with the more wealth you have, you often have more complicated structures That could involve, corporations, trusts, foundations as well. It could involve other jurisdictions. Numbers wise, the numbers are a lot bigger. And so oftentimes you see a lot of products or planning that you wouldn't normally see for normal retail level investors. And it requires an understanding of, for example, different laws as well. And in addition to that, how very complex plans work and play together and how it all integrates.
Kevin Tran:So I'd say that would be 1 of the main differences that I see.
Adam Fisch:Yeah. I agree. I think the level of you know, we don't try to make things complicated for the sake of complication, but sometimes, as you say, there are strategies that have a meaningful impact on, you know, wealth preservation that it does it really makes sense to do it, but there's a certain amount of complexity. And the last thing that we would want is for, you know, the 1st generation to no longer be around, and the next generation, this thing falls in their lap, and it's a ball of yarn that they don't even know how to begin unraveling. And all of a sudden, you're in this position of, hey.
Adam Fisch:This complicated structure might have been done for a good reason, but now I'm responsible for it, and I don't know how to look after it. And I don't even understand what it is.
Kevin Tran:And we've dealt with a lot of estates where we've unfortunately seen that happen. A lot of clients come to us at different stages, and some come to us when someone passes away. And we see this as, you know, part of the difficulty is picking up the pieces, gathering the information, and finding out what the plan was or where everything is, and it's oftentimes not in a very organized fashion.
Adam Fisch:Yeah. And this is where, as you said, every situation is different, both in the structure because things are really complicated, and you sort of overlay that with personal individual personalities, people coming at it with different levels of experience or knowledge. And that's where every family in this situation really needs customized advice and kind of a bespoke relationship with their professionals that is gonna be able to meet them where they are and give them the tools they need to move forward successfully.
Kevin Tran:Yeah. And I think what a lot of people don't realize is, you know, when going through a grievance and when going through someone passing away, it's already enough of a difficult time emotionally. You know, going through, you know, mom or dad's things, having to clean up and yet having that responsibility and shouldering that in terms of financially cleaning up things adds to that. And it's very difficult to navigate alone, especially for high complexity or ultra high net worth families.
Kevin Tran:Cause there's a lot to deal with. And I think that's how we've been helping is just, you know, providing a team of experience and of different areas of specialty where we can wrap our hands around and facilitate a more efficient and also a better transition of that wealth to next generation. Because, you know, I'll let you know that there's a lot of administration red tape that goes along with that as well, and it's not a smooth process from what we've seen.
Adam Fisch:So, agree with you. I think that's part of a big part of it is that they don't have to go through it alone. The other part that I would add is that we facilitate communication so that they know what's coming in advance.
Kevin Tran:Exactly. And I was going to allude to that, and thanks for saying that, Adam, is we do it ahead of time so that there's a plan so that this is dealt with and thought about, and it's not done during a very difficult time of grievance. Right. And I think that's the that's the difference maker there.
Adam Fisch:And to be clear, these conversations are not easy. And so what what we're able to do is facilitate this communication that in the case of many families, simply doesn't happen. It's hard. It's hard for a lot of families to talk about money. Maybe culturally, they have this experience of not having these discussions.
Adam Fisch:Right? But I think what families sometimes don't realize is that to be caught off guard later is not doing anyone any favors.
Kevin Tran:Correct. Exactly. And you just can't sweep these things under the rug. And we've seen many instances of this, where families may not be comfortable talking about the wealth that they have, or maybe it's not accustomed in their values or cultures to do so, but it doesn't mean that it's not a necessity.
Adam Fisch:Yeah. And I will say that as difficult as it can be to start those discussions, by the end of it, almost across the board, if not in every case, the families are happier. They feel more of a sense of closeness. They've built trust between each other because the next generation feels like, oh, my parents have finally let me in. Like, it's not all a big secret.
Adam Fisch:It's not all a black box anymore. And the parents can start to see their kids rise to the occasion, and that gives them more comfort that, hey, they're gonna be okay.
Kevin Tran:And I would add 1 more to it is it avoids a level of resentment. Yes. You know, and I think that's key. You know, oftentimes, I think if these responsibilities or messages aren't communicated properly or simply just dropped on perhaps even unexpectedly onto someone, it often harbors some level of resentment.
Adam Fisch:Yeah. I think that's something that a lot of people may not fully appreciate in the moment is that they think, like, well, my kids don't need to know it. And once I'm gone, then, you know, they'll be happy to have the money, and that's the end of it. And they don't realize how common it is to exactly as you said that money comes with resentment of why didn't they trust me to tell me when they were alive? What am I supposed to do with this money?
Adam Fisch:Why couldn't I know about it when I, maybe, I needed it before? Why didn't they tell me that we had it? Right? So there's all of these avenues where your legacy could end up being unintentionally tainted, because you didn't have these discussions. And we're here to facilitate those to say, hey. Let's actually let's open these doors. Let's have these tough conversations. We make it easier for you to have it and kind of help you along the way, guide you along that journey. And that's where, you know, I think using the term continuity is really intentional. Right?
Adam Fisch:It's about how do we continue this family journey, this family wealth? How do we ensure that there is a smooth transition so things move forward in an orderly way.
Kevin Tran:That's right.
Adam Fisch:So I think it might be helpful to listeners to go through kind of an example of one of the tools that we might use with a family. And a popular one is what we would call a family constitution. And a document like this is common where, family has shared assets. You know, might be a business, but not necessarily. Could just be assets that are intended to be, you know, continue to be owned by the family as a group going forward.
Adam Fisch:So, Kevin, talk a little bit about what a constitution is, the types of things that could be in it, because everyone is gonna be unique, and what the process is like to facilitate that conversation with a client family.
Kevin Tran:Yeah. For sure. So a family constitution basically provides a set of guidelines to assist the family in either their personal, business, or family relationships. And it's meant to be done as a family, as a team, because it's a document that really has agreed upon guidelines that they're gonna have to abide by when certain key individuals aren't around any longer. So it will have things such as dealing with conflict. It will have things such as how regularly the family might meet as an example, and other items that are important such as the family's values and how to deal with, for example, spouses as they get more involved in the family's wealth or business.
Adam Fisch:Right. The those sorts of areas where there could be an unknown. Right? So let's think about an example. So, you know, matriarch, patriarch are the wealth creators of the family. Let's say they have 3 children, and they have a real estate portfolio. They're intending to keep it in the future. So there's 3 children. Maybe 1 of the children's spouses has experience in real estate. So they might say, well, I wanna consult with this person about certain decisions about these assets.
Adam Fisch:Well, is that person entitled to be part of it? Are they an adviser? Are they part of the decision making group? So rather than just leave that as an unknown in the future, this kind of document would outline, okay, what are the conditions under which a spouse might be involved or might be employed by the family business?
Kevin Tran:Or even stepping back a bit is, you know, oftentimes with families more than 1 next generation, there comes a decision as to who's working in the business and who is not working in the business because there's a key distinguishment of business owners and management. And you don't necessarily have to be both.
Kevin Tran:You might be 1. You might be both. You might be neither. And so I think going through and having a family constitution really outlines the roles of each family member, what they're doing or what they're not doing. And having that clear outline of expectations and starting with that first really provides clarity for everyone down the line.
Adam Fisch:Yeah. And I think and what you said that's really important is it's a team exercise. Right? So this is not the 1st generation laying down the rules of here's what it is, because that generation one day will no longer be around. And if the next generation doesn't take any ownership of this document, they're not they're not gonna have any impetus to to follow it because they weren't a part of it.
Adam Fisch:So we make it a living document, and we make it a group exercise to say, okay. What works for everyone? Let's talk this through. Where does everyone land on this? It doesn't mean everyone has to agree on everything, but even just coming to a group decision can go a long way to getting buy in in the future.
Kevin Tran:Yeah. And everyone's always going to have a different opinion. But I think what I see is the most important part is having a safe environment to voice each individual's concerns so that they're heard, so that they feel heard, and not just that so that everyone is respectful of everyone else and their opinions. And you'll find that, you know, in normal families, a lot of conflict happens.
Kevin Tran:So this really provides a structured regular environment where they can make decisions together and forge a positive path forward. That's what I would say.
Adam Fisch:Yeah. I mean, I think all of the tools around family continuity are ultimately going to be for the purpose of improving family communication around wealth, expectations on conduct with each other, and really promoting healthy family dynamics and being in a position to be, as we said, at the top, good stewards and inheritors of the family wealth.
Kevin Tran:And I'll add to that as well is also avoiding a level of entitlement because as part of this family constitution, and let's pretend and let's go on the example of a real estate operating company, there would be expectations on employment policies. So what does it mean to be an employee of this corporate group? Oftentimes, when we see family members working in a family business, you know, oftentimes you talk about fairness. Right? And we wanna make sure that everyone's pulling their weight.
Kevin Tran:What does it mean to be a leader? What does it mean to have certain compensation policies that are in line with industry expectations? Because the last thing you wanna do is have any sort of favoritism inside the family or within a business structure. Or perceived favoritism. And that's often a problem when it comes to privately owned family run businesses that we see. Right? So this family constitution really helps to resolve those kinds of issues by setting a base of expectation for everyone.
Adam Fisch:Right. And I think it's so important that these discussions happen in a safe environment and in an open environment where you have professionals that help facilitate it. And in a situation where rather than waiting until the situation comes up and then trying to resolve it, it's having the discussion at a high level, at a philosophical level. So that when the situation arises, it's much easier to say, you know what? We all came to an agreement already about how we're gonna navigate this, So we're gonna let the constitution dictate how we act now going forward.
Kevin Tran:Exactly. It provides a framework and a guideline on decision making conflict resolution. But in addition to that, I just wanna focus on one part that we do focus on. And I think it's important to mention a lot of individuals don't necessarily pay enough attention to it is family values. And the reason why this is important is, you know, you can put as much detail as you want in a document, but the reality is it's the individuals and the team that make the decisions.
Kevin Tran:The document is just a piece of paper. It's just a tool. It's just something to refer to down the line and provide guidelines and structure. But the reality is it doesn't answer every single situation that's gonna arise in the future no matter how hard we try. Right?
Kevin Tran:That's the reality. And it's gonna go back to basics when it comes to making difficult decisions. And a lot of that structure is around family values. What would mom and dad have done? What would the family have done?
Kevin Tran:What's important and what's core to our family? And when it comes to those difficult decisions, you often lean back on those basic principles and values, and you come to a decision as a team. So that's why it's important.
Adam Fisch:Yeah.
Kevin Tran:Really knowing who you are.
Adam Fisch:Yeah. Well said. I think that's it's so important for a family in trying to create and preserve multi generational wealth to know, as you said. Right? Who are we, and what guides us? What guides our decisions? And how are we going to navigate the future together?
Kevin Tran:Yeah. Great. That's excellent. Yeah.
Adam Fisch:Kevin, thanks so much. This was great. Thank you.
Adam Fisch:I hope you enjoyed today's conversation. Thank you so much for listening. Our family office is Canada's 1st purpose built shared family office, and the Our Family Office podcast is produced by Henry Shew. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to like, comment, and subscribe so you don't miss an episode. See you next time.
Adam Fisch:The information in this podcast is presented as a general educational and informational resource only. While certain participants in this podcast may be registered to provide investment advice as a representative of Our Family Office Inc, itself a registered firm in certain Canadian jurisdictions, this podcast does not provide individualized investment, financial planning, legal, tax, or insurance advice, nor is it meant as a recommendation to any listener to buy or sell any specific securities or otherwise take any other investment action. Any action you may take as a result of the information presented in this podcast is your own responsibility. Our Family Office Inc and each of its representatives that participate in any podcast disclaim that any listener should rely in any way on any of this content as investment, tax, legal, or insurance advice. Listeners are encouraged to consult with their individual investment adviser and other financial professionals prior to taking any potential investment actions or making any insurance or tax decisions.
