Engineering generational prosperity
with the Family Wealth Navigator
By integrating adaptive asset allocation with forward-thinking insight,
families are able to gain clarity, predictability, and strategy over their wealth.
How a family allocates its wealth, across both its business and assets, is often the most tangible starting point for discussions about wealth and relationships. These elements are both the financial core, and lifeblood of a family’s existence. The way a family approaches this intersection is crucial for its long-term health and success.
Moreover, when families commence the wealth planning journey they quickly encounter a challenge: the practicalities. In other words, the practicalities of implementing a strategic wealth plan, across all the various categories of wealth.
In this article, we will introduce the Family Wealth Navigator as a useful tool for managing these practicalities.
The Family Wealth Navigator is a dynamic tool to:
- Align business operations, investments and expenditures with a family’s values and goals
- Provide a transparent overview of family holdings, income sources, along with strategies for prosperity, diversification, risk management, and wealth preservation
- Assist with cash flow and expenditure planning, enabling families to steward their wealth across generations, and cultivate a “family enterprise” mindset
- Provide a foundation for making critical decisions about dividing family wealth, and about investment management
The Family Wealth Navigator not only streamlines the practicalities of financial management – but also enhances family dynamics through fostering financial transparency and understanding. After all, clear accounts are essential for trust not only in business, but also within the family. They are key to maintaining healthy relationships, and ensuring that financial clarity and predictability go hand-in-hand with familial unity.
The balance between disclosure and privacy in family wealth: the challenge
In an age where information is readily accessible online, and where parent lifestyles and possessions can offer clues about their wealth, it’s unrealistic to assume the younger generation will remain oblivious. Complete secrecy may not only be impractical but can also lead to misconceptions.
On the flip side, transparency about family wealth can be a double-edged sword. Providing too much information too early, or to too wide an audience, may foster a sense of entitlement among younger family members. They might develop unrealistic expectations about their future lifestyle and financial independence. Or, their personal ambition and responsibility may suffer, as they may feel they have a permanent “safety net”. Conversely, a lack of disclosure can lead to myths, over-estimations, and inflated expectations about the family’s finances. In turn, this may lead to financial missteps when they eventually receive their inheritance.
Privacy and autonomy play a significant role in this disclosure, and can affect relationships between spouses (and across generations). Parents may aim to cultivate financial responsibility, and thus monitor spending, saving, and investing habits. At the same time, it is wise to recognize the importance of privacy. In our experience, the distinction between “we-money” and “me-money” is crucial. Younger members need the freedom to experiment and learn – without feeling the need to justify every expenditure to their parents.
This applies to parents, too. Like their children, they may also prefer to maintain privacy around their wealth and spending habits, without wanting to justify (or be criticised for) their financial choices. Of course, there is room for mutual dialogue about individual and collective family spending – particularly in the context of budgeting and financial allocations.
So the Family Wealth Navigator does not suggest a level of transparency where people feel uncomfortable, or that every single financial decision should be disclosed to the entire family.
In our experience, most families have hidden “income streams” for some members and “off-balance-sheet transactions”. This is a result of individual privacy needs and requirements.
There are pros and cons to this approach, but generally we believe family systems operate better over the long term if financial transparency and disclosure is discussed proactively within the family. After all, the balance between individual discretion in spending and investing with collective decision-making is delicate.
Navigating this balance requires careful consideration of the family’s values, the maturity of its younger members, and the long-term implications of financial disclosure.
Typically, the responsibility of determining the level and timing of financial transparency falls to the older generation. They decide when and to whom financial details are revealed, often choosing full transparency at specific life milestones (or even once they have passed away). It is crucial that families are aligned on this approach, as it plays a vital role in cultivating effective wealth management and a healthy financial culture.
Introducing the Family Wealth Navigator
We do not claim that the Family Wealth Navigator is a revolutionary financial tool. But we believe it addresses a commonly neglected area in family wealth management: strategic planning and forecasting across all wealth, not just financial assets.
Many families maintain thorough accounting and reporting systems for their assets. Yet they often lack a comprehensive strategic tool for financial planning and forecasting. Think of this as a tool a successful business might use, including essential elements like budgeting, expense tracking, forecasting, and cash flow analysis.
The utility of this tool lies in its adaptability. To a family’s evolving circumstances, the business environment, and external economic, political, and social risks. It’s more than a static inventory: it enables families to understand and adapt to the continuous interaction between various assets, income, and expenses. To facilitate this dynamic approach requires an ongoing and disciplined strategic wealth plan and asset allocation, paired with meticulous reporting, controlling, and risk management. It’s essential to capture changes within individual assets, family needs, macroeconomic shifts, and other challenges.
But often families must piece together data from multiple, disparate sources, impairing control and insight. Such fragmentation makes it hard to comprehend the entire financial landscape.
Instead, we advocate for the necessity of comprehensive, current information across all types of assets. This should include obvious aspects like rental income from properties, dividends from business ventures, and returns from diversified investment portfolios, but also less apparent factors.
For example, costs and revenues might encompass:
- Maintenance and operating expenses of high-value assets
- Tax liabilities linked to various investments
- Income from intellectual property rights
- The financial impact of philanthropic activities
Moreover, it’s also vital to understand the implications of currency fluctuations on cross-border assets, track the performance of venture capital investments, and manage the costs associated with estate planning and legal structures.
It’s well-known how important real-time data and proactive strategies are to managing family wealth. The integration of technology in this process is increasingly crucial – and an opportunity to involve the younger generation, who often bring fresh insights and understanding of the latest tools.
Without this combination of strategic overview and meticulous data tracking, achieving effective financial planning is hard – across the short, mid, and long term. In turn, this failure can expose the family’s wealth to considerable risks, like being forced to sell assets at inopportune moments, accepting unfavourable loan conditions, and missing out on lucrative investment opportunities.
To manage these complexities, different assets need to be categorised comprehensively. That way, it’s clear how they interrelate and interact across various family life cycles. Consider, for instance, a business that acts as the primary cash generator for family spending, diversified investments, and philanthropy.
- What if this business experiences a downturn, or requires more liquidity for investment than it generates?
- How should a family determine the right amount to invest in non-yielding tangible assets like collectibles (which may appreciate in value but also require ongoing funding)?
- If the business is sold, what lifestyle can the family afford, and how should proceeds be allocated among different asset categories and individuals over time?
- How can a family ensure they have enough liquidity to seize attractive investment opportunities as they arise?
These are just some examples of the contingencies wealth owners face in their financial planning, across the various categories of wealth.
Now let us explore those contingencies in more detail, starting with our six categories: