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Alfonso: Welcome to our Life and Legacy podcast. I’m Alfonso Baigorri, and my colleague Marie Therese Yates and I are going to share with you some thoughts and best practices which we’ve learned working with families around the world on the meaning of stewardship. Marie Therese and I are Wealth Advisors at the International Private Bank. We speak with clients about strategies to hold and transfer wealth across generations.
MT: Stewardship and its role in the transmission of family assets and culture are very much at the forefront of our clients’ minds. Stewardship can be expressed in many ways…and its meaning will vary from one family to another. The concept of stewardship can evolve over time and, of course, within a family there are often different approaches, expectations and behaviors.
So, Alfonso, let’s begin with some of your observations: how do families approach stewardship?
Alfonso: What stewardship means to a particular stakeholder is to a great extent defined by who they are. Think about the different types of stakeholders in a family’s enterprise or who participate in the family’s wealth. You may have one who is a leader and may be the CEO or CFO, vested economically and also having dedicated his professional life to the enterprise or the management of the family´s wealth. On the other side of the spectrum you may have a passive investor, for whom the family enterprise is simply another investment and who may see the enterprise or the wealth held jointly with other family members as just another asset of a larger portfolio. All stakeholders will be vested in the business, or in the wealth the family may hold jointly, quite differently. Professionally, emotionally, and even financially. And these factors will shape how they see the role they play, what are they stewards of.
MT: Absolutely, and of course we’re talking about people here -- full of emotions, beliefs, worries, doubts, instincts, dreams, goals and so forth. Also, the next generation may have radically different aspirations than those their parents had. Understanding this is essential for families to effectively help shape the habits and discipline to make the next generation good caretakers of the family’s business or wealth.
Alfonso: Families often position their conversations on stewardship by telling stories, for example, about how it all started, who came from where in the family, how grandfather started a business to support his young growing family, and grandmother raised the family and was the carrier of values. I remember a family bringing the original cobbler tool box with the tools to a meeting to help the younger members of the family visualize how the founder started making shoes! As true as the precept that work builds character, learning about your family, your business, your wealth, and those who created it and enjoyed it before you, will prepare the children to adopt a contemporary version, their version, of those core family values.
MT: I would add to that and say that stewardship is also about a spirit of care and commitment to yourself and the rest of the family. In this sense, the opposite of stewardship is entitlement.
Alfonso: I completely agree Marie Therese. I remember a family from which we learned how a strong sense of stewardship could help a business survive. What happened here was that at the time of transition from a strong father CEO to his children, the successor son ceded his position to his much better prepared sister. This was a very difficult decision, because of the strong resistance from the father who even considered not retiring after learning of the change of plans! But she did manage to grow the business and actually retired early to make way for a nextgen successor.
MT: Education is key. It is important to engage with young adults in an appropriate manner so that they may learn not only about financial matters but also what role they have to play. “Stewardship” is a lifelong learning experience.
Alfonso: Something I regularly hear from clients is that their children are not interested in financial markets. As Wealth Advisors, something we really strive to do is to give the “NextGen” a seat at the table…to make sure that they have the necessary knowledge to engage with and challenge their advisors when it will be their turn to review financial performance or to make other decisions regarding the family’s assets. A basic understanding of any structures through which family wealth is held is also essential, as is knowing the family’s advisors themselves.
MT: Alfonso, are there any key questions we can share with our listeners? Certain things they should ask themselves as stakeholders?
Alfonso: As a stakeholder, you should ask yourself “what am I a steward of?” Stewardship is not about holding on to a particular business or keeping an investment long-held by the family. Sometimes strong stewardship means selling the business you own jointly and maybe finding new ways of sticking together --maybe through philanthropy or establishing a family office, for instance.
For a family governance plan to work long term, it is extremely helpful to have owners and employees who fully understand their role, who have the right skillset needed to perform that particular role, and who have a mindset aiming to balance the current generation’s interests with those of the future generations.
MT: This is indeed a delicate balancing act. One of my clients once said: “What you inherit from your parents you are actually borrowing from your children.”
Alfonso: That’s a very good line…
MT: Right? [And] Speaking of children, new challenges arise as families grow. Something we have seen over and over again is that new generations are more likely to thrive as a family when there is a strong relationship between the family members, its internal or external advisors, trustees and financial advisors. Keeping the family and the working group engaged is a great way to raise and discuss those issues that matter to all stakeholders and ensures a stable and supportive ecosystem of advisors who know the family and can provide continuity for future generations.
MT: Alfonso, we’re almost out of time … what are some methods we have learned from other families on the relevance of good stewardship?
Alfonso: One of my favorite techniques that I have seen families implement is running a “mock business” exercise. An “on-the-job” training allows a stakeholder to test the skillset she thought she needed to perform her role in the enterprise or in the management of the family’s wealth-all in a safe environment.
MT: Regular family meetings or retreats are [also] a great way to help the younger members of the family develop a strong sense of stewardship by understanding the technical aspects of their family’s wealth plan and the values driving it.
Alfonso: You and I often talk about how engaging in goals-based planning driven by a family’s objectives is a great way to promote stewardship- if making wealth management decisions is an emotional experience, articulating goals can help reveal values, purpose and identity, and makes a person think about wealth in the more practical terms of liquidity, lifestyle, growth, legacy, spending, etc.
MT: That’s a great note to end on! To our listeners, thank you for joining us. Your Wealth Advisors are here to engage with you and your family. We look forward to hearing from you.
