On-Demand: Family Office Technology Solutions Series | How Information Facilitates Family Cohesion

May 16, 2022

In Part III of this series, we cover sharing information within the family office and the methods that can improve trust and cohesion.

 


Transcript

Marie Arrigo: Thank you. Hi everyone. I am Marie Arrigo a tax partner and leader of the firm's family office tax practice. Welcome to our third webinar in our spring series on family office technology solutions.

Marie Arrigo:Our first webinar discussed how technology can improve family office operations, the second webinar focused on cyber security and how the family office can protect themselves, and today we will discuss how providing information to family members can help keep the family together. So with that, I turn the program over to my colleague, Natalie.

Natalie McVeigh: Hi Marie. I'm so excited to be doing this with you today. And it's absolutely true. Family offices in most cases show up because there's complexity, complexity with what's in the family office, right? Number of entities, whether it's investment portfolio, whether it's philanthropy, you name it and number of people.

And that complexity arises and you go from making money to making it work for you. And that's really what the family office is meant to do. It's meant to organize, provide services. And this may be a list of services your family office does or does not do, don't worry. This is all of the amount of services under the sun. And as they said, you already have this slide so we're not teaching you how to structure a family office. And every family office is different, right? It works for your family and what they're trying to do.

But what makes all of this work is people's connection to that entity, that it really is serving my needs or helping me deploy capital the way I'd like to. And so what's the one common thread there? Is information. And ideally this is a two-way highway, right? It's gathering the information from the family it's serving to say what do they need? And it's also responding by sharing the information of what we're doing, how we're doing it and how we're progressing on the benchmarks that you've laid out.

And so we think of family offices, private trust companies, family businesses, family foundations as a family enterprise. It's the business of serving a family. So that could be real estate, a boat, a plane, vacation homes, actual properties that you own that you might live in, the businesses, the investment, the philanthropy, the family office, anything that has shared ownership, shared management or shared decision making is what we're talking about today.

Because I already mentioned the complexity, right? You've got a lot of assets doing a lot of important things and you've got a lot of people also trying to thrive and survive and we really mix these up. And you can imagine when you have a lot of different pieces moving around, there could be creation. And ideally, you're in that creative zone.

Marie Arrigo: So Natalie, I have a question with respect to philanthropy. I have many clients that have a family foundation. Typically, it was founded by the older gen matriarch or patriarch of the family. And then as time goes on, they seek to involve other family members like their children and even their grandchildren. So you're dealing with a multi-generational type issue.

But how do you actually work on that transition given the fact that each generation has a different view about approach in this case philanthropy? I mean it could be a foundation, could be any one of these other types of family enterprises. But if they have a different approach or a different view of what's important in terms of accomplishments, how does one usually handle that?

Natalie McVeigh: Yeah. And Marie you're right. They absolutely do. We're seeing five generations in businesses together. We're seeing many more with increased lifespan, right? Great for technology health wise, great for our longevity, but complex for decision making. And even within a generation, we're seeing people left or right politically. We're seeing people who might be religious or spiritual and others who might not. So absolutely, it's different.

We can do this a bunch of different ways, but first we start with that key piece of information. This is how I've been doing it and here's why. Not saying that I'm right or wrong, but this is what I've been doing. And then trying to listen to say, "What would you like to do?" And especially with philanthropy, we sometimes see junior boards, right? Where they get a small amount of resources and information that they get to donate and direct.

Ideally what you want to do when you have a family enterprise is build capacity. Many of my clients in the high net worth space with their own family offices or private trust companies could do anything they wanted and they have the resources to do anything they want. And yet sometimes when you have the family that was kind of a gifter versus the recipient, there's a learned helplessness because you have all of these things but you get to make no choices about it. And then we wonder why heirs aren't prepared enough.

So we start by practicing by first explaining my thinking. Everything I do is intuitive to me, it's completely obvious. I'm sure Marie you've had conversations with people where they're like, "Yeah, that's the obvious answer, but it's only obvious through your lens." So I like to say you show your math, show your math to your next generation of how you got there, whether right wrong or indifferent, whether they complain or whether they accept it and then ask them to do the same.

And we're going to show our math along the way to try to figure out different equations you can use. I remember my first algebra teacher said there's a hundred ways to solve the problem. The question is which one works for you? And that's what we try to do. But as far as you're talking about governance, you'd want investment guiding principles or philanthropy guiding principles. You'd want to know what the board is, who's the head of the foundation, what are the restrictions. Right?

You have to give away 5% a year if it's a foundation. So really it's all about information and who has it. And for some bizarre reason, we like to think money is power and we also like to think information is power. And it was at one point in time, but you can't take that with you and you want to empower the next generation to start using that. Does that answer your question, Marie?

Marie Arrigo: Very good. Yep, thank you.

Natalie McVeigh: Have you seen anything that's really impressive with your clients that they've done?

Marie Arrigo: I think that the more successful of these are the ones that actually have communication between the different generations and can come to a decision... Then once you explain to each other what it is of where you're coming from, it creates a situation where there's more of a consensus that they could find common ground.

Natalie McVeigh: Absolutely. And we're happy to talk. Each generation has a language and sometimes we seem to talk past each other than with each other. And that's a phenomenon called adult developmental theory. There are different adult developmental stages. And literally when you're in one and someone else is in the other, it's all Greek to me, right? I don't speak Greek yet. Not one of the languages I speak.

And the challenge is it's because of our orientation. So you have a lot of the next generation saying to their parents, "Not right now." And sometimes their parents hear never. And you might make choices saying they're not interested right now, but their goal is getting married, having their own children before they want to start giving back, right?

If I don't have enough money to make sure my goals are accomplished, I'm not ready to give it away. So that's also important to know. What's the generation thinking about focused on, so on and so forth. Another thing we see in family offices and private trust companies is a trust, right? There's this legal entity that supporting people starting to use their financial wherewithal.

It might be filled with shares, it might be filled with real estate, it might be filled with hard cash. And there's usually someone who's not the beneficiary who's making decisions around this entity. Now, if you continue to leave this balanced beam where the trustee is exerting more power and the beneficiary has less ends up being extended allowance. It ends up continuing to, again, atrophy skills. We have authority, there's atrophy as the reciprocal response versus creating a more collaborative approach that creates some equity between people.

Marie Arrigo: Right, right. So with that, I've seen, and just as a hypothetical, where you have let's say a family member who is a trustee and she has discretionary distributions to the beneficiaries. And so let's say your beneficiary wants a distribution for what seems to be not a very smart decision. Let's say, I don't know, investing in a friend's t-shirt business, so to speak.

The trustee thinks immediately, "Oh, that's no good. I'm going to say no." But if you say no immediately, then you kind of cut off, right? Your communication between the two. So what do you do about that in terms of... Does the trustee ask questions, like sort of kind of get a rationale about why do you want to do this? And even what is it? Is it a gift? Is it a loan? Is it an investment? What do you expect in return? What do you think?

Natalie McVeigh: Yeah. Great questions, Marie. We do this thing with family members where we love them so much we do them a huge favor where we stop listening to them. It's a neurological phenomenon called closeness communication bias. So anytime there's conflict in family or the perception of misinformation, right? The answer is to everything overcommunicate. That's why we're doing this on communication and structures to help you.

But if I'm a family trustee and I turn down my family member who's asking for something, there's a lot that goes unsaid. You're absolutely right Marie, I should ask a lot of questions. I have some fiduciary duties as a trustee. I have an administrative duty. I have a duty to distribute. I have a duty to account. I have a duty to care. I have a duty of impartiality. There's a lot I should do. And part of that has to get to know what the beneficiary wants.

So that's my part of the trustee, ask lots of questions, try to figure it out. And then if it's a no, because it can't always be a right, it can't always be a yes, right? It's not possible. If it's a no, I should explain. We talked about that earlier, that show your thinking so that the beneficiary can learn. And the beneficiary also has to understand, I think it's upwards of 80% of trustee beneficiary challenges are because beneficiaries are uneducated.

The beneficiary should understand those trustee rights and make sure they're creating a good business case, showing a budget, trying to see the ROI. And this is the breakdown that happens in trustee and beneficiary relationships. It seems very autocratic. Like when I asked my parents for an increase in my allowance when I was a kid, their answer was okay, there's an increase in your chores, right?

So I understood this. I want more money, I have to work more. So the trustees and beneficiaries, instead of it being allowance need to start evening this out and figuring out what's the young person trying to accomplish? And many of these young people are in their fifties too, right? Sometimes trusts don't change until you're much older than that.

And then what's the skill that they're missing? I teach at a trust school and we actually teach trustees how to ask these questions. And so yes, it might be your older brother telling you no, but he might not be telling you no anymore because he likes bullying you, right? He might be telling you no because he knows what's more help for you. But it's not helping you until you understand what you're missing.

And one of my clients, they created a rule around their trust where the no always came with an explanation and it always came with a redo. So not only did you hear the no, why you got rejected, but you always had to apply again. Even if you were over the idea. So you got to learn how to continually build these business cases. Does that make sense?

Marie Arrigo: Yep. Yeah, it does. And actually what you do then is you're kind of also taking the emotion out of it, because your questions are very matter of fact and really down to finding out information. Like I said before, what are you intending them to do? Is this a gift to their friend? Is it a loan? Is it investment? And then what are the expectations back? So you start to kind of get the emotion out of it. You're having an actual business discussion about it, which I think can be very helpful.

Natalie McVeigh: And that's another option too, is not only is it a loan or a gift to the friend, how are you accessing your trust? Many people have provisions to borrow against the trust. I have a client that financed one of their homes through one of their trusts.

Marie Arrigo: Right.

Natalie McVeigh: Because they got a more favorable rate in an intra loan than going out to a bank. So I think there's a bunch of ways we can get to the answer. The question is what's the goal? Is it a good solid plan? And how do we figure out the way to do it? I say that all the wonderfully technical solutions are only technically wonderful for a client if they understand why it happened and how they can repeat it. And part of that is this. We don't like to talk about how things don't work, but there's a lot of research on how wealth transfers fail.

And you might say this is about family companies, it's not. It actually is genuinely at the end of the day, is there an amount of wealth that has gone from the first generation to the third generation? And there's another study that actually talks about how the top earners in the United States only 20% of their children end up in that same status. So we're just talking about purely money, not just a family enterprise which involves a family office. And many don't and 65% of the reason is that communication and trust.

And why communication and trust is so important is the way we talk to our children updates over our lifetime. My son's 11. So when I move or take a new job, I kind of tell them it's happening. I may ask how he feels about it, but to help him adjust. Not to ask his advice on whether we should do it or not, right? Because he doesn't know anything. Now, if he were to come want to do the work that I do when he is a grown up and has a degree, we would have a different conversation, right?

If I were to think about expanding services or something like that. So we want to update that communication over our time. And then trust is really this inevitable thing where we know it when we see it, but we know it when we don't feel it. And believe it or not research shows the more I treat you as untrustworthy, the more you behave as such. And the reverse is true. The more that I treat you as trustworthy, the more trustworthy you become.

And a lot of it has to do with information. A lot of people, young people tell me that their parents haven't told them anything about the enterprise, the family office, the trust that they have because they think their parents don't trust them. I don't believe that's true and we'll show some data as to why. But it starts building that. Then 25% is prepared heirs. Exactly what Marie was talking about a second ago.

How do you help them ask the questions so they can start asking them, so they can start deciding whether it's a yes or no and only hearing you say no? Right? If they just keep hearing you say no, it's going to feel personal. It's not going to feel like a process. 10% is a mission statement, what we're deciding to do together with this enterprise and then the other 5% is tax and other. A lot of people worry. They say it's always divorces and things like that.

Those aren't the things that make the money disappear in families of wealth. It's things that are in your control, in your power. And it makes sense why we're not doing those things. This is why communication tends to get stifled in family. And I don't usually read slides, but I do want to go over these. There are four critical reasons why I stop talking in families.

Actually, let me just tell you neurologically why we do it first. Neurologically, our desire to belong outweighs our desire for safety. I say it again so it sinks in. Neurologically, our desire to belong outweighs our desire for safety, and where we most want to belong is our family. So if any of you when families were fighting when you were younger, you probably remember this, you might have cracked a joke and sometimes your family members laughed, two things, either one of two things happened.

One, everyone laughed and the tension was gone or you were reprimanded because it was inappropriate, right? But you were trying to do something to make things okay. And maybe that helped shape you be the class clown. And maybe today you're still using humor to diffuse tension. But I started doing this and you did too because I had a fear of hurting feelings. I thought I already knew what would happen.

I didn't want any boundaries between them and me and I didn't want any distance between them and me, right? So it's really about how do we stay together? So we don't want to displease people, we don't want people to think that we're doing this because of them, right? If you put a special trust provision in where you can't spend too much money because one of you is a spendthrift.

If it doesn't apply to all, it's not going to apply well. And then you think you already know how people respond. Yes, we do actually stop listening to each other, like I said, but we also grow. Our brains develop till the day we die. We now know this. People used to think they were going till we were 25. But the moment I stop believing you've changed is the moment you genuinely have changed. There's something called associative regression where when family members get together, they act like they were 18.

It also happens when you go to your college reunion. You act like you were in college. And for some of us, we drink more or we drink less based on how we drank in college. So it takes repeated effort of breaking through that veil of acting towards my family members how I've been acting since I was 18 for them to really see us today. So Marie, I'm not going to ask your age, I'm not going to share my age, but we're grownups.

We're many years from college. We're many years from being a teenager. And I know that because I work with Marie. But I'm sure Marie's siblings have a different view of that, and I know mine do. So the way to break through these communication boundaries is to believe that they're not true, that my family can surprise me and it can be a positive thing.

So when I start acting as though I trust them and they start trusting me and vice versa, we can write the script as who we are today, not who we believe we are, doing this tap dance around each other instead of just going straight through it. And it's not to say that it doesn't get uncomfortable. It actually gets uncomfortable first before it becomes comfortable. But that's very different than making myself smaller or more comical or whatever I did to play the role I did in my family.

Marie Arrigo: Sounds constructive.

Natalie McVeigh: Tell me more about that, Marie.

Marie Arrigo: No, I was just going to say, this sounds very constructive because some many times like what you're talking about is basically you're reverting back to the role that you had when you were a child, which is the past.

Natalie McVeigh: Yeah. And it works to some extent. The first conversation I have with clients where we say open the kimono, say how much is actually there or you're investing ideas. I don't know how your family office works, but it's a lot about investments, it's a lot about regular dollars is what I hear my clients most afraid to share about. And they think it's going to ruin people.

Let me tell you, if your kids are over 20, they're cooked, they're boiled, they're finished. So it's not going to change them. It might accentuate some of the things that they do, but then having conversations about that is the way to move through it. And yes, it's a little uncomfortable at first because you're letting down this role that you've been playing, but it gets much better. I had a client I was just working with a day ago and we were talking about how they knew, and not all clients have this awareness that they had this thin truce, that if they just moved one thing, it wouldn't work.

And I said, "That feels like you're on a tight rope. Wouldn't it be better to actually get a plank or build a bridge?" It's going to be a lot more work, a little bit more resources, but it going to feel like you're not this far from falling over a cliff. And this is the key, trust. We know trust is oxytocin. It's a feel good hormone. We can't bottle that and ship it to you. When we can, we'll let you know. And here's why we don't.

There are a couple different studies. One is that you'll trust your financial advisor even though he or she loses all your money if you do that. And a study on college kids when they gave them too much oxytocin is they would literally empty their wallets to anyone on the street. So there is too much of a good thing. But most of us, especially in the United States and some other countries, walk around with too little.

So we have this high skepticism. We have this small box of trust in who we let in. And you can start widening that bit by bit by just practicing these things, clarity that I believe you really want to do this. We have a simple example here about moving someone. Hopefully you're all grown and you can pay for movers. But put something else in here where you actually believe that someone will do the thing they say they do, reliability that they continually do it for you.

So the fifth or sixth time when you call in the middle of the night, they're picking up. Here's the toughest part, competence that they can do it well. This is where siblings often fall down on each other, right? They genuinely care, they can be reliable, but they might not have the skill set to do the work. Now the opposite may be true with your family office executives.

You might be the most competent person in the world, but maybe someone doesn't believe that you genuinely want to help them, so they don't have that sincerity place. Or maybe you're so overwhelmed that it doesn't happen reliably. And any one of these places is a place that trust can start to erode. So you can help trust erode or you can continue to help it build by practicing in these areas.

So we often say unilaterally I trust someone or I don't trust someone. And it's not that simple. So understanding where and how you stop trusting people is important. I do a similar joke here as I do all the time. My sister can't drive on USAA insurance, she's a bad driver. And that is true, that's not for the joke piece. But if I can't make it to pick up my son, my sister's the first person who does it. It's still trust and it's about the same thing. It's about a car.

But in one case, Nicole isn't trusted to drive my car. In another case, Nicole is trusted to pick up Will from school. And so if you can just split out the ways in which you trust or don't trust people versus making it unilateral, the better. And one of the most simple ways to do this is continually have that information available early and often and be conversant in it in a way that makes sense.

So another tip for family offices, most of you are in them are quite sophisticated with numbers. And you talk about these things that in a way that make even my eyes want to roll back in my head. And I know numbers, it's what happens. So we need to start translating that language to make it really simple for people.

There's a great book called Making Numbers Count, it's very short, I think by Chip Heath is one of the authors, he is a co-author, that helps you talk about numbers in a way people can hear it. This whole webinar is about how technology can help you, help you get the information in front of people regularly, knowable, periodically. But that last piece is understandably. And that might mean that you are the one who has to flex so that people can understand your sincerity.

I want you to understand this so much. I'm going to make sure there are reports talking about things in a way that you can hear it. Not just that I understand it. You start leveling that playing field. Marie, any thoughts that you would like to share? Haven't worked with family offices for so long.

Marie Arrigo: Well, I think you hit on an issue which is really important and I'll mention it again a little later on, but providing that information to family members on a timely manner and making it understandable, I think is pretty key and spending time with the person to make sure they do understand what they're looking at is also important.

Natalie McVeigh: Absolutely Marie and that just makes a lot of sense as you're trying to reach them where they are. So there should be global education, regular reporting, but then also individually. This is the challenge on this slide. You've all seen the three circle model I'm sure so I won't spend a lot of time on it. But it talks about the complexity of being a family member, being in the enterprise, which is probably a family office and then maybe owning it.

And there are different levels of that in these entities, right? Same thing with private trust company or a family company. But what gets lost is that individual level, my role as an individual needs to be honored. I can't just get lost in the enterprise together. And this role confusion is the leading cause of conflict in family enterprises. This is older research, I haven't seen the updated research from the Family Office Handbook by Kirby Rosplock.

But at the time, seven out of 10 family office leaders were family members. So, imagine that. I'm a family member, I work in the family office and maybe I'm also an owner, depends on how it's structured. And yet I have other family members who are just family members. Some others work in the enterprise and maybe half of them own it. There's some different questions that they have based on their roles that they're in. And they might think you're unfair being a sibling running it by not sharing enough.

And it's okay to say there are bounds on some of the information, right? That they don't have to actually be there with the day to day, maybe don't have to know how every staff members compensated. You decide what those boundaries are. But it gets murky. It gets confusing having those different rules and how to order them and how does this not show up when we're at lunch or dinner together.

And why it's complicated, I said already it just is, is this is families who are not blended families. These are not blended families. This is just what happens to any people even without money who have children adopted or gave birth, doesn't matter. There's that belonging issue I talked about, there's culture. Every family has a culture of its own. That includes a language, that includes every family has their own isms. I'll pick on mine, my mom's Mexican and my dad is third generation Irish, is American, McVeigh, right?

My mom English is her second language. She says, “the thing by the thing by the thing” and my sister and I know exactly what she's talking about. She's talking about her purse in the hallway on the credenza. My dad and my brother are still clueless. They have no idea what she's talking about. For Pilar, “thing” can mean anything.

And we know that. I also had people describe my family, we're a military family. We work in a little unit and we don't even talk sometimes, but we're also watching my mom, she gets distracted. So, one of us always has our hand on her shoulder when we're traveling. That's our culture, right? It's unique and it has nothing to do with the languages we speak. It's the way that we say things that mean something to us even in English or Spanish or Italian.

And then birth order, right? You've got the older sibling who's usually type A, you've got the baby or the special child. Even if you don't act that way, it happens. Also parents, you have a favorite. Research proves it. It's either the kid most like you or the one less like you. But your kids look at that. There are stereotypes. Maybe you were the crybaby, but now you run the family office or worse, maybe you were the crybaby and your siblings won't give you what you think is the information you need because they think you just cry a lot.

And there's also this child, parent dynamics. If the parents are running the show, we even as adults have a hard time mixing in. We can send you a sheet on this that defines each one of these. The point though, is every family just by being born with no additional assets, with no additional structures that make us work together run through these challenges. But most of us get time to cool down if we're upset by something.

We go away, we don't see each other again until Thanksgiving if you're in the US, some annual religious holiday depending on your own belief system. But we can't run away from these tension points. Not only can we not run away from them, we need to get ahead of them by talking. It could be that simple as Jane, you cried a lot when we were kids.

So, I have a hard time hearing you today when you complain about the work that I'm doing, and I'm working really hard. That doesn't feel like you're just whining. Maybe you don't understand how tough this is for me. Just calling out the thing that's challenging is starting to change that information flow, it's starting to change the dynamic of your relationship. And I get it. You don't want to hurt someone.

So, you don't want Jane to hear you call her a crybaby 20 years later, but you are in your head. The difference is she doesn't know that. She doesn't know the challenge that you are having around feeling like this is a lot of work for you. And we wanted to share a couple tools for you based in research that you can start applying. These are the three continuums that we see in family offices and family enterprises.

And a lot of times we're used to seeing zero to a hundred for success. Zero to a hundred doesn't make sense in a family office. You can provide structure, but it has to be flexible, right? It has to be adaptive. So, if you have, I don't know, quarterly financials going out, fine. But if you're rejiggering your investments in a month that's not on the quarter or if you're making a major acquisition again on a month that's not a quarter, how do you set up a meeting and set out information relative to that? Right?

So, it's not a zero sum game. You don't want to be completely chaotic and you don't want to be completely rigid. There's no space. The same thing with cohesion, which is how connected we are. Are you constantly going on family vacations together? Are you involved in each other's lives 24/7? Do you have a family chat? That's a family would call enmeshed, right? Where it's hard to differentiate between one another.

Or there are other families where they literally live across the country and they don't check in for months, right? That's disengaged. So how do we find the right adaptability and cohesion for our family? And this last continuum, I call it a facilitating variable. It's the continuum of communication in the family. And that's two-way communication, again, to the family office or the board, all the structures that be, right?

And it's getting the information from the family, but also getting that information back. And this is going to tell you where we need to make adjustments and the beauty of a family office, private trust company, family enterprise is that they often have a lot of success because they're adaptable. They can change on a dime if they need to. Marie, I'm interested in some successes you've seen with your family offices relative to this continuum here.

Marie Arrigo: I think I definitely the more that this communication's really big is what I see, is that when there's more communication amongst the family members, that everything seems to go smoothly. But when there's a sense of disagreement, the progress can't be made.

I mean, I was once involved with an estate planning function, a job, and the couple comes in and unfortunately they were not in agreement as to what happens. They were up to like when the first spouse would die, the second would get it all. But then what happened after that? They were not in agreement. Therefore, we could not move forward on anything. So, I think that that's really the thrust of it.

Natalie McVeigh: You're absolutely right. I wrote an article, unfortunately, it's in French, so I'm trying to get the English translated so a colleague of mine in French Canadian, Quebec specifically. And we wrote this article on taboo. I love etymology, the study of words. And there's one word that everyone agrees on the root of.

I love talking about culture and I say the Latin root is cultus and it means unit of care. That's why it's so important we have culture and family. But there are also four other root words it could potentially be. Because that's language, it evolves over time, it changes. But there is one word called taboo that no one disputes the meaning of. It's Pacific Polynesian Islander specifically Samoa and from its inception has met the same thing, the thing that we do not discuss.

And every family just like it has its rules and its rules, it has its taboos. And it's the thing we know to stay far enough away from or will get burnt. And believe it or not, that is counter to what makes a successful family that has communication, cohesion and adaptability. Because if there's something in the room we don't touch, it means a part of the room is blocked off. And so, the real answer is to deal with that.

Likely the conversation was it's too... Someone's thought is it's too hard to even talk about our death. So why would we plan for it after? We plan for it after because there's an inevitability here. And I often have to correct my clients because they'll say, "If I die," and I would say, "when you die." And many of my clients say, "Well, when I die, I know this isn't perfect, but I won't be there. So, it doesn't matter if it's a conflict."

Just because you don't see it doesn't mean that it doesn't matter. It's going to be tough for your kids already dealing with your death but it's a conflict that you think is simmering before you're there when you could help them, you could be their training wheels while they go through this conflict. And instead, you're going to wait. And that's part of the challenge here, is to say it's actually not that counterintuitive.

A lot of people in the United States really like working out, right? People like fitness and being fit and you rip ligaments and tendon, tendon specifically or ligaments, one of the two to make muscle. That's actually what muscle is you are tearing a part of your body to build that skill. And so ideally, you're tearing the facade of what you think is safety, which hasn't served you because anytime I meet with a client, we talk about those undiscussables and they have them down and they know them and they have lots of questions about them.

And the question is we tear down the perception of this being so painful that it causes us harm to it really being the thing that becomes the center of our connection, our continuity. And yeah, much of that was helpful with the facilitator. Why it's helpful with the facilitators? It will necessitate some conflict. And I talk about conflict as two ideas trying to occupy the same space, right? Which is fine.

But if we have some conflict in getting there, I can be the bad guy. The conflict leaves with me. I made you all uncomfortable. I made you discuss these things because we have a list to say that you have to discuss it. And then you'll be left with the skills, the understanding and the intention moving forward to continue that conversation, to continue to build the muscle of your family's intimacy, decision making, problem solving and collaboration.

Because I just talked about natural born families, nuclear families, that one slide of all the complex things where we actually only talked about half on that list. Imagine throwing in some in-laws, a divorce, some step kids. That gets innumerably more complex. And it's wonderful, right? Family offices provide the resources for families to learn and grow and it takes a little time and effort and it's absolutely worth it.

So, we have another tool for you to use. We call this the bandwidth of knowledge flow. Knowledge flow has to do with the information that's out there. So, I tend to... And you can do this on your own, you've got this slide. You can turn it into a word document if you want, where you ask different stakeholders of people, the non-family management, if there is any, that could be your non-family employees in the family office. Most do have some, even if the leader is a family member.

The rising generation, that's the generation not in power at the time. So, I don't know if it's your third generation, your fourth, your fifth. And then the elder generation who's managing, and then the elder generation who are owners. And as Marie said at the beginning of this webinar, she's so right about that. This could be three or four or five different generations. And you fill this out pretty simply.

One side is who the information's coming from and then the top is who's getting that information, right? So, the elder generation is giving information to the elder generation. Ideally, that should be a yes, right? Ideally you have G1 talking to G1, but there might only be one person in it, right? Is that elder generation communicating to generation managers? Maybe not.

Maybe it's a 7 instead of a 9 because it's their son or daughter and they don't want to talk to them as much. The rising generation, that's grandkids we're talking about. Maybe that's 4 rising generation managers. Maybe that's also a 4 or maybe it's a 3 and then non-family managers. And often there's somewhere in between, right? You had the 7s, you had the 9 and so what would that be? A 5? I don't remember what I said.

Again, there's no right or wrong. And then you go down again, elder generation managers and see how this goes. At the end of this, what you'll see on your own. You don't have to talk to anyone else, you don't have to bring anyone else in is you'll see where the log jams are, where the bottlenecks are, where people are protecting information. And we all do. We do it because we're trying not to burden people, right? Go back to that slide about communication.

So, you can start saying, "Ah, here's one, the clear strengths we're doing amazing here. And two, here's the place where we can start making a few tweaks to become stronger." And Marie, happy to have you talk about how technology makes all that happen.

Marie Arrigo: Oh yes!. So just to really tie this all in and look at it from taking it from the top with your family office business enterprise, the key thing is to have the support, the technical support to be able to do all the things that we've been talking about. And I think the cornerstone has been the increased communication.

So having an integrated accounting system where it's working cohesively, having automation where some of the tests are being done for you, this is all helpful stuff because many family offices, the staff, the accounting staff may be really inundated with day-to-day. There could be special projects going on. So, in many cases, information could be late coming to the family members because it's somehow deemed as like something that is not as the priority of the moment.

And I can ask actually, Natalie, this question. What does that feel in terms of you're the family member, you're not getting information on a timely basis? Is it that you feel that this is valid reason or maybe you think that maybe they're hiding something from us?

Natalie McVeigh: Yeah. Our brain is four to seven times more negative than positive. So, the generous assumption is likely not coming. It's going to be, "They don't have the information, they're hiding something from us, they don't want me to know. They don't trust me." It is always a negative story.

Marie Arrigo: Right. So, if you look at it in terms of... And that's what I'm understanding also, first of all, it's good to have timely and efficient information from the perspective of the family office official or founder or the person that is actually running the family office and making whatever decisions they need to make for the family office to have timely and relevant information.

But then also providing those financial reports for the family and getting them to them on a timely basis, maybe set up a schedule, every quarter you're going to get this information, and then providing opportunities to discuss these reports with family members. Have an in-person meeting or have a Zoom meeting. I know we're up to our ears with Zoom meetings with the pandemic and everything, but they could work, especially if you have family members all over the country. And just try to increase communication, be available to answer questions. That I think could be very helpful. Would you agree with that Natalie?

Natalie McVeigh: A hundred percent Marie.

Marie Arrigo: Yeah. And then taking it a step further, and we talked about this a little bit more. What about when you have a visualization of data for family members, making it understandable for them, taking the time to let them have that understanding and maybe making it available on a more frequent basis?

So dashboards are typically the types of things that you can have on demand, get information just when a stakeholder, when a family member wants it, or even a snapshot of what's going on and relaying that financial information in that understandable manner so that it isn't foreign to them that they don't understand what's going on, but they can relate to that. So that helps I would think support the whole family being able to work together. So, would you agree with that also Natalie?

Natalie McVeigh: A hundred percent Marie, music to my ears.

Marie Arrigo: Yeah. So, I mean, again, this is where you're making the technology work for you and your family. And it's a matter of creating a little bit more communication, families to be able to understand and feel comfortable with each other and trust each other. And you could have a nice holiday Thanksgiving meal as opposed to one filled with tension. So, with that, I think we're up to our Q&A.

Natalie McVeigh: Yeah, we've got a couple questions. I'm going to pull back because one of the questions has to do with this image. The first question, and please type them all in, we're happy to talk to them. One said you saw the three-circle model. If you're an independent board, to which do you belong? We don't have the model for governance. We have one of this that's a little more complex. But you would be between the ownership and the enterprise. There's a little body there and that would be the board of directors. Because the board of directors works for the shareholders supervising the enterprise.

So, if there were a circle kind of in between enterprise and ownership touching the two, because you're the vehicle of communication between the two of those, that's where you'd be. You have our contact information, as Marie said, which is here as where in our Q&A. Email me, I can actually get you that document so you could see it. We didn't put the governance bodies in the three-circle model, there are several, because it just creates complexity.

There's a lot you can do with just the three circle modeling clients, seeing where they are in your planning, seeing how that changes in 10 years if you decide to change things, and yes, seeing how it works for governance. And someone else who said it's a great presentation. How much it does it cost to develop this actional dashboard and how long does it take to implement? And ideally they'd love to see a demonstration on that at some point in time. Marie, thoughts about that?

Marie Arrigo: Well, I really can't speak to that at the moment. That's something that we can definitely get back to the person who questioned and put that out, get that to everybody. So sometimes it depends on the specific family situation of how the complex of the financial information is. But certainly, that's something that... that's a workable solution. You kind of work towards that solution to get something like that up there.

Natalie McVeigh: Absolutely. And that's something to think about with this offering for the family office technology solutions or having someone from our center for family business excellence work with you is it's custom. And that's custom not because it's a cop out, but because it's really meant to respond to your needs. So even if we've done it for 20 other people, it won't be the same for you.

Marie Arrigo: Right. Right. Okay.

Natalie McVeigh: Other questions.

Marie Arrigo: Yeah. I don't know if there was another question.

Natalie McVeigh: Those were the two we have, but we're still around for a little while. We can also let you get back to your lives. But is there anything as you were watching this that for you, you wanted some more information about? Marie, some last thoughts? I have a couple I'm happy to close with.

Marie Arrigo: Yeah. I would just say that it's this is, as you said before, it's all customized. What's that saying? If you meet one family office, you've met one family office. And so I always like to remember that every situation is different, every family is different and working towards a good technology solution will help solve a lot of other issues, that this is really important for families to be able to have a better relationship. And this can be one of the building stones. So I'm going to turn it over to you, Natalie, if you have any other closing remarks.

Natalie McVeigh: Absolutely, Marie. I want to echo everything you said. I couldn't have said it better. And I think the last piece is any of this, the technology solution, talking to a facilitator to help do your education. I'll do an example. You ask clients how much would they want a million dollar distribution, everybody raises their hand, 10 million, hands go higher and higher and higher.

And then I ask clients sometimes, how would you like to secure the debt of the enterprise yourself? And hands shoot down really fast. These concepts of finances, ownership, family office, trusts, they're all meaty concepts. I teach at a trust school, I teach trustees how to do their job. It's no wonder that just being born into a family, you don't know this, is it's not a sign of weakness to reach out before there becomes a problem.

Too often, I think these things are waiting for a rainy day, we have other more pressing obvious business things to invest in. If we run into problems, we'll get you there. Well, a couple slides where I said just normal challenges families run into, it's a matter of when and not if. And so ideally you want to do this prophylactically, preventatively.

I was an EMT and some 70% of the time EMTs show up, we can't do anything. There's nothing we can do anymore. But if you'd seen your primary care physician a little more, you would never have to see me. And I think this is very similar. Getting these technology solutions in, figuring out processes and procedures to engage those family members, those stakeholders now before it's needed is a lot better for you, for your family and for your wallet.

Marie Arrigo: Absolutely. So thank you all for listening today. And we're available if you'd like to chat offline. Take care. Bye-bye.

 

About Marie Arrigo

Marie Arrigo is a Tax Partner and Leader of the Family Office Tax Services Practice within the Personal Wealth Advisors Group which provides tax consulting and compliance services to family offices, individuals, trusts and estates, and closely held businesses.

About Natalie M. McVeigh

Natalie McVeigh is a Managing Director in the Center for Individual and Organizational Performance and the Center for Family Business Excellence Group within the Private Business Services Practice and has more than 10 years of experience as a consultant and coach.

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