David’s Articles

David has been writing and publishing since 2006.  

This post was written and published prior to September 2023 when David and his prior firm, Family Capital Strategy, merged with Greycourt.  Views expressed reflected David’s personal views at the time and do not necessarily reflect the views of Greycourt.  Posts and information may be out of date and should not be relied upon for investment advice.

Successfully Stewarding Family Wealth is Like Building a Bicycle

Oct 28, 2020 | Family Wealth

Photo by Robert Bye on Unsplash

I came to working with family offices through the investment side of the world.  Beginning in the fall of 2004 when I was first introduced to the writings of Warren Buffett through the end of 2015, I had a single-minded focus to understand the process and execution of investment decisions.  I spent thousands of hours analyzing companies and investment managers, read hundreds of books, and completed my Chartered Financial Analyst charter to equip myself with the technical skills of investment.

One factor that became evident through this work was that time horizon is arguably the most defensible advantage an investor can have when choosing to make an investment.  Buffett realized this early and was able to combine this with several other key insights regarding tax efficient structures and the inherent leverage of the assets of a well-run insurance company.

Families and Great Investors Share the Same Advantage

My path diverged from the world of pure investment as I was introduced and began to spend more and more time around family offices.  In 2016, I pivoted from a direct investor role to an advisory role.  As I spent more and more time with families who had built wealth over long periods of time – I saw the echoes of the same dynamics of time horizon that Buffett has so thoughtfully highlighted over the years.  The time horizon of a family gives them a materially different approach from other market participants.  When deployed thoughtfully, this approach offers a sizable advantage.   So, what must the family do to realize this advantage?

There is an interesting dynamic that accompanies families and wealth that I saw as I spent more and more time with clients.  This dynamic is that for most families, wealth is an after-thought.  While not universally true, most families that go on to accumulate a vast fortune did so because they put their heads down and focused on building great businesses over long periods of time.   Core values of hard work, taking care of employees, being a good citizen in local communities form a common framework for many of the greatest family businesses seen across the globe.

Inward Focus on Family and Business – Both a Benefit and Risk

Most of the time, the family operates with a ‘family’ hat on as they view their businesses, not necessarily an “investor” hat.   Family businesses may serve many roles – a source of employment, sense of identity, store of financial wealth.  Often, roles other than wealth receive a disproportionate amount of attention leaving key concerns about wealth unaddressed.  But in the same spirit as Galileo’s tongue in cheek remark about earth being the stationary center of the solar system, “And yet it moves” while the family may not choose to give much time or attention to growing the wealth of the family – it is still there nevertheless. 

Here is the proverbial rub – neglecting the reality of the family’s financial wealth is actually detrimental to the family in the long term.  Sadly, for many families, the first conversation they may have regarding wealth is after the passing of a significant family member.  When the estate planning documents are shared, generations realize the very real financial implications of the person’s passing.  Studies have documented that despite excellent estate planning, most estate plans fail due to this break-down in communication and education regarding the family’s wealth.  This tendency significantly hinders the family’s ability to realize its time advantage in investing.

We think about our work with families as similar to helping a family build a bicycle – a relatively simple machine, yes, but highly efficient in moving a person forward.  In its basic form, a bicycle consists of two wheels and a frame.  Families who build wealth across long periods of time are similar.

The first wheel of family wealth is the individual. 

The family’s ability to articulate a core purpose for its wealth is only as strong as each individual’s relationship with its wealth.  Charles Lowenhaupt noted that “most family wealth programs and family offices fail because they do not recognize the individual…Each family wealth management program must begin with and regularly engage in a conversation with each adult member of the family ultimately to determine where he or she wants independence and where he or she does not care.”   This is the most challenging dialogue for families to have.  First because it is both extremely personal, and at the same time, highly ambiguous.  As well, thinking with the “I” mindset can feel contrary to the arms-linked collectiveness of great families. 

My forthcoming book, When Anything is Possible, focuses on how individuals can thoughtfully engage with their wealth and make strategic choices most in line with their core priorities.  This is the core foundation of any family’s wealth management program.  Learn more about the book here.

The second wheel of family wealth is the Family itself. 

There has been a needed change in dialogue over the past 30+ years to emphasize the importance of the management and governance of the family itself in the context of multi-generational business ownership.  The key question at the Family level is how to take diverse constituencies of siblings or cousins and reach alignment about the path forward.   Yet while this is highly important, because of the magnitude of these decisions, the monolithic nature of the family often will squeeze out the individual.  Our counsel instead is to hold these ‘wheels’ in tension and in balance – finding the right place between good for self and good for family.

The final portion of the bicycle is the frame – for families this is the structure by which they build their wealth. 

For some families, this is the choice to build a single-family office.  For others, it is the choice to partner with a multi-family office.  Regardless of build vs. buy, the structure represents how the family deploys its long-term time horizon to drive returns.  Investing is dynamic and cognitively stimulating.  It is an arena where many of the world’s brightest minds go to compete, and when combined with the dopamine rush of making returns, makes for highly compelling work.  

As a result, far too often families rush to build out the frame of their bicycle, at the expense of the wheels which are what ultimately enable the bicycle to move. The work of helping individuals understand their wealth, and for the Family to reach alignment is slower, more amorphous, and at times challenging.  As a result, far too often these critical elements get left behind and sow the seeds for the ultimate failure of the family’s investment activities.

Disclaimer: This does not constitute investment advice or an offer to buy or sell any securities. It is provided for informational purposes only and represents the author’s own opinions


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