What Family Businesses Can Teach Us About Advising Every Family

Family businesses provide an unusually clear window into the relationship between money and family. It is difficult to discuss the future of a family business without considering who owns it, who controls it, who works within it, who might inherit it and how the relationships between those people influence the decisions being made.

What I have been reflecting on is why we tend to reserve this depth of thinking for wealthy business-owning families. Many of the same dynamics exist within the mass-affluent families financial planners advise every day. The numbers may be smaller and there may be no company to pass between generations, but there is still wealth, a family around it and eventually some form of succession.

The more I have thought about this, the more I have come to believe that some of the disciplines used in family-business advice should influence mainstream financial planning.

Understanding the family around the money

One obvious example is the genogram. At its simplest, it enables us to understand who sits within the wider family rather than simply recording that the clients have two children and four grandchildren. Its real value, however, is not the diagram. It is the conversation that takes place while constructing it.

Family structures reveal relationships, but they can also begin to expose different circumstances, expectations and dynamics. One child may be financially secure while another is struggling. There may be previous marriages, elderly parents requiring support, grandchildren, estranged family members or very different relationships between parents and individual children.

None of this tells us what a client should do with their money. It does, however, help us ask considerably better questions.

I think the same is true of understanding where the wealth came from. We can record that somebody has £2 million of investments, but that tells us relatively little about their relationship with the £2 million. Was it inherited? Was it accumulated gradually through a lifetime of saving? Did it come from selling a business? Did the client grow up in a family where money was scarce?

The history of the money can help us understand what it represents to the person who owns it. Security, success, independence, responsibility and control are quite different things, even when the balance sheet looks identical.

Once we begin to understand that, conversations about what should eventually happen to the money become rather more meaningful.

What does "enough" actually mean?

Clients will often say that they want their children to benefit "eventually". The word deserves considerably more attention than we sometimes give it.

Eventually might mean on death. It might mean when the children need help. It might mean when the parents feel financially secure enough to relinquish some control. Those are very different answers.

This is where financial planning can become overly reliant on numbers. A cash-flow model might demonstrate quite convincingly that clients have sufficient resources for the rest of their lives. That does not mean they will feel sufficiently secure to start giving money away.

There might still be anxiety about future expenditure, care costs or investment returns. There may be concerns that children would become dependent upon the money or use it unwisely. There may simply be a discomfort associated with no longer controlling something that has provided security throughout adult life.

We can produce more projections and provide more reassurance, but neither necessarily changes how somebody feels.

Perhaps we therefore need to ask a subtly different question. Rather than beginning with, "How much can you afford to give away?", I would rather ask:

What lifestyle do we need to protect before we think about what might pass to the next generation?

That moves the conversation away from an arbitrary capital figure and back towards the client's life.

We can establish what they want that life to look like, what needs to be protected and what degree of contingency would enable them to feel secure. If that requires retaining an additional reserve simply because it helps address a genuine anxiety, that is not necessarily a failure of financial planning. We can plan around the anxiety rather than pretend a spreadsheet has made it disappear. The position can then be revisited as circumstances and confidence change.

From accumulation to stewardship

This leads to a distinction that I think matters.

For much of our clients' lives, accumulation is entirely rational. They earn, save and invest because they are building financial independence and protecting their future. Financial planning quite properly helps them do that.

But eventually some clients reach a point at which their own lifestyle is secure and they are still likely to leave significant wealth behind. At that point, continuing to accumulate simply because accumulating has always been the objective deserves to be challenged.

The planning question can begin to move from how do we continue to grow and protect your wealth? towards what would you actually like the surplus to accomplish?

This is where I think family-business thinking becomes particularly useful. In a successful family business there is often somebody, or several people, trying to steward both the wealth and the family around it. They are thinking about the current generation, but also about succession, the next generation and how decisions taken today might affect relationships tomorrow.

The same responsibility can exist in an ordinary family.

The parents may remain our clients, and their objectives must therefore remain central, but we can help them think about their wealth in a wider intergenerational context.

Equal, fair and the conversations we avoid

One of the simplest examples is a parent saying, "We want everything to be equal between the children."

That sounds entirely reasonable, but I think it deserves to be challenged.

I sometimes use an exaggerated example. Imagine one child wins the lottery while the other is a teacher struggling with a mortgage and young family. Would giving exactly the same amount to each still represent fairness?

There is no correct answer. Some parents would still say yes, and that decision should be respected. The purpose of the question is to expose what they actually mean when they use the word "fair".

If fair and equal turn out not to mean the same thing, another issue immediately arises. Do the children understand the reasoning?

This is one of the most important lessons I take from family-business succession. Decisions about money rarely affect money alone. They affect people and relationships, particularly when one family member believes another has been treated differently.

Those dynamics cannot always be prevented, but they can often be discussed. Openness and sensible family conversations give people an opportunity to understand the intentions behind decisions rather than discovering them when it is too late to ask why.

That does not mean the financial planner becomes a family therapist. We should be able to recognise tension and facilitate appropriate financial conversations without becoming participants in family disputes. If genuine conflict or deeper relationship problems emerge, there comes a point when counselling or another appropriately qualified professional is a better answer.

Knowing where our role stops is just as important as knowing where it begins.

Succession should begin before death

Perhaps the biggest lesson is that succession should be regarded as a process rather than an event.

Once clients recognise that they are likely to have wealth remaining at death, I think succession should become part of the ongoing planning conversation. It should be revisited as lives, relationships, resources and needs change, rather than treated as a one-off inheritance-tax exercise later in life.

That may also mean involving adult children earlier, where the clients are comfortable doing so.

The parents remain the clients. The children do not gain a vote over their parents' wealth simply because they may ultimately benefit from it. But understanding what the next generation actually needs and wants can help the parents make better-informed decisions.

It also raises an uncomfortable question. If the clients have genuinely established that they have enough, and some of the surplus is ultimately going to pass to their children anyway, why automatically wait until death?

Tax may form part of the answer, but there is a more human consideration. The point at which children inherit is often not the point at which financial help would have been most valuable. Assistance with a home, raising a family or establishing financial security earlier in adult life may have a very different impact from inheriting the same amount decades later.

There is something in this for the parents too. Giving during life means they can see what the money actually does. That may be considerably more rewarding than simply attempting to maximise the size of the estate ultimately transferred.

The objective, therefore, should not simply be to pass on the largest possible inheritance. I think it is better expressed as helping a family use its wealth at the right time, for the right people and for the right reasons.

Perhaps the difficult bit is the conversation

There is nothing particularly revolutionary in many of the technical tools required to do this. Cash-flow modelling, tax planning, investment management, wills, trusts and gifting strategies are already familiar territory for financial planners.

The more difficult skill may be having the conversation in the first place.

Our profession has traditionally been heavily orientated towards investments, assets under management and building a book of clients. It is much easier to discuss portfolios than to ask somebody what their money means to them. It is easier to model a gift than to explore why someone who can clearly afford to make it remains frightened of doing so.

This is where some of the questioning associated with life planning becomes useful. Asking somebody what they would do if they knew they had more than enough temporarily removes one important constraint. It gives them permission to think beyond the fear of running out.

If the answer is, "I would help the children", the obvious response is not immediately to calculate a gift.

It is to ask: What would enough look like?

That conversation might ultimately lead to exactly the same financial planning tools we would have used anyway. But the tools are now solving a problem the client has helped us uncover rather than a problem we have assumed exists.

Navigating the financial ocean

Perhaps that is the broader lesson I take from family-business advice.

Good financial planning is not principally about organising a collection of financial products. It is about helping people navigate the financial decisions they encounter throughout their lives. As wealth grows, that job increasingly includes helping clients understand not only what their money can do for them, but what they want it to do for the people around them.

That requires us to listen carefully enough to understand where the anxiety and assumptions lie, and to challenge clients when those assumptions appear to be constraining what their wealth could achieve.

Sometimes that may mean encouraging a client who has spent a lifetime accumulating to consider giving some of it away. Sometimes it may mean questioning whether equal really is fair. Sometimes it might simply mean helping somebody recognise that they already have enough.

The lesson I take from family businesses is not that every family should behave like one. It is that wealth never exists separately from the people and relationships around it.

Understanding those relationships gives us an opportunity to do something more valuable than simply managing the money.

It allows us to help clients decide what the money is actually for.

And perhaps, occasionally, to listen, challenge and dare them to dream a little bigger.