When a Financial Planner Bumps Into a Family Business

Financial planners spend most of their time advising individuals and families. Occasionally, however, we bump into something rather different: a substantial family business where the company, the family and the wealth have become so intertwined that looking at any one of them in isolation risks missing the point.

I am thinking here particularly about businesses that may be worth £50 million or more, perhaps started by an individual decades ago and now owned, managed or influenced by different members of the same family. This is not intended as a technical definition of a family business. It is the particular end of the family-business spectrum that interests me as a financial planner.

Family businesses themselves are certainly not unusual. Research from the Family Business Research Foundation, working with Cebr, estimates that there were around 5.13 million family businesses in the UK in 2023, representing more than 93% of private-sector firms. Collectively, they supported 15.8 million jobs and generated approximately £2.8 trillion of turnover. [fbrf.org.uk], [fbrf.org.uk]

Most of those businesses will, of course, look nothing like the £50 million-plus business I have in mind. But at the larger end, something interesting happens. What began as one individual's business can gradually become a family asset, a source of employment, an inheritance, an investment and eventually the foundation of wealth stretching across several generations.

For a financial planner encountering such a family, understanding that distinction matters.

Start with the family, not the money

One of the simplest tools for understanding a family business is the genogram.

Financial planners are accustomed to recording spouses, children and perhaps grandchildren on a fact-find. A genogram goes considerably further because it encourages us to see the family as a system of relationships rather than simply a list of beneficiaries.

Who founded the business? Are their parents still alive? Who are the children and grandchildren? Who is married to whom? Which households exist within the wider family? Who works in the business and who does not?

Those relationships become increasingly important as succession enters the conversation.

The person who appears simply as "daughter" on a conventional fact-find might also be a director, shareholder and potential future chief executive. Her brother may own exactly the same number of shares but have built an entirely separate career. Their financial interests might therefore look superficially similar while their relationships with the business are completely different.

Before trying to understand the business, it helps to understand the family around it.

Then look at the Three-Circle Model

The Three-Circle Model provides another useful lens because it separates three things that can easily become muddled: family, ownership and management.

Somebody can occupy one circle or several.

The founder may be a family member, significant owner and chief executive. One child might be family and management but hold relatively few shares. Another might be family and an owner but have no involvement in running the company. A non-family chief executive might occupy only the management circle.

None of those positions is inherently problematic. The difficulty is assuming that everybody views the business from the same perspective.

They don't.

And succession makes those differences increasingly important because succession isn't simply about deciding who receives some shares when somebody dies. Ownership, management and family status can move independently.

Who should own the business in the future? Who should run it? Should those be the same people? What does fairness mean to the family member who has spent 25 years working in the company compared with the sibling who chose another career?

Suddenly, a conversation that looked like financial planning isn't really about money at all.

Except, of course, that money is always there

Money is the root of the business. Without the underlying financial value, a lot of these problems would probably be considerably easier.

Yet the disagreements around that money are rarely purely financial.

Families come with history. Siblings have rivalries. Parents and children remember events differently. Somebody may believe another sibling was always the favourite. One child may feel they sacrificed opportunities to work in the family business while another enjoyed greater independence. Partners and spouses arrive with their own perspectives.

We might politely describe these as family dynamics. In reality, people sometimes just have personal beefs with each other.

Put a valuable business in the middle of those relationships and the consequences become much more significant.

A disagreement about dividends might partly be about dividends. But it might also contain decades of resentment about contribution, recognition or fairness.

That doesn't mean a financial planner should become a family therapist. Quite the opposite. It means we need enough awareness to recognise when the apparent financial problem isn't the whole problem.

Conflict can become anxiety

This brings another dimension into family-business planning: anxiety.

For a founder, succession might mean relinquishing something they have spent a lifetime building. It can raise questions about identity and control as much as money.

For the next generation the anxiety may be completely different. Are they capable of running it? Do they even want to? What does accepting the responsibility mean for relationships with brothers and sisters?

There can also be anxiety amongst family members who are not actively involved in the business. What happens to their financial interests if another sibling controls it? Is equal necessarily fair? What happens if the business fails?

The important lesson for the adviser is not that we should somehow remove all of that anxiety.

Our role is to recognise it and, where appropriate, help mediate it without becoming part of it.

That last part is important.

Once an adviser is drawn into taking sides within a family dispute, it becomes considerably harder to retain the independence necessary to help anyone navigate it. There will also be situations where the appropriate answer is to recognise that the family needs professional help beyond the financial planner's competence.

Understanding the dynamics doesn't mean believing we should solve them.

Eventually the business can become something bigger

Successful family businesses can eventually reach another interesting transition.

The original company may continue to operate and prosper, but wealth begins accumulating beyond what either the business needs for its immediate purposes or the founder and family need personally.

That surplus capital creates a different problem.

The family now has not only a family business but substantial family wealth outside that business. Investment portfolios, property, trusts, other businesses or philanthropic interests may emerge. Different generations may have different interests and requirements.

This is where the Family Office can begin to develop.

Importantly, I don't think financial planners should automatically assume that they sit at the centre of that world.

At very significant levels of wealth, the family may not need conventional financial planning in the way most of our clients understand it. They may instead require lawyers dealing with structures and succession, accountants dealing with complex tax and reporting, and investment managers responsible for substantial pools of capital. Family-office service providers commonly describe their work as spanning areas including investment oversight, tax, accounting, governance, succession and philanthropy. [srlv.co.uk], [farrer.co.uk], [mooreks.co.uk]

Individual family members, however, may still have their own financial advisers.

That creates another distinction worth understanding. The family business, the Family Office and the individual family member are not the same client. Their interests may overlap considerably, but they do not automatically align.

So what should the financial planner do?

Perhaps the first thing is resist the temptation to immediately demonstrate what we know.

If we bump into a substantial family business, we don't suddenly need to become the lawyer, accountant, investment manager, family therapist and succession expert.

But we do need enough understanding to recognise what we are looking at.

Map the family.

Understand where people sit in relation to family, ownership and management.

Recognise that succession is happening across all three.

Don't assume that a financial disagreement is necessarily just about money.

Learn to recognise anxiety and conflict without becoming absorbed into them.

Understand when the wealth has moved beyond the business itself and a Family Office structure has begun to emerge.

And, perhaps most importantly, understand where our competence and our client's interests require somebody else to become involved.

That might ultimately be the most valuable lesson from family-business planning for the ordinary financial planner.

We don't need to master every discipline we encounter. But we do need to understand enough of the landscape to recognise when we have entered different territory.

And tomorrow I want to turn that argument around.

Because if tools such as genograms, thinking about different family roles, understanding conflict and recognising anxiety are useful when dealing with a £50 million family business, why should we wait until a family is worth £50 million before we use them?

That may tell us something interesting about how we should approach financial planning for much more ordinary families.