Factoring in a family office

2012-10-19 00:00

A FAILURE to plan adequately for retirement or an unexpected exit from one’s business could place in jeopardy the years of hard work and effort that went into building up a business.

It could also lead to massive uncertainty among employees, as well as major disagreements and disputes among family members.

As a result of the high stakes, medium to high net-worth entrepreneurs with growing personal, family and business-generated wealth should consider appointing a family office, comprising of a team of advisors, to manage such issues.

Such issues often arise in the event of death, marriage/divorce, retirement and a health crisis.

A number of major banks and other companies offer end-to-end solutions for individuals who fit into this category.

According to Andrew Ratcliffe, director of Private Client Holdings, independent consultants or advisors from a family office would be able to take care of a range of matters pertaining to tax, accounting, investment and legal issues.

He told The Witness that the office acts as a multi-disciplinary advisor.

Ratcliffe said it is vital that entrepreneurs who have not tackled issues around succession planning their business, do so as a matter of urgency.

“You should have a strategy or plan and a charter system. Start with a plan … and try to understand the risks and what assets need to be protected. You then have to empower the right personalities to take over … whether it be mentoring younger people in the family or organisation.”

He added that there is often a reluctance to tackle the issue of succession.

“In situations involving patriarchs and matriarchs, they are often resistant to change and handover. On the other hand, youngsters are often professionals and well educated, but lack experience. Subtle mentorship is a good approach, especially to ward off a culture of entitlement among youngsters.”

Ratcliffe conceded that families and businesses are often faced with the fallout of poor succession planning when the chief personality dies.

“A lack of transparency contributes to this. There are often unrealistic expectations and disillusionment amongst some people. Managing expectations is critical.”

He stressed that these matters have to be revisited on an ongoing basis, adding that the office’s role is to ensure that such plans are updated.

Andrew Ratcliffe, director of Private Client Holdings

Start with a plan … and try to understand the risks and what assets need to be protected

Grant Alexander, a director of Private Client Holdings, has further advice for successful succession planning:

• Work with an experienced third party, like a family office;

• Put together a written set of “guiding principles” which clearly define the respective obligations for all members of the family involved in the business – whether they take an active role in the business or remain passive;

• Write up a values charter which defines how the family business will be run and lays out the compensation and rewards for family members and non-family managers who are responsible for the growth of the business;

• Include rules for changing rules, as well as for designating a third party as a process arbitrator to help in the case of unresolved disagreements. A family protocol or business constitution should be regarded as a living document that should regularly be revised.

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