How to balance family conflict and wealth management

Dysfunctional families get many of the headlines today, from television to the tabloids and newspapers. However, much of the conflict that can exist within a family is very real - and for a financial advisor, that strife presents problems when addressing wealth management.

Take a family-owned business, for example. For some, running a company next to brothers, sisters, sons and daughters is an ideal scenario. For others, it is the beginning of years of bickering, debate and tenuous financial planning. A financial advisor must be able to navigate family conflict to get to the root of the issues, or else sound wealth management will fall on deaf ears.

Poor financial planning topples family businesses
For family businesses today, much success is dependent on quality financial planning. Without this emphasis on money management, succession and estate planning, taxes and other key topics, these organizations will already be in a deep hole. 

That doesn't even take into account family conflict. A study conducted by University of Connecticut associate professor Karen File and Russ Prince of Prince & Associates found that opinions on wealth management were divided among family members. For example, many family-owned businesses had estate plans in place for the founders, but the heirs involved often considered these to be severely flawed. 

Furthermore, the study found that the collapse of family businesses was often the result of the death of the founder. The survey noted that many heirs believed that the downfall of their companies was the result of poor financial planning. It appears that families are not on the same page when it comes to this aspect of their businesses.

Search for the reasons behind conflict
Should you work with a family-owned business, you may quickly realize that there are complicated emotions at work behind the scenes. In order to overcome these impediments, you must search for the real reasons for the conflict. 

In an article for Wealth Management, Patricia Angus wrote that there is often more to a family feud than meets the eye. For instance, few conflicts are directly related to the business itself. This can make it challenging for a financial advisor, but actual family issues are often the cause of the problems. 

These can include:

• Parenting
• Gender
• Favoritism
• Past events

Above all else, ownership is usually at the core of family-owned business conflict, Angus explained. Naturally, succession planning can prove complicated as all heirs vie for control, and the financial advisor is often caught in the middle.

Emphasize financial literacy at young age
Many families see the groundwork of future conflict set early on in life. Financial advisors must work with clients involved in family-owned businesses - or interested in starting one - to ensure that future generations are financially literate at a young age.

Investment analyst Andy Webb wrote in an article for CNBC that crafting a successful family business is dependent on those future generations. If children and grandchildren don't understand how to manage wealth, they will have a much harder time running a business. 

Financial advisors can recommend three methods for clients who want to teach their children about wealth management:

• Jobs - The family business is often a clear-cut career path for many children. However, this can prevent them from learning how to earn money the hard way. Finding a summer job will help children improve their communication skills, work ethic and financial literacy in order to be better suited for life in the family business.
• Savings - Children must also know how to save money. Financial advisors can offer advice on simple financial skills, such as budgeting and smart spending, that clients can provide to their children. 
• Generosity - Children must also know about generosity. Financial advisors should work with clients on topics such as philanthropy to ensure future generations understand charity. This could help them become better leaders, should they take over a family business.

Help family-owned businesses get back on track
Ideally, families will have a firm grasp on internal conflict before anything spills over into the business. However, this isn't always possible, and many times financial advisors will have to work with clients embroiled in a major feud. 

According to Angus, financial advisors can help families improve parenting, expand communication skills or even sit in on meetings to act as a mediator. Discussion should be the primary goal here, as families must get together to talk about their issues before they get in the way of wealth management and the business itself.

Here are three tips that advisors can offer to family-owned businesses:

1. Focus on the consumer
A family-owned business can quickly lose sight of who is really in charge: the consumer. Financial advisors must keep everyone's priorities in order, and that means making sure that work comes first. Instead of arguing over money, respect, control and other issues, the company needs to understand that financial planning is in place to help the business prosper. 

2. Improve family communication
Improving communication should be a primary goal, not only for effective wealth management but also for smooth business operations. Financial advisors can work with families to be more open and responsive to new ideas. On the list for discussion must be compensation, tenure, day-to-day operations and all the important financial topics that need to be addressed. 

3. Establish a succession plan
Who will lead the family business? This question is often at the center of many conflicts within an organization, and financial advisors can provide clear, concise answers. To begin, the family must sit down to determine their goals for future generations, including who is best suited to lead and the steps that must occur in order for that to happen. The transition can be rocky, so the entire family must be on board with the direction to prevent additional complications.

Advisors can provide guidance
The internal conflict present among many family-owned businesses can be a wrinkle in traditional wealth management. In order to provide effective services for clients, advisors must take these feuds into consideration.

That will mean offering comprehensive guidance for the entire family, from financial topics such as succession planning and investing to more emotional topics, like parenting. A financial advisor that can understand the causes of family strife will be better suited to help that organization move to the next level.

To learn more on this topic, register for our Certified Wealth Strategist program or learn more about our other offerings at www.cannonfinancial.com.

Copyright ©2014 Cannon Financial Institute - All Rights Reserved

Subscribe to Cannon Insights at http://www.cannonfinancial.com/newsletter/subscribe

Sources/Resources
http://view.fdu.edu/default.aspx?id=2337
http://wealthmanagement.com/family-business/family-feuds
http://www.cnbc.com/id/101933831#.
https://www.sba.gov/blogs/5-tips-managing-successful-family-business
http://www.entrepreneur.com/article/206762
http://www.cegworldwide.com/resources/expert-team/005-wm-tom-hubler-family-succession-planing-prt01

Disclaimer: The materials and information contained herein are intended for educational purposes, to stimulate thought and discussion so as to provide the reader with useful ideas in the area of wealth management planning.  These materials and information do not constitute and should not be considered to be tax, accounting, investment, or legal advice regarding the use of any particular wealth management, estate planning, or other technique, device, or suggestion, nor any of the legal, accounting, tax, or other consequences associated with them. 
While the content herein is based upon information believed to be reliable, no representation or warranty is given as to its accuracy or completeness.  For this reason, the program of study should not be relied upon as such.  Although effort has been made to ensure the accuracy of these materials, you should verify independently all statements made in the materials before applying them to your particular fact pattern with a client.  You should also determine independently the legal, investment, accounting, tax, and other consequences of using any particular device, technique, or suggestions, and before using them in your own wealth management planning or with a client or prospect.  Information, concepts, and opinions provided herein are subject to change without notice.
The strategies contained within these materials may not be suitable for all clients.  For many concepts discussed herein, clients are strongly urged to consult with their own advisors regarding any potential strategy and will need to strategy described herein is suitable for their particular circumstances.
Examples, provided throughout these materials, are for illustrative purposes only, and no representation is being made that a client will or is likely to achieve the results shown.  The examples shown are purely fictional and are not based upon any particular client's circumstances.