Q/A: Family Wealth Evaporation Trap
A Q&A with George A. Isaac III President, GAI Capital Ltd. Founding Principal, George Isaac Consulting
Q: Are there any major family business issues that are not being adequately addressed by family offices?
Q: How can so many family offices overlook this critical family wealth management matter?
Q: What are the problems with current family office practices?
Q: How have families historically dealt with these issues?
Q: What is a better alternative?
Q: Based upon your experience, how big of an impact can the Family Wealth roadmapTM process make?
Q: What is the best way to implement the Family Wealth RoadmapTM?
Q: Are there any reasons why a family would not want to implement these ideas?
AJR: Are there any major family business issues that are not being adequately addressed by family offices?
GAI: Yes, one big one! Many family offices are unknowingly taking on unrecognized risks with their family businesses resulting in lower family shareholder ROIs and less liquidity.
The core problem is the misalignment of the family business asset with the overall family wealth portfolio. This misalignment results in family offices and families looking at the family business as an “operating entity” and only their other assets as “investments”. Under this course of action, each asset class is managed separately with differing paradigms and objectives. The results are overall underperformance.
In our opinion, the family business should be treated as a separate investment asset class within an overall family’s wealth portfolio. We of course recognize the other important family attributes that a family business provides; however, from a wealth management perspective, the family business should be looked at through an investor’s perspective and managed as part of a family’s overall portfolio of assets. When you make this change in perspective, a whole series of new decision making processes and nancial disciplines come into play. We see our job as helping our clients understand the bene ts from this major change in paradigms and recognizing the nancial impact of partially realizing family business wealth creation as it is being created.