Citywealth Quick Insight Series on Family Office Dynamics : Tom McGinness, Head of JTC Private Office
This week’s Quick Insight Series is dedicated to Tom McGinness, Head of JTC Private Office.
How do you manage the challenges of family office dynamics when advising UHNW clients, especially across multiple generations?
The most effective way to manage family dynamics between different generations is to communicate with individual family members on a 1:1 basis and test areas of alignment and misalignment in terms of values and objectives for the family wealth. Typically, this will result in creating a governance framework which could include a Family Constitution which clearly sets out the purpose and values which will shape the uses of the family wealth for future generations. This process – which I refer to as family governance consulting – also often uncovers conflicts which need managing or objectives like the creation of a charitable foundation to manage the family philanthropy objectives.
What role do family values play in wealth management decisions? Can you give an example where these values shaped a key decision?
Family values are crucial in determining the uses to which the family wealth can be applied. Typically, I see the Next Generation having different values to the previous generation. They are more interested in how the wealth can be used for wider social value purposes and for addressing challenges in the environment like climate change and helping their communities.
How do you help families communicate about wealth management and succession planning?
There are some very practical things which families can do to help their communities’ Next Generation prepare for “being wealthy”. It brings its own challenges around accountability and responsibility. Writing the “story” of how the family wealth was created is very effective for clarifying the legacy which the family wants to create through succession planning. Telling that story at the annual Family Away Day is a great forum for sharing this. So also, is the creation of a Family Council where the values can be brought to life and conflicts managed in a sensible forum.
Have you helped set up family governance structures? What are the key elements of a successful one?
I often see misalignment in terms of financial goals between one generation and another especially during succession planning. One family I advised decided to set up a family investment vehicle which catered for the different aspirations of different branches of the family. Each branch had its own vehicle which had rules around where and when investments could be made. It allowed each branch to feel they had control over their “pot of money”.
How do you handle situations where younger family members have different financial goals or risk preferences than older generations?
Very often the sudden death of a key family member shocks the family into creating a governance framework but really that is too late so often the discussions now are about planning succession well in advance. The biggest shock for most families was in fact the Covid pandemic. Most families were not prepared for the risks to their wealth which the pandemic caused. A simple example is that many of them ran out of cash so had to quickly solve liquidity problems which they were not expecting. Many have now put in place mechanisms to manage such crisis risks in the future. The next big issue for global families I think is cyber-attacks so many are doing more to protect the wealth from such risks.
Family conflicts often arise during wealth transitions. How do you manage disagreements about wealth distribution or management?
I am very happy to talk about other experiences in trying to find practical solutions to family conflicts or objectives. I always say that by far the most important asset in family dynamics is communication. The most effective families find different ways to communicate between the generations. Using a third-party adviser like JTC is often chosen because sometimes it is easier to share insights with a trusted adviser than it is with a father or mother or brother.
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