The family is the foundation of society as the nucleus from which it is structured. It is therefore considered one of the most important institutions through which values and guiding principles for life are instilled. It is in the family cell that people can meet their needs for protection, companionship, food and health care. This explains the importance of managing family wealth to meet the needs of its members.
Family property is the set of assets and rights, burdens and obligations belonging to a family, which is intended to legally and economically protect the family, supporting its needs and interests.
Managing family assets is a way of reflecting on our life, concerns, challenges, children, principles and the values we want to pass on to them.
The purpose is for this wealth to provide well-being and freedom to all its members, allowing them to develop their professional and personal goals and ambitions.
Managing family wealth efficiently requires a series of steps.
The first is to set well-defined, reasonable, feasible and achievable goals.
Only 3 out of 10 family businesses manage to survive the transition to the second generation, according to the Instituto de Empresa Familiar (IEF).
The average life expectancy of a family business in Spain is around 25 years.
How, then, can succession planning be ensured successfully?
With the proper planning and management of its assets through the setting of objectives. The aim or purpose of these objectives is:- To preserve family wealth to be passed on to the next generation.
- Control and diversify investment risk by making investments profitable.
- Plan the impact of taxes and duties to increase profitability.
- Maintain the confidentiality of all matters relating to the management of these assets, except for the family members who own the assets and the asset manager.
Keys to efficient family wealth management
The first fundamental idea of family wealth management is: Wealth is at the service of the family’s financial needs and objectives and never the other way around. Unfortunately, there are many examples that prove the opposite, especially in cases where family wealth management lacks neutrality and without an independent professional, The second key consists of defining a financial plan for the family wealth, which includes organising, through appropriate investment, the family’s present and future resources, so that, when the time comes, it can meet the financial objectives set: an appropriate and adequate return for each of the assets that make up that wealth. To this end, it is essential to design a strategy prior to the strictly financial one, planning the events that may occur at different points in time. Family objectives in the management of their wealth can be classified into three main groups, always according to these time horizons:- Short-term: less than 2 years from the present moment.
- Medium-term: situations to be resolved between 2 and 10 years.
- Long-term: more than 10 years.
What are the steps for efficient family wealth management?
Proper family wealth management requires:- Analysis of the situation of the assets. Before starting work, it is essential to analyse the situation of the assets and to know where one is starting from: which properties are rented, which are empty, what profitability is obtained, etc.
- Planning. The moment to establish the objectives to be achieved in the short (< 2 years), medium (between 2 and 10 years) and long term (> 10 years) and the actions to achieve them.
- Execution of the plan. The actions to be implemented to achieve the objectives set. For example, sale of the less profitable properties or negotiation of rental contracts for those in this situation.
- Monitoring and Review. In order to know whether the objectives are being met, it is essential to measure the results being obtained. Evaluate them and obtain the necessary conclusions to modify the planning, take control or correction measures and/or establish new objectives.
Advantages of hiring a wealth management expert
There are several reasons for using an expert professional to manage a family’s wealth:- Time saving. Wealth management takes time and effort, especially for those who are not versed in it.
- An expert always takes the best strategic approach. Leaving the management of family assets in the hands of a specialist professional leads to greater efficiency and faster problem solving.
- The complexity of the estate. There are estates made up of a large number of properties and assets of different types that make it necessary for a multidisciplinary team to take charge of their management: financiers, tax experts, purchasing managers, rentals, etc.
- Objective and neutral vision. This is only possible through an independent professional. In families with many members, disagreements and conflicts are common. Having an expert professional who provides an external point of view and who is accepted and respected by all the members of the family is a guarantee of good functioning and proper management of the family assets.
- Better and more efficient results. The objective of wealth management by an expert is to increase the profitability of real estate and other assets, so that costs are reduced, income is increased, the tax burden is reduced and more profitable investments can be made.
