Please Stop Calling it a “TRANSFER”

Many families know that they should be planning for the eventual transition of their wealth or business to the next generation, but they avoid the issue for as long as they can.

This is unfortunate, and causes all sorts of problems the longer they delay things. The longer you wait the less good options you have available to you.

They put these important discussions off because they’re usually looking at this the wrong way, in my estimation.

Too often, they’re thinking about a “transfer”.

They really need to learn to consider this as a transition, or, better yet, a series of transitions.

A Process Versus an Event

I’ve tackled some of this here before, like back in 2018, in Don’t Transfer Family Wealth, Transition It.

One idea I shared then was that transfer is a word that’s often associated with a one-time event that takes place, whereby something is in one place at point A, and then “whoosh”, there’s a transfer, and now it’s at point B.

Transfers are typically pretty instantaneous.

The way a family looks at its enterprises and wealth, though, and how it should best move from one generation to the next, should be much more gradual, and needs to be planned that way.

But what about the “unpacking” that I teased, and the “series of transitions” I already mentioned? I’m glad you asked.

When you get right down to it, there are actually at least four parts to this complex question.

A Simplified Example

Because this gets messy as you add more people, I’ll use the simplest possible example, where only one parent owns and manages everything at the start of the example, and eventually only one of their offspring will own and manage it all.

You can imagine that if we have both parents and a sibling group, like many real-world examples, it gets hairier quickly, but I’m trying to demonstrate that even the simplest cases are more involved than they first appear to be.

My goal is to break this down into bite-sized steps, because the elders who put these discussions off just may be more willing to engage with the ideas in this piecemeal way.

Level 1 – Management of the Assets

One key element that needs to move from one generation to the next is the management of the business or the assets. We’re talking about the day-to-day oversight of whatever the business does in terms of operations or how it’s wealth is invested.

Non-family employees or outside professionals are also very likely involved in some aspects of this management and those people take their instructions and cues from someone who’s part of the family. At some point the rising generation person will need to learn how to handle this part of things.

This is sometimes the first thing that gets transitioned, as the younger person learns on the job, starts to get involved in things, and eventually becomes the person in charge of managing the day-to-day activities.

Level 2 – Leadership Roles

One level up from the management we find leadership, which has us moving away from the simpler day-to-day of management, but now looks at some of the higher level choices that need to be made.

Hiring and firing of employees and choices of advisors are a couple of elements that come into play here.

The junior family member eventually needs to be able to take over these roles as well, but not necessarily at the same time as they assume the management roles above.

Level 3 – Power and Authority

Even after the senior person has transitioned out of their management and leadership roles, they may still continue to exercise power and authority over many of the decisions. That sometimes only comes years after ceding the first two.

Level 4 – Ownership

Finally, there’s the legal ownership that needs to transition. This can take place all at once, or gradually, which is what I typically recommend, whenever possible. Portions of ownership can be transitioned as some of the other transitions are progressing.

Planning It This Way, AND Executing It Too

These four layers can and should be separated into these components when planning for transitions, and also when executing them.

An overlapping of responsibilities between both generations is a good thing, because these elements are rarely mastered in a day.

Hopefully this breakdown will help some families get moving.

The earlier you begin, the more good choices you have.

Problems Arise When They’re Out of Whack

This week we’re looking at a topic that applies to both the people who work in their own family enterprise and also those who work as professional advisors serving such families.

Ideally everyone who plays either of these roles will be able to do so in a competent manner, otherwise problems come up, and they usually aren’t that simple to deal with.

When these competent people are also very self-aware they typically have a confidence level that matches their ability, and they present a coherent narrative that’s easy to ascertain.

But when they exhibit a high level of one, combined with a low level of the other, it’s less pretty to see.

The Spark for This Post

Because I write a blog post every week, I’m constantly looking for ideas to expound upon here. 

As someone who speaks to lots of people in my field, who occupy various roles in this ecosystem, I’m part of many conversations that provide fodder for these posts.

I get plenty of ideas from others with whom I speak, and also many that come out of my own mouth, because I like to think out loud, especially when speaking with colleagues who also work with families.

That’s what happened here, as I was lamenting that there are some people who think that facilitating a family meeting is pretty simple, and that it doesn’t require much in the way of training or skill.

As I noted to a friend recently, “They are very confident in their ability to pull this off, even if they are not very competent”.

So this became my starting point, but as I thought about it I realized that it’s part of a much larger subject.

Overconfident Professionals 

Of course there will always be some people out there who are more confident in their abilities than they really should be.

The trick is to sniff them out early, so that you can upgrade the quality of the people you’re paying to serve you.

Unfortunately, sometimes we put our trust in folks for one thing, get to know and like them, and then we wrongly assume that we can rely on them for other matters too.

Some accountants, lawyers, and bankers can do a good job facilitating family meetings. But I daresay that most of them make sub-optimal choices for that role.

Overconfident Family Members

We also come across family members who work in their family enterprise who overestimate how good they are at their job.

One of the stigmas that family businesses sometimes face is that they are filled with incompetent people whose only qualification for their job is having the right last name.

I like to think that these situations are more the exception than the rule, especially once you get to a certain size of business, but these people certainly do exist.

The non-family employees of such businesses have a front-row seat to some of these situations, and I’m sure they end up with some interesting stories to share.

Competent Family Members Without Confidence

There are also situations where the reverse is true, though, and sometimes these are even harder to watch.

I’m talking about smart, competent people, often poised to become future leaders of their family enterprise, who don’t have enough confidence to really get them there.

These situations can often be helped with some coaching and mentorship, but it takes lots of time, effort, and patience.

It can be more difficult when the lack of confidence stems from less than ideal parenting, which is always sad to see.

If you hire your offspring to work for you and you then constantly belittle them and put them down in front of everyone, don’t be surprised if they don’t become top performers.

Finding the Right Balance

In the end, though, I think we can all agree that spending time and working with people who are both competent and confident is more enjoyable and satisfying than dealing with people where those two are not in sync.

Sometimes you don’t have a choice in these matters, of course, but when you are in control of the situation, sometimes you need to notice these things and make some necessary changes, even if it isn’t always easy.

Life’s too short to spend it with people whose confidence far surpasses their competence.