Family Office with Lance Meikle

TRANSITIONING A FAMILY COMPANY TO FAMILY MEMBERS

TRANSITIONING A FAMILY COMPANY TO FAMILY MEMBERS

I’m going to highlight the key points and takeaways that I have experienced personally as a business owner and father, Family Office specialist, a facilitator and a non-executive director.

Mothers and fathers of family-owned companies want to safeguard future generations and those around them that they choose to support. They live, breath and sleep the company is the mothership that must be protected at all costs because it is the protection of them personally and the future financial protection of those they care about.

Transitioning a family company to family members must be book-ended by Estate Planning and putting the fundamentals in place, such as wills, powers of attorney and insurance.

A will is a cornerstone of succession planning because it sets out how an estate should be divided between beneficiaries.

Powers of attorney can ensure a trusted person can administer assets and protect interests if the testator (this is the person making the will) becomes ill or incapacitated. The powers can be specified to match requirements. They can also be revoked.

Insurance can be a tax-effective way to top-up an estate and take care of tax obligations and debt. Insurance payouts can also help equalise imbalances in the distribution of wealth, which might arise if there are valuable but illiquid assets.

Some statistics worth taking note of:

• According to the Productivity Commission, Baby Boomers in Australia are expected to bequeath $224 billion a year in inheritances between 2023 and 2050 as housing and superannuation wealth creates a $3.5 trillion windfall for younger generations. Most families are unprepared for the communication and planning required to ensure a smooth transition of this wealth, which is expected to increase fourfold over the next 30 years.

• ANZ Private Wealth, which manages the wealth of 7000 families, has reported 70% of intergenerational wealth transfers fail because of family conflicts, dissipation of wealth, misaligned values, and delays. The qualification to be an ANZ Private Wealth customer is about $3million worth of investable assets or debt (excluding the family home). ANZ’s analysis is based on 3000 private banking clients over 25years.

• It is estimated that family disputes about wills and estates have jumped by about 80% in the past decade as the number of “blended families” has risen sharply. Most of these cases end up in court, often wasting large chunks of their inheritances in very expensive legal fees that split families and leave unhappy legacies for future generations to resolve.

Q: What are the steps | strategies that create a successful transition of a family business that secures wealth, values, and legacy without blowing up the family?

• Identify who is going to be your Advisor Concierge (trusted advisor)? Don’t assume that you will turn up to your Accountant and have a chat and it will work itself out, IT WON’T. Most qualified accountants are (at best) not skilled on this topic and (at worst) not interested in it. UNDERSTAND that what is required and critical to achieve the result you are after is EXPERIENCE. Experience does not only count, it is everything.

• Consider establishing a Family Office that, along with a plethora of other benefits, has Management Team meetings to discuss and implement what is to go to who, when and how. These meetings should also include family committees to discuss various operational aspects of the company, who wants to, and does not want to, work in the company, together with investment decisions and philanthropy or impact investing decisions. These meetings are typically held quarterly.

By taking the time to discuss, debate and deliberate families can:

- understand the views and aspirations of all members of the family and take them into account

- share information about the family’s wealth while maintaining personal and commercial confidentiality

- provide the next generation with an idea of the security family wealth can afford and what responsibilities it involves

- discuss options for gradually sharing wealth and opportunity, and

- reach a collective family view.

Q: Are there strategies to create practical experiences for family members to glean a better understanding of what is involved in running a family business?

Yes, there are, and they include:

• Becoming a director of the company &/or corporate trustee (if a discretionary trust is the owner of the shares of the company) to provide insights into regulations, managing wealth and demonstrating family values.

• Networking with peers, such as joining parents at arts or sporting events, to encourage knowledge of business communities.

• Interacting with advisers to provide access to experts and business insights.

• Joining the business which might involve a parent or in-law being a coach, mentor or becoming a seed investor.

• Engaging with philanthropy to teach values and responsibilities beyond the family.

I trust you have enjoyed listening to the content of this show and picked up clues (both helpful and painful). The key take-aways should be:

- Transition takes years (not months).

- Successful transition will not and cannot occur unless you have a collaborative team with a facilitator focused on the legacy | purpose.

- Utilise a Management Team that includes a Lawyer, qualified accountant, financial planner but most importantly, is Chaired by a Family Office specialist.

WHY LOOK AT FAMILY OFFICE SECTOR?

WHY LOOK AT FAMILY OFFICE SECTOR?

Thanks for spending some time with me listening to this episode: Why look at Family Office sector? I know you’re going to enjoy listening to some practical information about the reasons and journey some take to look at the Family Office space.

Today, I’m speaking with Antony Selby who will provide us with his pathway-to-date in looking at the Family Office sector and what he has discovered, liked and disliked.

Antony, welcome to Family Office with Lance Meikle podcast. Antony, it’s a real privilege to be chatting with you today particularly because I know what I know about your background in relation to your family. Let’s get started by you telling our listeners

• about yourself
• your journey to this point and
• how we met

You have recently made a bold step to go alone.

• How did this come about?
• What is the new business name?
• What is the problem your business is solving?
• How are you progressing?
• Any regrets at this point?
• Why | where does Family Office fit into your plans?
• What haven’t you liked on your Family Office journey?
• What have you discovered as the difficult barriers-to-entry of being a Family Office adviser?
• How have you found stakeholders in Family Office space available to assist?

Lessons learnt: Knowing what you know now, what are the things you wish you had learned earlier in your career?

What is the best way for anyone in the audience to contact you?

Antony, it’s been an honour to have you on the episode. Thanks for sharing your insights and experience with our audience. If someone listening wants to get in contact with you, what is the best way to do that?

WOMEN IN FAMILY BUSINESS VIA A MULTI-GENERATIONAL OUTLOOK

WOMEN IN FAMILY BUSINESS VIA A MULTI-GENERATIONAL OUTLOOK

The next generation of family business owners are shifting the conversation around diversity and purpose and the need to adapt governance practices for improved performance and succession planning.

 

According to international research by KPMG and the STEP Project, published in KPMG Family Business Planning Diversity Entrepreneurship report;

• In Australia, family businesses provide 55% of private sector employment
• Only 31% of global family businesses had women on the board, while only 18% of current family businesses were female.

 

A multi-generational outlook of family enterprises by Deloitte’s titled Planning beyond the horizon: a multigenerational outlook report into the role of family enterprises cautioned:

Without the right planning and preparation, some family enterprises may fail to successfully transition to the second generation, and the process becomes even more challenging for third or fourth generations.

According to the report, families that can define 10–20-year aspirations and six to 12-month initiatives, with a clear line of sight from one to the other, will be more likely to stay ahead of the game.

The report offers three tips for embedding a multigenerational outlook in your family enterprise:

• Formalise planning processes – put capability-building on a schedule, deploy actual resources toward chosen initiatives and put in place metrics to measure whether they are progressing as planned
• Put family governance in place – family enterprises typically have excellent business governance, but few operate with the same level of rigour when it comes to family meetings or communication. Yet to plan beyond the horizon, it’s essential for the next generation to be included in their long-term decision making to align family strategy with business strategy
• Prepare the rising generation – letting go is not simply about the incumbent generation giving up power. It’s about preparing and educating the rising generation. Heirs to family businesses can’t sustain their leadership through raw power. The previous generation and their stakeholders must grant them the authority to lead.
  Preparation should be focused on how to nurture the rising generation, setting multigenerational targets together and using deviations from meeting these targets as learning experiences. Learning together as a family sustains the family’s power to adapt to disruption.

The metrics of Australian family businesses

The source for the data I’m about to give you is from:

Grant Thornton, Family Business Australia Survey 2021

• 8 in 10 family businesses are forecasting revenue growth in the coming year
• 76% said COV-ID 19 had no impact on succession plans
• 56% of family businesses have plans to transition leadership
• 65% of those will transition to another family member
• 30% have not considered succession | leadership transition
• 32% have considered change of ownership
• 8% of family businesses have a retirement plan for the CEO | Managing Director
• 70% of Australian businesses are family businesses
• $4.3 trillion is the estimated value of the family business sector in Australia

IS BEING A PRIVATE WEALTH CLIENT THE SAME AS A FAMILY OFFICE?

IS BEING A PRIVATE WEALTH CLIENT THE SAME AS A FAMILY OFFICE?

The short and simple answer to the episode question is no.

As a Certified Financial Planner, I have both had, and have, clients that would fit under the label “Private Wealth”. However Private Wealth is simply a subset of a Family Office.

By the very name Private Wealth, wealth has a singular focus and outcome, based around metrics, whereas Family Office is about families, legacy, emotional intelligence, purpose, values and a structure for intergenerational transfer of wealth and reduction of intra-family disputes.

Private wealth has a sexy image that appears to represent success &/or being important whereas Family Office has a reputation of being stoic, sterile and for ‘them’, the older type.

The timeline for investment decisions between Private Wealth and Family Office are vastly different.

Family Office

• Short term = 20 years
• Medium term = 50 years
• Long term = 100 years

Private Wealth

• Vast and varied

The modern concept of the family office developed in the 19th century. In 1838, the family of financier and art collector J.P. Morgan founded the House of Morgan to manage the family assets. In 1882, the Rockefellers founded their own family office, which is still in existence and provides services to other families.

Family offices are arguably the fastest-growing investment vehicles in the world today.

Private wealth is about a taxpayer (either a person or persons or as an office holder of an entity (i.e., a ‘for purpose’ entity known as Not for Profit) whereas a Family Office is headed by a Patriarch &/or a Matriarch.

Cost is appropriately higher for Family Office than Private Wealth.

The modern Private Wealth provider focuses on more than financial outcomes by broadening their offering to include services such as tax, accounting and property however these offerings fall well short of the established Family Office service offerings.

Private Wealth sits above financial planning in both complexity and service offering, whilst Family Office operates as an ecosystem, utilises collaboration and facilitation at its core and as such, sits far about Private Wealth in complexity, service offering and outcomes.

A modern trend in Australia is seeing qualified financial planners moving up the scale with their offering and price to Private Wealth however due to the complexity, required skills and panel of solutions required, this trend will remain ‘capped’ at Private Wealth.

In closing, don’t be led to believe that you are receiving abundance if you choose Private Wealth because you’re not, you’re choosing mediocrity. Family Office is where it’s at.

PRIVATE ANCILLARY FUND (PAF)

PRIVATE ANCILLARY FUND (PAF)

A Private Ancillary Fund (PAF) is a trust fund for businesses, families and individuals and set up under the Taxation Administration (Private Ancillary Fund) Guidelines 2019. The trust fund is controlled by a company usually with family members as directors and at least one independent “Responsible Person” director (someone with a degree of responsibility in the community). A private ancillary fund (PAF) is a type of charitable trust that offers an effective and strategic way to manage your philanthropy. You donate money into the PAF, receive an immediate tax deduction and use the money put aside to give to the charities of your choice each year. You or your investment adviser invest the capital. To establish a private ancillary fund (AF) with deductible gift recipient status, you need to:

• Create a trust that is a private ancillary fund (private AF)

• Obtain an Australian business number (ABN)

• Get endorsement as a deductible gift recipient (DGR). Why use a Private Ancillary Fund?

 

A PAF may be suitable for someone where:

• they wish to keep on giving after their death

• they want a structured way to involve their children or family in giving

• they have recently disposed of an asset and wish to obtain a tax deduction in the year of sale (note: keep in mind that once a gift is made to the trust it cannot be revoked), or

• they wish to devote a considerable amount of time to philanthropy into the future.

Some PAFs are also exempt from tax on income earned. To be exempt the PAF must be registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity and endorsed by the ATO to receive charity tax concessions. Endorsement from the ATO can be obtained at the same time as registering the fund with the ACNC. This exemption may make using a PAF an attractive vehicle for accumulating assets for philanthropic purposes All PAFs are regulated by the ACNC and must adhere to the Private Ancillary Fund Guidelines 2019 (Guidelines). In addition, PAFs need to apply for endorsement as a tax concession charity from the ATO and are subject to the relevant income tax laws and requirements of the relevant State trustee legislation. The Guidelines cover a broad range of matters ranging from the purpose of the trust to the administration requirements and include:

• a PAF must be set up and run from Australia solely to benefit other deductible gift recipients (e.g. charities)

• a PAF must be a not-for-profit entity. Any surplus made by a PAF must be directed towards carrying out the entity’s purposes

• the trustee has an obligation to exercise appropriate care and skill in managing the PAF

• a PAF must generally distribute a minimum of five per cent of the PAF’s assets (as valued at the previous 30 June) to deductible gift recipients each year. If the PAF’s expenses are met from PAF assets, the distribution must be the greater of $11,000 (or the remainder of the fund) and five per cent of assets. In limited circumstances a PAF may apply to the ATO to have the minimum amount reduced for a financial year

• the trustee must prepare an investment strategy in relation to the fund’s assets

• investment restrictions apply. For example, PAFs are generally prohibited from borrowing and investing in collectibles, investments must be at arm’s length and the trustee cannot give a security over an asset of the fund. In addition, a PAF cannot run a business

• a PAF cannot seek donations from the public and cannot accept donations totalling more than 20 per cent of the value of the fund at the previous 30 June from people other than the founder, relatives, associates or employees of the founder, as well as their estates.

The responsible person The corporate trustee of each PAF must have at least one independent director who is a responsible person. This person must be actively involved in the decision-making of the fund. They cannot be:

• a founder 

• a donor who has contributed more than $10,000, or

• a relative or other associate of a founder or such a donor, or

• an employer or agent of a founder or donor, unless written consent is provided by the ATO. Individuals with a degree of responsibility to the community as a whole are generally known as ‘responsible persons’.

They would generally include those who are well known to a broad section of the community as a result of their employment, or belong to a professional body. Where a PAF does not have a responsible person, it cannot make any decisions until such a person is appointed. 

It is recommended to have a minimum of $1 million for an initial donation.

AS A PATRIARCH, WHY A FAMILY OFFICE?

AS A PATRIARCH, WHY A FAMILY OFFICE?

My co-host is Allan Bennett, Patriarch, of Bennett Family Office. Allan started a Family Office in 2016. Both Allan and his amazing wife, were former clients of mine, when I was providing high-end personal advice. I’m sure there will be more about this experience and journey soon. 

Allan, it’s a real privilege to be co-hosting with you today for plenty of reasons however, the no.1 reason is my gratitude for both you and your wonderful wife being brave enough to 1) place trust in myself and the Family Office message that I brought to you; and 2) pre-pay as a client for 10 years which enabled Generational a start as a multi-family office (from the depths of my soul, thank you).

Let’s get started by you telling our amazing audience

• about yourself | make up of family | your business journey, and  how we met

Q: What was the Family Office message you heard and how has that played out? Q: What does if feel like being a Patriarch?

Q: Knowing what you know now, if you had your time again, would you have commenced a Family Office earlier and if yes, why?

Q: Please describe to our listeners, what are the benefits you have experienced by having a Family Office

WHAT OPTIONS EXIST OTHER THAN A FAMILY OFFICE?

WHAT OPTIONS EXIST OTHER THAN A FAMILY OFFICE?

If you are exploring Family Office as a structure | solution, what are alterative options?
• DIY – where you do everything. You go from meeting to phone call to meeting to email to meeting to email to phone call and on it goes. 
• Hybrid – you outsource some of the functions of what you are wanting to achieve.
• Private Wealth & an Accountant

What are the pros and cons of DIY? | What are the pros and cons of Hybrid? | What are the pros and cons of Private Wealth & an Accountant?

Why a Family Office is the optimal solution | structure IF family, living your life, leaving a legacy and intergenerational transfer of wealth and assets is important to you is best described by Jim Collins (Author of Good to Great: Why Some Companies Make the Leap and Others Don't). 
Paraphrasing the truly wonderful study undertaken by Jim is:
• Get the right people on the bus
• Get the wrong people off the bus 
• Get the right person driving the bus

TAX LIENS IN THE UNITED STATES

TAX LIENS IN THE UNITED STATES

Tax liens are nebulous investments because people hear about high interest rates and potential properties for cents on the dollar, but it’s really a legal matter. Melanie is the CEO and founder of Tax Lien Wealth Solutions (which she started in 2017). Melanie is a woman winning in the financial world. She is a subject matter expert on tax liens. Her passion is in adding value to other people’s lives. Melanie is the First Female to become a Certified Tax Lien Professional by the National Tax Lien Association, the governing organisation over the tax lien industry in the United States.

WHY NOT A FINANICAL PLANNER OR ACCOUNTANT?

WHY NOT A FINANICAL PLANNER OR ACCOUNTANT?

What are the common triggers for starting a Family Office?

They are:

• ensuring that wealth is transferred to future generations
• preserving family wealth
• consolidating assets
• dealing with a sudden influx of liquidity
• solving family conflicts; and increasing wealth management efficiency.
  
  
• Family offices have also gained prominence because of wealth-holding families’ desire for greater control over their investments and fiduciary affairs, as well as lifestyle management.

Investment Mandate

• Timeframe for investment decisions:

• Short term = 20 years
• Medium term = 50 years
• Long term = 100 years

• Consider dividend levels and pay out ratios
• Acquisition and management of private assets

WHAT ARE THE BENEFITS OF A FAMILY OFFICE?

WHAT ARE THE BENEFITS OF A FAMILY OFFICE?

My co-host is Chloe Arthur who made the change from being a Financial Planner in 2018 to being an Adviser to Family Offices.

Chloe is happily married to Shane and they have two amazing daughters, Emily, and Matilda.

Hi Chloe and welcome to Family Office with Lance Meikle podcast. It’s a real privilege to be co-host with you today. Let’s get started by you telling our amazing audience

• about yourself; and
• how we met

Q: What is it you like about Family Offices?

Q: What how your found to be the difference between being a valued high-end Financial Planning | Private Wealth client to being a Family Office client?

Q: Would you go back to Financial Planning? If so, why and if not, why not?

Q: What advice would you give our audience if they are weighing up whether to look at starting a Family Office of not?

Q: Feedback from your clients? Is there is a change | shift from when your client starts dealing with you to down the track and what is the change?

Q: In your career, have you come across similar offering to Family Offices?