The Three Types of Family Advisors
Academic literature has distinguished three types of advisors in the family business context: the formal advisor, the informal advisor, and the (family business) board member. Advisors differ from brokers, as described by organizational theory. The role of the advisor in the family business succession process has been well-researched, while their role in aiding families to develop their values and vision, conflict resolution, and emotionally attuned advising is still underexplored.
From a client’s perspective, the most commonly used advisor is the accountant. Passive investors, also known as rentiers, employ advisors for the management of their wealth.
The Role of the Advisor
The advisor acts as an integrator between family members and between family logic and business logic. Ideally, the advisor avoids or mitigates family conflicts and improves overall performance through increased knowledge, more coherent and effective planning, and enhanced decision quality.
An advisor can bestow roles within the family vis-à-vis other family members. This role can extend to provide an umbrella for family members against other family members’ demands and criticisms.
For an advisor to provide guidance, they need to be accepted by the family by gaining their trust and influencing their attention. Trust is built through the interaction between the family and the advisor, where the advisor moves from being “trustworthy” to being “trusted”. Such interaction will be built on listening skills and the openness of the advisor. Cultural aspects will play a role in the level of trust given to an advisor.
The most trusted advisor is the most valuable advisor to the family. Beyond the broad technical expertise, the most trusted advisor is attuned to family dynamics, is an attentive listener, and can create an atmosphere of effective focus towards a shared goal.
The advisor, especially the most trusted advisor, will find themselves in a position of having access to the inner workings of a family or a family business. This can lead to the family becoming vulnerable to the expected integrity of the advisor.
Next to the trust in an advisor’s moral fiber and technical abilities, the family seeks advisors that act free of any conflicts of interest and are guided by the principle of stewardship and rationality. High-net-worth individuals and their families enjoy an advantage through the availability of a “Cosmopolitan Search,” a pool of globally available advisors. In addition, high-net-worth individuals often employ fiduciaries and trustees that can act as shields between family members, thereby reducing (or deflecting) family conflict.
The Challenges Advisors face
Advisors face several challenges, such as understanding the issue at hand, analyzing and extracting the actual problem, selecting the services to offer, and presenting these services in a way that becomes understandable and relatable to a family
A valuable advisor does not blindly follow the instructions given by the family. An advisor also introduces doubt, asks questions, mediates between competing demands, and layers knowledge into the process.
One of the challenges advisors face is understanding the issue at hand and extracting the actual problem from the primary brief given by the client.
The Holistic Approach of Family Advising
A holistic approach would often yield the best result for the client and the advisors involved.
A holistic approach in financial advising for family offices aims to provide a comprehensive and integrated strategy that supports the family’s financial goals, values, and overall well-being. It considers all aspects of a family’s financial situation, goals, and values.
This approach recognizes that a family’s financial goals and needs may be complex and multifaceted, and therefore requires a customized, integrated approach that considers all aspects of their financial situation.
In the context of family offices, a holistic approach may involve working with multiple generations of a family, each with its own unique financial goals and priorities. The advisor may also need to consider the family’s values and mission, and how these may impact their financial decisions.
A holistic approach in financial advising for family offices may involve collaboration with other professionals, such as attorneys, accountants, and estate planners, to ensure that all aspects of the family’s financial situation are considered and optimized.
Conclusion
In conclusion, the role of the advisor is crucial in aiding families to develop their values and vision and in conflict resolution. Advisors face several challenges, including understanding the issue at hand, analyzing and extracting the actual problem, selecting the services to offer, becoming involved in family dynamics, and having to ease in and out of too many different roles to meet the demands of the family.
At the Cecily Group, we provide holistic family office services that will help successfully pass on a wealthy family’s abundance to the next generation.
