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SpanishWealth Management in Family Businesses
Family businesses are fundamental pillars of the global economy, responsible for a significant part of gross domestic product and employment in many countries. They are living legacies, bringing together the ambitions, values, and aspirations of one or more generations within the same family. Their success and longevity depend on how they handle specific challenges, such as succession, governance, family values, balancing business needs and family expectations, and of course wealth management.
It is in this ecosystem that private banking services excels, offering tailored solutions that address the financial, strategic, and personal needs of family businesses, ensuring their prosperity and continuity across generations.
There is a Chinese fable about an old man who decides he wants to remove the mountains he has to walk around every time he goes from his house to the nearest village. At the age of 90, the old man organises his whole family and some of his neighbours to scrape sand, haul stones to the sea, and clear hillsides, one bucket of sand at a time. Another old man, referred to here as the “wise man”, taunts him, pointing out that he will never see the job finished and that he is wasting his time. So the old man reminds him that, even if that happens, his descendants will continue the work and, in the long run, take advantage of being free of the mountains and having a direct road to the village.
At times, this story reminds us of the way a family business manages the family wealth. The other [ID(IL1] point of view – in keeping with the tone of the fable – is presented, incidentally, by the “wise man” because it resembles the mentality of business owners who forget that they must leave a legacy for the next generations, and therefore do not bother to leave clear instructions so that the family wealth continues to grow.
In this sense, the first message to convey to family businesses with an inadequate wealth management is the separation of their business and financial assets, since this prevents a rather negative [ID(IL2] performance of the company from putting the entire wealth at risk, but also so that they can grow through different strategies, diversifying risks and opting for higher returns.
Another natural step is to delegate the management of these financial assets to specialised external advisors, which is ideal for medium-sized family businesses. In the case of larger companies with a larger volume of capital or assets, by setting up a family office to take on the proper management of these assets in a more structural and exclusive manner.
“The first message to convey to family businesses with an inadequate wealth management is the separation of their business and financial assets, since this prevents a rather negative [ID(IL2] performance of the company from putting the entire wealth at risk, but also so that they can grow through different strategies, diversifying risks and opting for higher returns.”
Whatever the modality chosen, these experts must advise the company on the different investment and asset models available on the market: an educational task that must certainly include the so-called alternative investments (private equity, philanthropy, etc.), which are very attractive to large wealth managers in charge of family businesses.
Private banking is positioned in this respect as a strategic partner, offering a full spectrum of services designed to address new trends in family business wealth management that reflect a focus on greater professionalisation, sustainability and adaptability.
The trends that we would consider most relevant to take into account are:
- Digitalisation and Financial Technology: the integration of technological solutions such as data analytics tools, online investment platforms and digital wealth management applications are facilitating data-driven decision making and customisation of investment strategies.
- Focus on Sustainability and Socially Responsible Investment (SRI): Family businesses are increasingly committed to investing in projects that not only generate financial returns but also contribute positively to the society and environment.[ID(IL3]
- Comprehensive Succession Planning: Beyond the transfer of assets, family businesses are adopting a holistic approach to succession planning, which includes preparing future generations for leadership roles, financial education, effective communication within the family, and consideration of emotional and relational aspects.
- Governance and Family Structures: Establishing clear, effective and professional governance structures, such as family councils, family offices and family protocols, is gaining importance.
- Global Diversification: In order to protect family wealth from local market fluctuations and explore new opportunities.
- Focus on Privacy and Security: The protection and discretion of personal and financial information is a growing concern for family businesses.
- Adaptability and Resilience: The COVID-19 pandemic has underlined the importance of adaptability and resilience. Family businesses are focusing on creating flexible and robust investment strategies that can withstand economic shocks and ensure long-term business continuity.
In conclusion, the nonagenarian in the fable was very clear about the purpose of involving his family in a project that later generations can continue even if he is no longer around.
Private Banking is the perfect partner to ensure that, beyond financial wealth, the human and social capital of the family is preserved and cultivated, crucial elements for transgenerational success.
