How the family office can educate the family

Ian Youngman is a freelance writer based in
the UK.

Family wealth brings with it responsibility and children should be comfortable with financial issues from the most basic to the most sophisticated. To this end, an increasing number of family offices are focusing on the need to educate younger family members in the care and management of the family fortune

One of the most important aspects of wealth management is planning for the efficient transfer of wealth to successive generations. A structure that successfully reflects the complexities of the family's wealth and values is vital – and family office services are increasingly becoming the method used to manage this feat.

As a result, more and more family offices are focusing on the education of younger family members in the care and management of the family fortune, while also acknowledging the need to educate family offices on how to educate the younger generation.

Younger family members with inherited wealth often will not have the financial or business background of the original wealth creators. Education is essential, but how do you educate without possibly causing offence?

Expert advice
It is useful to look at the problem and potential solutions through the eyes of experts. Jon and Eileen Gallo are the joint authors of a book entitled Silver Spoon Kids. Jon Gallo comments: "The keys to using affluence as a positive child-rearing tool involve talking about money with children in an age-appropriate manner and linking money behaviour with personal values. You cannot persuade kids to listen to advice. Affluent parents need to make learning about money part of the child's environment as they grow up. The messages children get about money from their parents while growing up is largely determinative of the children's behaviour as adults.

"When we talk to families with a family office, we point out that the expertise in the office can be used to help educate the children about money, but that you need to start early. The family office's expertise can be used to teach the kids about money in an age-appropriate manner. This involves spending some time to figure out what topics to cover and in how much detail.

"For example, for younger children (10–15), some of the wealth can be invested in stocks the kids know about – Disney, Sony, Gap – and they can be invited to attend discussions about those com­panies. They can be shown the company's financial statement, which can be explained in elementary terms. Dividends can be explained, as well as the basic mechanics of the stock market. It takes a bit of effort, but it can be done."

Marcia C Brier runs Family Legacy Services, a consultancy to private banks and family offices. She says: "Family foundations can be a family project for everyone to participate in. Children learn values by example, not words. Even young children can understand doing something kind for someone else. Involve children in conversations about news and finances, and listen to their ideas. Teach children about investing and putting their money to work. Talk about how the stock market works and how investments accrue value. With older children you can elaborate on other factors, such as risk taking versus safety, fluctuating markets and what makes a good investment."

What family offices can learn from these experts is that it is important to bring children into family discussions early. Even more important is to persuade clients of the need to educate children from a very young age in as many aspects of wealth, income and philanthropy as possible. Family offices have to be prepared to deal with children with a solid grounding, as well as those without one.

The bank and family office role
Many banks and family offices offer services that incorporate the ideas mentioned by the Gallo and Brier. Smith & Williamson has been managing wealth for families for over a century and Michael Symonds, Director of investment management, comments: "Education for the next generation is an issue. We take a keen interest in them and involve them where appropriate. Requests can come from the family, and spells with a private bank can be part of training."

Barclays Private Clients offers a range of personal development options for young clients according to director Heather Maizels. "We offer summer and gap year placements, the Rockefeller Foundation philanthropy workshops, help in understanding financial issues, coaching, mentoring and introductions to opportunities.

"We try to involve the young in areas that motivate them and give them a sense of responsibility for their own lives. Philanthropy is often key here and we will help the young structure a plan to enable them to gift well to a chosen cause. We recognise the young need help to make their own way in life and help with access to individuals and organisations."

Pictet Family Office, a division of Swiss bank Pictet, believes educating family members from an early age in the various skills required to manage wealth is an essential part of family governance. Morag McLure, head of Family Office, says: "This is a very major area of interest for our clients. For some clients, we devise specific programmes, particularly if they already have some financial background. Some do internships with us. Generally, for those who need grounding in wealth management, and need or want to know the overview, we recommend they attend specialist independent programmes."

Citigroup is also very involved in educating young adult members of client families on a global basis. Peter White, head of Citigroup Private Bank's family advisory service, expands on this: "We offer programmes and advice to help this constituency come to grips with the familial and individual issues they and their families are facing and will face. These have to do mainly with the experience of wealth, which is leading the kind of life you want to lead – as a family or an individual – in the context of great wealth. It is to do with helping young adults come to terms with themselves as individual people, which is sometimes a formidable challenge in a family of great wealth."

California-based Cymric Family Service is an independent family office owned by Patricia M Soldano. Her view on the subject is: "No amount of written information can replace the need for regular family meetings. By explaining the financial position of the family, reviewing investments, discussing individual family member's business and more, family meetings provide a venue for educating younger generations. They can also be used to decide how future generations can be educated about the family's values, objectives and business. This can lead to generational education and planning, and mentoring."

Deutsche Bank Private Banking's Family Office Group offers young adult children of clients around the world a unique three-week 'Private Banking Summer Seminar' programme each year in New York City. College students and recent graduates have the opportunity to learn about the world of finance and business from industry experts, while developing new friendships and participating in social activities throughout Manhattan. Each year, 20 young adults from a variety of countries attend in-depth presentations and workshops that invite their active participation. They cover topics such as portfolio construction, global equity markets and international trusts.

Dina de Angelo, head of Schroders Private Bank Family Office, talks about the unique programme they offer: "The training we offer the younger generation often takes the form of seminars. These can range from a very basic introduction to the world of investments and financial services to the very sophisticated issues of defining risk profiles and choosing the correct investment approach. Sometimes the training sessions are in the form of group in-house seminars of about 20 young guests. Others consist of visits to the homes of individual families.

"We are flexible in the training and will work around the circumstances, attitudes and choices of the families. The seminars are never just theory. At the end of each is a practical session. This part can take many forms but one example may be to set up a fantasy portfolio. This portfolio would then be monitored over the following six months, allowing the individuals to have a hands-on approach and understand how their decisions really affected their investments.

"In this example, the individuals would have access to the financial experts within Schroders Private Bank and would be able to ask questions. It is important that the individual running the seminar be interested in the welfare of the younger generation, understand the issues they are facing, engage them throughout the session and gain their respect.

"The common theme of all seminars is the preparation of the next generation for the challenge of investment responsibility. We try to ensure that the days are always fun and we aim to provide our young guests with information and ideas they wouldn't necessarily get at outside seminars."

She continues: "Being born into wealth can be a mixed blessing. It brings with it an awful lot of responsibility and it is therefore vital that children and young adults in such situations feel comfortable with financial issues from the most basic to the most sophisticated concepts."