In the Family Business magazine article “Why Do Wealthy Families Fail?” Alicia Giltinan, the Chief Financial Officer of Chasefield Capital, explores the various definitions of failure and offers guidance on how to mitigate adverse outcomes among families with substantial resources.
“Wealth can create a false sense of security that one doesn’t really need to create a budget, let alone adhere to it. The family business uses forecasting and budgets, but the family members may not,” said Giltinan.
A significant amount of family wealth comes in the form of multiple assets, but often, no one oversees the investments as a whole. “Each adviser may by doing his or her best to help the family make investment decisions the adviser believes are suitable. But absent one overriding investment policy statement for the family and a comprehensive portfolio summary from which to work, isolated investment decisions can create unnecessary risk,” explained Giltinan. One solution is to plan a family meeting so that everyone is on the same page about family resources. Giltinan also recommends that wealthy families develop an investment policy statement, which should include: investment objectives, time frame, risk tolerance, performance expectations, adviser responsibilities, asset class guidelines, and monitoring.