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When a third-generation business owner sold part of his company a few years ago, it was a $300-million liquidity event. He knew how to run a successful family business, but managing this kind of wealth was a different type of complexity.

Richter, a Business | Family Office, worked with the owner to help him expand his business, and eventually led the sale. The firm again lent its expertise for the next phase of the entrepreneurial journey.

“We worked closely with him to build and actively manage his portfolio, financial affairs, philanthropic projects, real estate assets and family governance, and to educate the next generation,” says Tasso Lagios, managing partner at Richter.

Those efforts exemplify stage three of Richter’s four stages approach to addressing the integrated business and family needs of its clients. Stage one involves growing the business, and stage two is about diversifying the business and investment portfolios. In stage three, wealth creation, business and family interests intertwine. (Stage four is supporting the next generation and preparing for the transfer of wealth.)

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The wealth-creation stage demands a holistic management approach in the form of a family enterprise, which comprises a range of assets, and is akin to operating a company. Similar to how a successful business is run by a C-suite or full management team, a family enterprise should be approached with a high level of oversight and diligence.

In a single-family office, the family hires its own people to help with this new stage of wealth creation, including a chief investment officer, a chief financial officer and a chief operating officer. A multi-family office such as Richter has the talent and experience to navigate all areas of wealth creation.

“Our process starts with an in-depth exploratory phase, where we work closely with a family to establish long-term goals and align investments with individual risk tolerances and overarching financial objectives,” says Mr. Lagios.

Family forums build trust

As family business owners transition from the growth and diversification stages into one of wealth creation, it’s important to tap into experts who understand both the business and the family dynamics.

Family forums are an effective way to facilitate communication and build trust within the family enterprise, explains Justine Delisle, partner of Family Office Services at Richter.

She encourages families to adopt policies for conducting these meetings, outline rules around conflict resolution and decision-making, and formalize core values and principles.

“Conflict is a common aspect of family dynamics, and when managed constructively, it can foster innovation and growth within a family enterprise,” says Ms. Delisle. “However, it can become destructive if trust is compromised or if individuals feel marginalized.”

Align on core values

The best wealth management strategies dig deep into the family’s core values, beyond issues like investments and taxes, to take into account the emotional side of the family enterprise. Philanthropy can be an expression of these values, and it requires the right touch to ensure the family’s legacy is conveyed. That’s why families should have a detailed charitable giving plan, says Greg Moore, partner at Richter.

“To maximize the impact of philanthropy, it’s important that the giving strategy is effective and that the gifts are used in a way that reflects intent.”

Talking about legacy and financial intentions can be emotionally charged. A family governance strategy can help foster open communication and define roles within the family enterprise, so everyone is aware of the expectations. That can encompass everything from a family counsel and family constitution to more informal structures.

The right governance strategy will give the family the necessary tools to traverse good times and bad. “Building a shared understanding of each other in the good times can assist the family in navigating more difficult situations, because there’s already a foundation of mutual respect,” says Mr. Moore. “Ultimately, the governance acts as a protective shield, preserving the family’s values, wealth and legacy, and contributing to a resilient and enduring family heritage.”

Preparing the next generation

While many wealth-creation strategies focus on the financial well-being of the next generation, not enough time is spent preparing that generation for the responsibilities of wealth.

“Children who grow up around the business don’t necessarily know its ins and outs”, says Ms. Delisle. “There are basic concepts of financial literacy that should be part of the next generation’s repertoire. Understanding concepts such as finance, tax and legal is key, and integrating these concepts is essential in good decision-making. Embracing a common language not only enriches dialogue, it also lays the groundwork for a strategic family framework, essential for intergenerational success.”

She adds that it’s important to clarify the parts played by everyone in the family unit. “Each family member assumes distinct roles within the familial structure, roles that naturally evolve with time. It’s crucial for them to grasp the impact of their individual decisions on the family legacy, and to recognize their level of responsibility regarding wealth and community.”

With this kind of strategic planning, Richter ensures that all the moving parts come together in the wealth-creation stage. It’s why the entrepreneur involved in the $300-million liquidity event looked to Richter to create a bespoke infrastructure for his newly formed family office.

“The ideal family office solution is designed to meet financial goals and build intergenerational success,” says Mr. Lagios.

To learn more about wealth creation for family-owned business, join a webcast on April 11th as part of The Globe and Mail’s life-cycle of a business series. You’ll gain insight into building a customized plan that accounts for family dynamics and helps mitigate risk. Click here to register for the free virtual event.

Advertising feature produced by Globe Content Studio with Richter. The Globe’s editorial department was not involved.

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