House Rules For The Truly Wealthy

February 22, 2017 - Max Osbon (3 mins to read)

Where do you keep your house rules? Are they hanging on the fridge, framed in your study or simply preserved through an unspoken mutual understanding? The fourth installment of our True Family Wealth series is about intellectual capital, which includes the framework for making decisions in wealthy families. The intellectual capital topic often sits untouched and unarticulated. Here’s how it can help you.

In many families, the rules – also called family governance – boil down to something like: “Grandpa makes all those decisions.” That may work well as long as Grandpa remains healthy, focused and in synch with the rest of the family. But a truly wealthy family retains the benefits and responsibilities of wealth for many generations.

Be like GE and Harvard

Think about the world’s great organizations that have outlasted any single founder or visionary leader. How are they able to do this when great leaders retire or pass away? One crucial answer is smart governance. Rules, goals, philosophies and strategies are discussed, recorded and followed, no matter who is at the helm at any given moment.

Household Handbook

Our advice is to get a discussion started, with the goal of eventually capturing key thoughts in writing. Your house rules should be a living document based on core family values, evolving over time to recognize changes in your family and the world around you.

Try transcribing your informal conversations and ideas onto paper. You can include the following:

  • Reading list– What background do you think is necessary for making smart decisions with money? What would be your required reading list? We can help you pick a few classic or age-appropriate titles. High-level financial conversations are mystifying for those who don’t have the proper context.
  • Legal discussion – What structures have been put in place to make the most of family assets? What trusts did you create and why? Where are the life insurance plans, trusts and wills stored? Who are the critical contacts for each plan? Who are the trusted advisors, professional or not.
  • Their own topics – Encourage other family members to contribute their own sections for rules or discussions. Ask what is important to them. Does it include supporting the arts, education, humanitarian causes? You may be surprised by their answers.
  • Decision making – What kind of decisions can be made by the group? Who has input? Who gets to vote? Who has final say on a controversial topic?
  • Fun – There are no rules that say wealth must only be serious business. There are also no rules that say that it has to be boring. What percentage of the family wealth should be allocated to fun – especially family experiences and adventures? When you’re under budget, who gets to pick what to do with the surplus? The youngest, perhaps.
  • Annual discussion – Don’t set rules and let them collect dust. What check-in questions can you go through with family members? How often will you review your handbook and consider making tweaks? We’d say at least annually, and twice a year is twice as nice.

Sound like too much?

This may sound like a lot of work. And yes, it may be some work to get everyone involved. But the completed written plan will give everyone a sense of familial pride, a sense of empowerment even, and act as a compass for where the family goes in the future. If you would definitely do this at the billion dollar level, why not give yourself the same treatment at the $10 million dollar level?

The reality is that with wealth comes responsibility, not just for the head of the household, but for all members of the family. Helping your family establish good practices related to that responsibility means that your insight, training, advice, and habits are shared and amplified over many generations. It’s one way to ensure that your tried and true insight, training, advice, and habits get passed on to future generations when you are no longer the one in control.


Weekly Insights

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.

Weekly Articles by Osbon Capital Management: