Share |

Women and Wealth: Family governance - a growing role for women

Statistically, we know that women are increasingly becoming wealth generators for their families, as well as wealth decision-makers. We also know that many ultra high net worth families are lacking formal family governance structures to help provide clarity and minimise emotionally-based financial decisions.  

Research conducted by Wilmington Trust and Campden Research, in association with Relative Solutions, reinforces the belief that families should consider women for the role of family governance leader, because they have the holistic view of the family and wealth and are committed to partnering with professionals who can help them accomplish their goals.

Alison Brozosky, director of Wilmington Family Office, a wholly-owned subsidiary of Wilmington Trust, finds that like the women in the research, the majority of her clients do not have formal family governance structures in place, but they often express the need for some sort of framework for legacy planning.  

"In my experience working with families, and matriarchs in particular, knowing what they want for their families is not the issue. What they need help with is articulating, formalising, and implementing a strategy that will help them ensure fuller and more focused lives for their children," she says.

To many, the process for putting a family governance structure in place can seem daunting, and family tension can be a further deterrent. But when you consider the estimated $41 trillion that will transfer from one generation to the next over the next few decades, coupled with the fact that women commonly outlive men by 10 years, there will be more heiresses than heirs in the US. Having a family governance plan will help ensure the proper transfer of wealth so that succeeding generations are knowledgeable about and empowered by their wealth.

The research, "The New Wealth Paradigm: How affluent women are taking control of their futures," interviewed 40 women, aged 40 to 65, each with a minimum net worth of $25 million and at least one child. It had among its goals to learn more about the relationships women of wealth have with their money.

One of the findings: No matter how their wealth was acquired by inheritance (47.5%), marriage (27.5%), or created on their own (25%), the sense of responsibility regarding their wealth and caring for it today and for future generations is vitally important. Because nearly all 40 women are college graduates, and 50% hold a master's degree, education is of foremost importance. All want their children to become well educated and financially literate.

To these women, having wealth gave them a sense of empowerment, allowed them the freedoms to achieve their personal goals, be independent and pursue philanthropic interests.

Unlike some images seen on TV or reflected in newspapers and magazines, this select group of women does not have a "me generation" mindset. Each feels a sense of responsibility regarding her wealth and wants to make sure her money is used effectively. Perhaps most importantly, they don't see money as an end in itself.

"One of the things they want for their children, particularly their daughters, is an understanding of financial literacy," says Mindy Rosenthal, co-author of the project and a managing director at Campden Media.

"They want their children to learn to live within their means and not to rely on an excess supply of money because money can disappear if not managed properly. These women also want their daughters and sons to understand the responsibilities of working with an advisor, which is distinctly different than simply handing one's money over to an advisor to
manage."

Family Governance: The Best Approach for the 21st Century

Curiously, of this group of 40, only half currently have family governance structures in place to help ensure their goals and wishes will be attained.

"One of the reasons that heirs of prominent families like the du Ponts, the Johnsons of Johnson&Johnson, and many others, have wealth today is because of sound wealth planning, often dating as far back as the 19th century," says S. Allen Snook, senior vice president and head of family wealth for Wilmington Trust and Wilmington Family Office. "These families created trusts that have produced income and provided structure around how heirs could gain access to the funds. But today things are very different and the notion of the trust fund baby is going away. The new paradigm is family governance structures such as the family office."

Unlike traditional trusts, in which the management of investments is often the primary focus, a family governance structure provides wealth management services and advice-directed family management opportunities that resemble corporate governance structures. Designed to provide clarity and help minimize emotionally based decisions, some of the things these structures allow for are boards and board
direction, cooperative decision-making opportunities,
financial education, and disclosure. "In other words," adds Snook, "a family office offers a coordination function."

Structures that fall under a family office heading include family limited partnerships, family corporations, and limited liability companies. Each presents myriad choices allowing a family's wealth management to be as individualized as it chooses.

While costs dictate that a single family office is best suited for those with $500 million and more, multi-family offices serve those with $25 million in assets both efficiently and cost-effectively.

Jack Garniewski, managing partner and regional director for Wilmington Family Office, states, "Governance can actually be a structure of how you approach various family dynamics. So you might have a board that has to do with your operating company and the decisions for that business. You might have a board that deals with family dynamic issues such as how we educate children to be in the family business. You may even have a philanthropy board. Some governance structures can be very elaborate and some can be simple. A lot of it has to do with how big the family is. If there are only six of you, that's very different than if there are 80 in the family."

With regard to wealth distribution, according to the research study, most of the women (63%) plan on leaving a significant amount of money to their children while the goal of others (30%) is to make sure their offspring have a comfortable financial safety net. Only one woman in the group a wealth creator who has amassed her fortune on her own does not plan on leaving an inheritance to her children.

Additionally, as blended families become more common (35% of those interviewed have been married more than once), the challenges of wealth direction, use, and distribution become more complex. A single family office or multifamily office structure can provide the perfect vehicle for addressing and discussing the complexities surrounding a blended family's wealth and how and to whom it is to be distributed.

How Much Money Do Women Really Have?

It's no secret that women control huge amounts of money either directly or indirectly. Looking only at the numbers, one of America's least well-known yet wealthiest women ever was Hetty Green of New Bedford, Massachusetts.

Of the 40 richest Americans in history compiled by American Heritage magazine in 1998, she was the only woman on the list.

Called "the Witch of Wall Street" for her shrewd
investment techniques and thrifty lifestyle, Green inherited $7.5 million at age 30 in 1864 from her father, who made his fortune in New England's whaling business. When she died in 1916, Green's wealth was estimated at more than $100
million. Today, that figure would be in the billions.

The affluence landscape today, however, is far different.In 2008, there were 99 female billionaires representing about 9% of the then 1,125 billionaires on the globe, according to Forbes.com.  Only 10 were self-made. Oprah Winfrey topped the list with a personal fortune estimated at $2.5 billion.

The Center on Wealth and Philanthropy at Boston College estimates that in March 2009 there were almost 119,000 US households with at lease $25 million in net worth. While we don't know how many of these households are headed by women, we do believe that women are more likely than not, at some point in their lives, to be the keepers of their family's wealth simply because they typically outlive men by at least 10 years. Add to that a huge forward transfer of wealth and more money will understandably be finding its way into the hands of increasing numbers of women.

"Even today there are more heiresses than heirs," says Snook. Although it has been estimated that $41 trillion will transfer from one generation to the next over the next few decades, there's more to this transfer than just moving it from Baby Boomers to their offspring.

"We're not just talking about a generational transition, we're talking about an intra-generational transition," says Fredda Herz Brown, PhD, co-author of the study and principal of Relative Solutions.

Brown points out that because women may be the
biggest creators of wealth in our culture now, women from the
ultra-wealthy to the middle class are the ones who will be left with money. "They are going to have to be able to deal with it in their own lives and their families' lives."

Taxes May Be Their Guiding Light

For women who have not yet discussed or put any form of family governance structure in place, the best reason for doing so might be summed up in a word: taxes.

Current tax laws can take a huge bite out of one's
inheritance, life-long wealth accumulation, or monies
garnered from the sale of their business.

A $50 million windfall, for instance, can quickly turn into a fraction of that amount once a 55% estate tax is levied along with a 36 % income tax and a state tax of, say, 8%. "Many people might not realize it but we are very heavily taxed in this country, and taxes are likely to only go up from here," says Garniewski, "So poor planning and poor decision-making can diminish wealth significantly."

Looked at another way, if the transfer of wealth is important to one's family, governance structures may provide the framework through which sound investment management and wealth planning thrive, to the benefit of all family members – regardless of their generation or their gender.

What Women Want

Not surprisingly, according to the survey results, women view financial matters differently than men. Their approach to wealth, what it means, what it can do, and how it is to be used more often than not is dictated from within. Their
ability to look beyond the present and to see a broader, fuller picture is a part of their nature. The Greek word "holism"-meaning entire, all, total - defines the type of person whom women of wealth seek as financial advisors.

The challenge for advisors is to consider and plan for all of the ways money pertains to and affects their female clients' lives, rather than just being focused on the management of the portfolio.

"A holistic approach means that the advisor is actually working with someone to help her identify her needs beyond the returns," says Rosenthal.  "That advisor also understands that there needs to be a bridge between the different family members and knows how to handle communication without alienating anyone."

Herz Brown sees the role of a holistic advisor as someone who thinks about wealthy female clients as more than just women with money. "These women are significant individuals," she says.  "If they don't know something, they want to learn about it. Their lives are complex and they want to work with someone who understands that and all that it involves."

Family governance structures aren't stagnant proposals that, once developed, are shelved and forgotten until some later date. They are like living organisms designed to change as the family, and its needs and desires, changes. They are, one might say, a lot like women - ever evolving.

The most effective advisors of women of wealth are those who recognize these intricacies. The ones selected for the challenges will be those with the ability to work with them and walk beside them. Not in front or behind.

Click here >>
Close