Fear of conflict leads wealthy to pen agreements

The number of wealthy families that have opted for so-called written constitutions to resolve potential conflicts has surged since the onset of the financial crisis, according to a new survey.

Stonehage Group, a multi family office based in London, said that more than 20% of its ultra-high net worth clients, many of them family businesses, now have written constitutions, compared with just a few percent before the financial crisis.

Stonehage said that constitutions have become increasingly important for wealthy families during the last few years as they attempt to prevent or at least mitigate disagreements on asset allocations, or the direction of the family business.

Conflict often arises, said Stonehage, when the family business looks to fund itself from other family investments, which were expressly set aside to diversify the risks and to provide for family members not involved in the business.

Other family members may well have different priorities, and take a different view on how much capital should be allocated to support the business, especially when economic conditions are very uncertain, said Stonehage. They may also take a different view of the relative risks and returns between the business and the investment portfolio.

“A rapidly growing number of UHNW families now have written documents of this kind, whereas before the financial crisis decision-making would often have been largely ad hoc,” said Andrew Nolan, head of Stonehage’s family office business.

“As decisions about how family assets are used become much more contested, these documents are proving invaluable,” he added.