Bespoke Discipline: Navigating Distribution Policy, Governance, and Family Dynamics in Family Offices

Welcome to the Mac Podcast. I'm your host, Brian Adams. Join us every Tuesday as we dive into compelling conversations with world-class family office leaders and explore topics crucial to your success. To learn more about our show or to get connected with our firm, Mac International, head to www.MacInternational.com. Hello and welcome back to the Mac Podcast, another exciting panel episode. This one on all things, distribution, policy amongst family office professionals. I have some great folks with me. We'll go around the room and do quick introductions and then we'll get right into the conversation. So if you could start with Jennifer and then James, John, all Jay people today. Jennifer, start us off. Thanks, Brian. Thank you for having us all here. So my name is Jennifer Stromb. I am a senior consultant at Family Business Consulting Group. And what that means is that I work with family enterprises and family offices and where I focus is on family dynamics and the context of making decisions in family office. My background is as an MBA, I have my MBA from Kellogg. I'm also a trained systems therapist and sit on an adjunct lecturer at the Family Enterprise Center at Kellogg. So I spend a lot of time working with families in multi-generational transitions, talking about how to protect both the assets and the family relationships. My name is James Rose Bush and I had a great opportunity at beginning my life in family offices, actually at age 18, 19. And this was the family office and foundation of the father of General Motors in Michigan, which is where I was from Michigan, the at one time the automobile capital of the world. And the, the mott family money, of course, came because Mr. Mott was the chairman of General Motors founder, General Motors and chairman for 65 years. And they were basically in the second trot of the creation of family offices, which they started in 1949. This gave me not not only a tremendous opportunity, but really solidified my interest for the rest of my career in primarily working and advising for for family offices. So and then that extended years later in my joining the Reagan White House. And my role there was not unlike heading up a family office. Of course, these were public issues that I was dealing with as well, but I was also a chief of staff in the White House. So there was a lot of similar kinds of parallel kinds of things in family office business. So when I left the White House when I finished my work there, I decided to start this company called growth strategy because I believe I had a little sign here that says strategy is a way of thinking and growth is a way of building. I wanted to apply this to as many family offices as I could help. So I am the I think you'd say most productively, the outsource senior for families and I get involved in every single aspect of what families are doing or not doing correctly and on their advocate. And this is a thing that I want most is it's helping the complex lives of sometimes the ultra wealthy. I had opportunities to work with the study world families, the sweetest world families. And as I say in the rest of the world, it just plain wealthy. So it's been wonderful time for me and I'm really grateful to have had this opportunity and continue to. Thanks James John. Just remind me never to follow James ever again because that's such an impressive biography. Money genre so I've been in the families office sector for a little over a decade and I've had the pleasure during that time to be the CEO of two single family offices, the last one being one of the wealthiest families in the UK. So I come with a slightly British perspective though I think had listically we all probably have the same comparable solutions running a family office of this magnitude where there's billions assets under management requires my role being a CEO essentially governance oversight administration reporting or as I say at parties my role is really I'm a fixer and I'm a janitor and I'm responsible for for governing the families gender. And essentially ensuring that they're not creating any legal or financial jeopardy and protecting them from legal and financial jeopardy that they may fall into from time to time and obviously dealing with trust and special purpose vehicles of this sort of magnitude. It was very obvious that perhaps I could lend a voice and I appreciate you Brian embodying me to the podcast today with with Jennifer and James yeah absolutely so let's start with Jennifer I want to understand the philosophical underpinnings lots of times when I speak with family office folks who are beneficiaries next chance especially distribution pause can come across to them in reality as a barrier to access to this capital. How should families think about distribution policy bearing a fair system and if you were listening and your family office professional thinking about instituting or navigating this for the first time what are the big fundamental questions to ask as you're putting this together. So a big topic so distribution policy I believe is probably one of the more complex topics that family offices and executives of family offices navigate so when I'm thinking about this topic I'll group it into how I would how I consider that conversation with the family and then how I'd come in how I would consider that conversation with the people who are running the family office so the first piece when considering how to navigate with this with the family I always say in any work that we're doing in a family in a family enterprise or family office the most important thing is to think about how this discussion is going to allow family members to remain sitting at the things giving table together so inherently people know that this is a lightning rod of a topic and when you have a lightning rod of a topic generally what that means is that everybody's going to want their own perspectives to be heard. And when you hear anything about any policy specifically a distribution policy inherently family offices families and family offices are considered what I call and meshed meaning we're interconnected and when one thing happens in the family it affects kind of emotions and reactions of everybody else in the family family offices are particularly in mesh because you're intertwined with assets and lots of family decisions. So as a family I always say that rather than going straight to distribution policy hopefully families are having conversations about family values how have decisions been made about assets in the past. What are the reasons for sharing keeping assets pulled is there a way that these assets have been structured that allow people to continue to thrive individually while still recognizing what the legacy and the family values are so I hope to have families understand that by having these conversations about policy they're going through a process and they'll gain buy in and it's not just about control. So that shifts to the conversation to family office executives that when distribution policies are created and they're always created with goodwill because what you're trying to do is create expectations and transparency around access to capital for family members. When policies are created from what I consider the top down and someone's coming in and saying here's what the distribution policy is going to be and why you as a rising generation family member all you here is control and you have you could have a lack of understanding you have family members that are either further removed from this understanding of how the intricacies of the office work or people who are closer to it. But to me the process is more important than the policy so I work hand in hand and we as a family work hand hand with the family office executives to help educate the next generation on why policies are actually protective families in nature and also to help the rising generation understand the decision making behind the policies and what that does is it allows the families to protect the family values the relationships and the assets. So when we have buy-in of the family members then often they can better receive the policies rather than see it is just the notion of control. So John let's pivot to you and then I want to hear thoughts from James but that's the philosophical approach. Talk to me and maybe experience share on the realities of how this plays out in the boardroom and in around the kitchen table with both the family office executives like Jennifer said but then also the family members and the beneficiaries. Yeah absolutely I mean one of the things that I like that Jennifer said and to paraphrase is this is about being cooperative and collaborative you know the the beneficiaries of any form of trust or distribution policy must be part of the discussion making the decision making and a process and the discussion and reality what I think is critical is education you know when you've got a vast amount of wealth whether it's perpetually generative or just. An amount that's rising in capital and and with UBS or PICTA or whatever or our investment funds it's about educating what do you see the future looking like and how dangerous it is to simply just hash it all in like it's Vegas and we're just going to take all the chips off the table. There has to be a methodology a methodology to distributions and I feel my experience has been basing that round the future generations especially the next generation the next issue what sort of lifestyle do you want the kids to live and how do we support them especially when we're dealing with wealth. That is like winning the lottery you know you don't have to do anything and that can be a very very dangerous amount of money when you don't have to do anything how do you drive a sense of purpose. So right now one of the conversations that I've been having recently has been about we have a vast amount of capital how how many generations do you want that to last fall. And having a meaningful conversation rather than looking at the family office like it's a slush front like it's a drawdown facility you know it's and I like to describe it as a it's a trust for your surname but it's run with tomorrow's generations in mind. And those conversations are about you know sometimes awkward about having budget and not being used as a money tree and actually having some sort of purpose driven and some of the best trustees I've worked with are all about what what is your purpose what is your goal especially when you've got money that you know there's no level of employment that could rival that level of income. So no one's going to get a job that's going to be comparable to that unless you're going to be the next sort of Tom Cruise license feigning so how do we create a sense of purpose not not to label it as a reward for distribution but to give a sense of discipline and work ethic. And that combined with the educational quite a potion to wishes to say look you know we'd like this to last for your great great grand children and then mathematically working it out. And that's separate before you begin to invest in policy so in practicality can be very difficult conversation when especially for children who are coming into a single family office who have most likely led a very I don't want to say spoiled. But you know an unbothered existence where things are being presented on demand and they've lived in households with chefs and butlers and maids and and private jets to now put a budgetary amount on that can be challenging especially when the cost of living changes and the economic reality changes for everyone. So practically it's about mapping that out and and thankfully my experience has been with the families I work with very attuned to adopting and as these women went into adulthood and to motherhood and I'm talking about specific beneficiaries that I work with maintaining a real important discipline because they do see the the the money being relevant for future generations. But it's difficult because you know you're shifting into an environment where you've not had to be accountable to being accountable and developing a distribution policy which is not change your challenge to be five minutes it's sort of set in stone for at least five years and then it's put into reserve so we have to make it work. So James let's hear your thoughts here both your experience being internal but now being an external resource and a trusted advisor for these other families thoughts around distribution policy. So first of all let me thank you Brian for bringing to my two partners here in this podcast being realistic and sharing a view that is absolutely practical and essential to wealthy families that you're willing to clean fly call it cleaning for horse and picking up after people because there's you know someone of a false grandeur about being a CEO of a family office especially when the. The not your search for a private search for a primarily go after people who have been heading up on the investment side only because it does not work and so i'm going to tell you three stories i wish i had the voice of my British friend john Russo there it's much more elegant but there are four different i would say themes that i use that number one is education number two is the information and data. Number three is assessment of needs and number four is strategy so all of those things when you're talking about distribution have to be present now those those sound very you're reasonable and pleasant but as it gets applied to you i'm going to tell you three story so i had a family that the original wealth was the largest i'm not going to say what they were making as you would probably be able to figure it out but they were the largest company in the world. Producing this product so by the time we got to gen five i had to handle five heirs and one of them died i had to do everything like god because they they wouldn't there was absolutely no communication among these people and it is in fact it was worse than that they were like enemies so how was i going to deal with these first of all one guy. Well one guy died at his desk i had to arrange for had to go to hospital i had to identify him i had to so that was so think about it in terms of distribution he had assets that he was already using then while i was there another one of the siblings died and we're not talking about elderly people at this point but and then i was giving a speech in permute or one day and i got on my phone i had my phone muted but i could see one of the major houses that i was going to do. Other houses that i was supposed to be foreclosing on what one of their assets was burning down and these family members are saying you have to get here you have to get here right now and the only reason i was mentioning permute is to say that i couldn't get there right now but the expectations among people like this are extremely high that you can fix the distribution issue. The other the other son was a drug addict living in Brazil now here's the complexity of distribution okay it starts with the fact the complexity of the fact they're they're all fighting each other for distribution of the guy in Brazil is a drug addict and i have to find out how i can get him his assets well guess what you can't deliver asset from the US to Brazil they take 85% of anything assets. If anything assets that you send out there to someone is not a Brazilian so the complexities in this situation were extremely difficult in order to eventually get a distribution that had to be made up by the way of real assets. So this is this is the only place that they were it was an excruciatingly difficult and the only reason that it was very tough for me because of the way i was treated but you know that's just. The way it goes i'm sure john has gone through there as well okay so another example so this was a daughter of one of the largest banks in the US and one of the largest land owners in order to get her assets what we had to do because she had a fight with the her whatever brothers and she wanted to get her assets out of the family office the only way we could do that was to have a licensed trust company. Take her assets so eventually we bought i found a trust company in New Hampshire i bought it we got her assets moved well that was fine but when she got to and i had her on and off for a number of years finally she was spending so much money in terms of distribution. That I had to sit down with her and tell her that if she she gets to 90 years old and she's going to have to be begging on the street quarter i don't think she's going to like it so this is there's just this kind of complexity that is it can't really be handled necessarily as you would in investment strategy or investment management. The last one story that i tell you is all very very brief but it was a family in the west on the west of the US and they had an extremely domineering father extremely domineering and so i had to work with him to migrate. No softly and yet powerfully enough to get a distribution plan going because he didn't want to get up give any of his assets to his three children and it wasn't until this this is an important and this doesn't have not paying myself on the back at all but he needed to i think this is an important point he needed to have someone that we could trust. Who is older than his children to manage the distribution and he was otherwise he was not going to give up and there was going to be no distribution plan so those are just three rough examples of stories that you just that i've confronted and had to deal with complicated. Jen from want to revisit one of the comments you made talk to me about this balance and again i know every situation can be different but best practices around ensuring that you've got this both sides of this wealth preservation the family value concept but then also that you're pushing back or not creating a sense of control from the grave around spending an access to capital. And really i guess the heart of it is. Taking about incentivizing the behavior that you want to achieve moving forward in all the family members. Yes so there are a few things that i've heard already that i'll build on so one that john had said and again i agree with james that i can't say it with the same accent so won't sound quite as elegant eloquent but i'm something that john had mentioned was a brown education. And when you talk about balancing this setting expectations and level of control with family values the number one way to do that is through education so. So by people understanding one what their owners are beneficial owners of two where are they coming from so john also mentioned the purpose where they come from where they going so what's the North star what are we trying to protect. And then third educating on how to be financially responsible adults so how do we have conversations in a way that also protect the assets education becomes really the key to all of this working and being able to balance that so that's. A piece of this the other thing that i heard is alignment you know really to understand for anybody to understand both from the family office executive side and the family what the purpose of these policies are or any policies and aligning on the direction that we're moving. Helps to have people understand why controls can exist you know realistically it can be hard to have these conversations around assets and money and there's always the consideration as family we want things to be equal. But in essence we're doing with policies is trying to create processes for things to be fair and those are different very paradoxical things to struggle with trust and control and fairness inequality so really education around these topics and the capacity to have these conversations in a way that people get more comfortable with what they understand and more comfortable with voicing what they don't understand. To me that education and alignment are at core of seeing policies that are more or less successful policies exist that doesn't mean that policies don't exist and family relationships don't blow up regardless of the policies and the opposite lots of policies can exist and family relationships don't blow up to the policies so to me where I see the difference is that education and transparency and the ability to have these communications around it. Let's go to you before finishing with John examples where this has been done well in your opinion where there's been thoughtful conversation and a policy reflects and is able to enact the behavior that the family wants to incentivize. For example, because if you saw in the roster journal the basically the global cloud of billionaires there was only one Rockefeller billionaire and so my wife was asking me by tonight she said why do you think that there's only one Rockefeller billionaire left and having having had the extraordinary blessing of having had David Rockefeller is one of my tutors and incredible support for my career I knew how the Rockefeller family manages it and this is something that is a structure that has been was created. I know why more families don't follow this but I think they're you know they are basically many many many there they're what we call checks are going out to a huge number of people so their assets are the assets of the family office not the assets of the individual. Brilliant I think because and this was true to go back when as I said started with a lot family office and I remember when Mr. Mod died and I went to passed away and I went to his funeral and there was a little joke with the person who was officiating said now trust fund trust fund people can sit on the right and people who've had this kind of disposition sit here and it was just sort of a funny thing but they were all they were classification. They were classifications of what assets these people got and it was it was all set up before but the reason Rockefeller to your point and I think it's a great really interesting subject Brian that you put together but I I love the fact that the three of us that are your guests really are drive toward what the reality is in terms of distribution rather than these these are the rules of distribution because you can't really have them as they always say when you've seen one family you've seen one one wealthy family you've seen one family they're not there no two that exactly like so just to to summarize I would say Rockefeller is the best example I'm sure they're not the only ones but you Rockefeller family office members do not hold themselves wealthy as a matter of fact I've been with several of them would say I don't have the money to buy that car something but it's because they adopted these rules for what the family office will pay for and I think it's been an enormous success and I I wish that now obviously there's a big family but I wish that more families would follow that model so that they don't get into a lot of or that they the other model I like is creating a bank and I think I think the bank model the family bank model is really good as well for district distributing assets to people to to encourage gen two three and four to start their own companies so they give them a certain amount of assets but I think it's the smart wealth creators that follow these patterns that are going to benefit most the succeeding generations I would certainly agree with that I mean I think that the it's it's fast and it's and it's also quite refreshing to know that Jennifer and James come with a very similar lens and I do because often you'll look at these things and you know we while we do network with each other we were not completely aware of how other people logically approach this but there's a reality I like what James was saying there's a reality to distribution that is that is really human and biological versus a paper exercise of how do we distribute money well I find myself I try to avoid language that I'm playing the role of the big brother or the dad or you know whatever is appropriate no I I'm the suede for wealth that is in this family office so our distribution policy has to be based on education and turns your question from before Brian what I've seen it done badly is when the educational a question of that is done too late when they're full blown adulthood and we're trying to have difficult conversations I think it needs to begin when when they're young children and you know in my mind and this is an exact science when they're just about to hit the cusp of being a teenager what methods can the family office put in to present itself not as a dictator not as dad giving an allowance not as do as you're told if you want money but rather this family office is here to protect you from creating any legal jeopardy from any financial jeopardy to protect you from the next spouse that comes along to protect you from our universe of people who will be looking to exploit your wealth it's also then when you've got such a level of wealth the correct way of doing it is incentivizing behavior I like what James said about a bank of family I couldn't agree with this more it's one of these I've had this conversation this year about when when children are being raised in an environment where they don't have to do anything they're driven by by what they love and what they desire to do why do we reward that because each one of us have been motivated by we've got to put food on the table and have a refover our heads what's the next level of motivation so we're having very granular conversations with parents and with children about where he to support you but you must be purpose driven and that purpose can be anything do you want to go be a doctor fantastic be the best doctor can be do you want to be a dancer a ballet do you want to do charity work find the thing that you want to do and the family office will look to support that by using you know to quote James the bank of family so assets can be brought together but having that the way it's done well is to have that conversation early both with parents and with children to start sitting up processes where they can see that okay I'm not just going to be given money whenever I want to there's a methodology to this to ensure one I'm protected but not an punitive way where I have to go ahead and hand asking for my family's money but also to protect from the big bad universe that's out there I'm sure each one of us have got some extraordinary stories where the wealthy have almost been taken advantage of or have been taken advantage of and that's a primary reason why distribution policy exists not just to maintain capital preserve it and expand upon it but to protect it when it gets distributed so the best practice for me in my opinion is to have that discussion as early as possible and I really do mean like one of the things we're talking about now is bringing a you know a very young girl into the conversation and talking about how we're going to have a mini distribution police for her she gets a sense of budgeting she gets the sense of of an allowance gets the sense of accountability and so she can stumble and fall a little bit because this is where it gets awkward right we're talking about policy for someone who's under 18 so we've got to get the parents involved as well but this is really the training wheels for when they turn 18 they hit the big bad world and you know listen the last thing I'd like to be is 18 with a lot of money because I'd be at a total idiot so you know the reality is all of us bring a degree of life experience where we go no no you don't want to do that but how do we deliver this in a way that we're saying to protect the wealth and protect future jeopardy so the best way to do it is is the early education and it's just a frank and open discussion the policy should exist to protect us in a way that we're not coming across as you know dad or mum or you know giving out an allowance so we're getting the governance surely but I want to revisit what Jennifer said which is on this concept of equality versus equitable right in this overarching idea of fairness how do you manage through that because they are very different things and it can be very divisive I know within my own family there's a lot of challenges there how people see these concepts of quality he or she gets this I want the same versus what is equitable given the facts on the ground So this topic of equality versus equitable equality versus fairness is one of the most challenging to navigate in any family system because going to one of the things that James said is that you see one family you've seen one family so what you and I consider fair maybe totally different than what two other people consider fair so it goes back and I'm going to start sounding like a broken record to the family's capacity the family's capacity to have discussions about how decisions will be made I believe truly in fair process which is everybody's perspectives are heard and you understand and try to understand each other's perspectives rather than finding yourselves in opposite corners and if you have that sense of purpose like John was mentioning before it becomes easier to be able to hear each other's perspectives you know building on what John had said before about engaging family members at a younger age in understanding how to be responsible and he also used the word of stewardship about actually in his role being steward of assets for family members to understand how to steward their own assets families have to have the capacity to have these conversations so when a leading generation is so concerned about their kids becoming entitled or their adult kids becoming entitled that nobody is having these conversations partly because parents are often worried that if you have these conversations you may get into conversations where things aren't equal for example if people have different levels of ownership or beneficial ownership in a trust and you start talking about a distribution policy there may be differing levels of distribution depending on how ownership is reflected, how roles are reflected so what can happen is that families don't have conversations because they're so worried about either creating a title end or that you may have a conversation come up in which there are things that would happen as related to assets that are equal that you don't have the conversation if you flip that now to the rising generation you can create an environment in which the rising generation says these are when they're early when they're young, younger, what they often will say well it's not my money but the reality is that will be their money someday so you have a leading generation who's not having conversations for whatever reason it's uncomfortable to not have conversations, I mean it's uncomfortable to have conversations perhaps it's because they don't want to create a title of kids or adults which is all coming from a great place or they're worried about this equal versus equitable but again we don't want a generation of people in the same way that John said he stewards the wealth of these families we want people to store their own wealth so we want to be able to have these conversations and really explore in depth what does it mean to have things be equal versus equitable and again it comes to that the more you talk about that and the more people understand that the more you can create policies like distribution policies and protect the relationships as well as the assets so that topic in and of itself though equity versus equitable I think is this the most difficult topic that we navigate when working through these kinds of issues so let's do John and then James experience share around this concept idea how do you navigate it John you referenced you're having these conversations very early with a family member your her circumstance is going to be very much different than somebody who's in their 80s how do you navigate that yeah I mean I want to give the example of a younger beneficiary versus an older beneficiary but I'll give you a great example in terms of because I love the way Jennifer is phrasing it you know equality is is sameness but equity is fairness and so if you've got two beneficiaries who are comparable in age you know a couple of years apart and then they have their children their next generation but one has decided to fortunately have multiple children so they've got four or five kids and the other beneficiaries only got one or two straight away you know are the already parents are thinking well this is an entirely you know equitable because I'm potentially my children will get less because I had less than my brother or sister have had more children and so and it's and it's a it's an interesting logical point but I think it's a logical fallacy right the single family office the model family office shouldn't be from a distribution policy shouldn't be rewarding just because people are procreating more but it's something we've got to take into account because the next the next line the next generation the next issue if you will you know they have to benefit so you can't necessarily have equality and that's even before you get into the distribution policy because obviously when the children are young the parents are getting money and and we should be considering what what is you know a requirement you know from a from a security perspective because you know K&R is a is a is a real threat is a real risk you know you you can't have this level of wealth without having proper security family I've worked for were victims of one of the largest most significant burglaries in in London in European history you know a pretty gross home invasion that thankfully they weren't home for securities are real concern and when you've got more children you know it just becomes a compounding concern so you you have to approach it with an equitable response because there's a minimum amount of distribution has to be maintained yet a quality we start to escape it a little bit but we can have a quality of policy in terms of each one of those children should be approached to say okay we're going to educate you on your distribution policy and what you're entitled to another great thing as well as when you do find beneficiaries with a sense of purpose going back to what James said earlier about creating businesses you know if if one of those is successful does that change the distribution policy necessarily it's an interesting conversation but I think you know we are going for and I hope I've understood Jennifer correctly on this one we are going for equity we're going for fairness what is appropriate it's not like okay you get your x percent of the pie and that's it we're not having a conversation anymore because remember that holistically we're talking about a family wealth that needs to be protected not just in the now but for the future generations James thoughts experience around in this topic how have you seen this done well poorly so one of the interesting examples would be Buffett or Buffett right so this is just fascinating to me so having met a couple of his children and grandchildren who I enjoy very much but the is interesting to hear them talk about their situation which is I think I'm just going to say this broadly but nothing specific about them that I think their expectations are lower to begin with and that has I would say courage them it's stimulated they're interesting creating their own businesses and I think that's I think that's really great I had one on one night and people find decided to believe I had calls from a mother in Dallas around dinner time she was sobbing she said my I was told to call you my son my 14-year-old son who's just arrested for selling possession and selling and two hours later I had this exact sentence is totally bizarre but totally true this woman from Houston and she was telling me the same story and I thought you know what's going on here but we're also a lake we had to get into was their relationship with their children so these were both one of these was just a one is you know one husband and wife and I get I think they had a couple of children and the other one there were multiple marriages which made it more complicated but you can't so so here you got two young boys that are you know they're going to be prosecutor you know as juveniles for what they were doing which could completely eliminate their ability to work as professionals when they become adults so we had to figure out a way to address this and by doing it the most interesting thing was digging into why you know and whenever you have a drug crime like this you're obviously asking the question why did they do it? well you know it could it could be just being a stupid decision but in both of these cases I found that they were not having relationships with in this case each of them were not having relationships with their dads so we created a way for them to begin to have a relationship a better relationship with their parents a more useful relationship with their parents so that they could feel that they were not owed anything in terms of distribution from their parents' estate but that they were complimented or supported by their parents to being individuals and to be able to I think one of the most interesting things is when you find and you encourage generations that can create their own well rather than waiting for a distribution from their parents' estate so John and then Jennifer talked to me about governance and decision making authority here what best practices mistakes maybe that you've seen made or experienced yourselves when trying to put together these structures or committees or bodies that can help determine the actual distributions themselves? assuming there's a couple of assumptions you want to make here because I'm not sure if you're if you're dealing with a discretionary trust which obviously in the UK and I think broadly most countries but you know from my British perspective that has very strict rules you know a discretionary trust means that the beneficiaries can opine but can't dictate and that's typically done because whoever established the trust or the said law would have prepared ideally you know a decent roadmap for the trustees and the family office to know which to operate sometimes it's just one line you know at that this is for future generations and so immediately you have to be cooperative and collaborative but I think you have to you know you have to have a sort of a north star you want to preserve and grow the capital and how do we do that? well you do that by obviously having a degree of C-suite advisors who can better articulate the the beneficiaries once and desires and typically we are more educated and articulate not not that people are silly or foolish by any means but you know we've not lived in a in a lavish environment so we're there to be the sort of you know billionaire whisperer if you will to understand precisely what what would they like to achieve out of life and and what are what are their future goals while also steering I think realistically to make sure that you know any indulgence is quickly you know nipped in the bud you know in terms of well I want to buy a private jet tomorrow well you know we've got to be a little bit more constructive I think governance my experience of governance is working with trustees who are independent to the process who can help guide in terms of you know especially from from tax matters and wealth protection we've worked with protectorates or guardians and these are people who are appointed and sit in a role essentially to monitor the ethics of all of how the family office and the trust is distributing these things are helpful especially if you point the right people and they're from professions that are regulated which means we don't have to worry about anyone being dishonest or corruptible in any fashion I think that that simple architecture is very helpful in governing how the family office approach it's capital preservation it's income generation and it's distribution policy and beyond that it goes back to what we've been saying along having a mapped out family office constitution for governing conversations for governing conflict and ultimately because not everything can come down to a vote sometimes sometimes someone just has to be told no and we can be steered by you know a quality but you know we're really motivated by fairness not just for the current generation but for future generations so a couple things so when I think about governance how I define it in my own mind and when I'm working with families is governance to me is who's making decisions and is it clear about who's making decisions so when we're having these conversations there are various components to it so one like John was just talking to is you know how is the trust structured and who are the people in place as the trust are defined as decision makers but there are also other levels of decision making there's the family office executives who are decision makers there's the family or family council who are decision makers and sometimes that differs if there are actual owners or beneficial owners and what are their voices and where do they have where what decisions are they making so in talk or starting to talk about governance we're always get very clear on roles which goes back to education is who are the decision makers in this particular family office system and then who has the decision making authority and who has input into those decisions so as part of that education it's who are those people and do we differentiate them and board is another level in some systems in which there's some voice or authority and who has input and who has decision making so we clarify who the decision makers are and then it goes to the what comes from there and what structure and guardrails distribution policy is one level of structure and guardrails you know perks and benefits policies like we talked about private jets or shared property or shared properties and those things all can be a part of a family constitution so if we're looking at actual the decision makers the family decision makers and clarifying what are the guardrails that exist in that area we can set expectations around not only who's making decisions but get the buy and that I talked about in the beginning from the understanding and the buy and where things aren't imposed from the top down that we're basing it on the family values the purpose of the assets and clarifying to everybody what their roles are so governance becomes a complex conversation I don't recall the exact question but it was how have you seen it work is it order in my mind for it to work you need to first clarify who are the people making the decisions and then what are the guardrails and the guidelines around those decisions and that all over lies the same thing that I've been talking about which is the process and the education of understanding how and why those things exist governance becomes extremely important because if those things are not clear that's where the disconnect comes in the family and that incapacity to sit together at the things giving table that I discussed so to me governance is what keeps everybody together but the process that leads to governance is what keeps everybody together even more importantly if that makes sense James I know you've got a heart out so I'll let you comment here on what you've seen in terms of governance making authority representation versus reality in the family office market I think I don't think that there is much reality in creating a hard perhaps but more easily managed strategy I think that you know families the whole question and the whole term families if you can probably the most effective way to deal with this issue is really to have an adjudicator that is someone who can really bring the family together in a way that is independent and I think that speaks to Jennifer and John for example I think being where I've learned from you today and admire is your ability to call multi-generational families together and talk about different options and different strategies that can be deployed for distribution and then but I don't really like the word distribution either I mean obviously assets have to be managed and there are generational trusts and all this sort of thing but you know there's a big distinction between investment type vehicles and asset management type vehicles and the actual personality the you know when you're really talking to a family you're really talking about the qualities of love and affection and support and respect and development and growth and these are not necessarily terms that are used in finance so it's tough and I think that there have to be enough realities I'll tell you just because people love stories I'll tell you I had a person and a client and me I was working on financial issues for him but he called me I don't know why these people I hope this hasn't happened to John Jennifer but a lot of these people call me at night I don't know what maybe it's when they have the problems but so this guy calls me at night and he was like oh oh I have to tell you I said what he said oh my daughter got married and she came home with a husband and I'm like well yes congratulations and she said no no it turns out that she married an escaped felon from a Scottish prison and it's your job to get her divorced and to get her husband in jail and that will and that will affect her distribution whether you know she goes with it and I mean that's like an impossible situation but I for some reason I guess living in Washington helps a little bit because I was able to call the wherever the ambassador who have the ambassador was and I'm like can you help me get this guy is a criminal he's married an American and you know they're in the US blah blah blah anyway long story short it it worked the ambassador got the guy back into prison and for some reason and I don't remember because it was a while ago how we got actually got her divorced but then you go back to the issue that we've really been talking about and he's obviously looking at his daughter in a different way in terms of distribution because she expressed I would say a lot of your responsibility but I would say your responsibility goes with wealthy families so it's I think I think Brian you've chosen a really a superb excellent topic to discuss and you brought together some really knowledgeable and thoughtful people here it's very impressive to me and I appreciate getting to know all of you but I think in the end this whole issue of what is a family and what are financial distributions and how they're done is an incredibly complex issue so I'm not sure that I am in lying to you in particular on that subject but I told you another story Jennifer go back to you what about a situation where there's a difference between the written policy the mission statement people do the work on paper but there's a disconnect in the actual practice and reality where I've seen disconnects it often happens I'm trying to think of snares in which it happens for different reasons so if we take the idea of and I guess it's related to distribution policy what we're talking about the family bank sometimes in a family constitution or we make family agreements there are policies that are created such as businesses are going to be that are going to be funded are going to have to go in front of an investment committee who was made up of A B or C and you have to meet this criteria and you have to write a business plan and the family office executives will help support you where this notion of capital that's deployed to rising generation endeavors is one that's becoming more and more prevalent part of it is because many of these family offices have been in existence through the generations and the rising generation rightfully has the ideas of their own and this is one way that capital can be deployed and practice what sometimes happens and I've seen happen in multiple families is where you come up with this policy or these ideas around how people will utilize assets as a family bank so in one family that I was working with we came up with a pretty specific process and policy about if you were a next generation family member or a family member who came up with an idea you would go forth in front of an investment committee very much like a formal investment committee that would consider investments in a family office and if you weren't prepared they would help mentor you and you would either get through the system and then it would be shared but in actuality what happened is that the parents decided that they wanted the person's business to be funded so they went through the process they were the agreement by the family office that it probably wasn't the best idea or use of capital the parents cobalted the sibling invested in this business built a business and it went bust so your question around where have you seen it happen that's an example of where it happened the implications of that were multi-tiered so now we had a policy that was agreed upon but we spent lots of time on we had people questioning why policies existed all over the place and we had resentments of other family members that this capital had been used for something that didn't work so you know that is an example and these things happen all the time with you know lots of different policies so that's where in the beginning I said you can't mandate a policy if somebody comes in and says here's the policy and here's what it's going to be and you don't have family members understanding why it exists more often than not you'll hear the story of people not abiding by it but you can't enforce a policy I think before one of the things that James said too is sometimes when it's happening as people say if you don't do actually won't receive a distribution that doesn't work either I mean it depends what your ultimate goals are if your ultimate goals are keeping the family together then using a distribution holding over the head to buy by policy so it goes back to being able to have these conversations but to your question about and where have you seen it happen if frequently happens with that example where cash is being deployed to fund someone's business there are policies and their structure put in place but as parents we want to be able to support the rising generation and their business endeavors and so what often happens is that policy goes out the window and then when they see the implications sometimes we can reel it back in but ideally we're creating policies that people understand and they don't go out the window but we can't always enforce that and make that happen so I'd be interested to hear John's experience where he's seen policies go out the window. I agree with everything you said it's interesting because my language around this is when you're dealing with we keep us using the way the phrase children the word children but we're talking about adults right they're not like five year olds and we're talking about adults who are enjoying this level of success and wealth that the family office brings and my phrasing for it is vanity based decisions you know things that are like I'd love to do this and there's really no diligence or thought process and the family office is being treated like a lottery ticket like well we've got the money and you know you want to set up the world's first specialist retail chain that specializes in black and white TVs what a great idea here's some money where in practice we know that's an idiotic idea and typically you'll find that in the early stages of a family office there is maybe a little bit more generosity maybe there is a little bit more fluidity and ease to get money and I think that those vanity based decisions would do lead to resentment when a process starts to be ended into and you have to change your policy because very quickly you realize whether it's because capital is eroding faster than you expected or just in general you recognize we don't want to be the bank of mum and dad or an extension of that we need to have a driven purpose and it's interesting when you talk about investment committees because that's one of the conversations that we've had in the last year about establishing some sort of process and I agree with you you don't want to say to anyone you have to sing for your supper do X to get the money you don't want to have that conversation because that's too much of being a parent rather than a professional advisor but I do think that there are perhaps goals and certain behavior that we're aiming for to ensure that money can be distributed in faithfully and protectively so one of the conversations we've had in last year was how do we support the current generation when they do have an idea when they do have a project they want to do whether it's charity based so it doesn't have to be income generating might be charity based it might be something that is just a bit of a passion project but what we do want to make sure is that this thing can carry its own self across because if we're now perpetually funding something now it becomes a sort of awkward, bastard, de facto, beneficiary, SPV that is just going to get money now to fuel for vanity's sake and so I do think that change does get awkward because there's a practical reality having that conversation and that's before you get into I love the example James gave about you have people outside the family of a circle coming in and being damaging and I won't share my war stories but you do get people coming in who are potentially obstructive and seeking to add themselves in a beneficiary when they're excluded and that can be damaging so the policy has to be malleable and it will lead to resentment especially if you've got a beneficiary who's asking for some form of additional distribution special distribution you're not saying no but you're presenting any form of hesitancy it can lead to resentment when they say hang on a few years ago you did X that was much more generous than what's happening now and that goes back to the equality versus equity discussion we're having which is why it's a critical open communication and every family officer think inevitably we'll experience this where you'll make some decisions just like we all do in life that we go you know what I would have done that differently and that is the early teething problems that you have when you're developing a distribution policy for the next generation Any final thoughts here for folks listening if you were trying to give them kind of a takeaway idea or concept here when it comes to distribution policies within the family office space maybe we start with Jennifer and then close out with John you know building on the last thing that John said is I think that tie does back to that equal versus fair equity idea and it ties back to the governance conversation and the question that you asked us before is what I like to emphasize is that there is no right there is only right for any family system and family office so what we can do is be able to and this goes back to education to have these conversations to discuss what is the purpose of the assets what are the values of the family and what are we trying to solve for so even when we're talking about a family bank I did our lots of different ways to do that so if we want to leave a certain we want to create a bucket of assets a small bucket of assets where people can try wilder ideas and then or if we want to create a structure in which for money over X which is governance and guard rails you know has to go through this investment committee is there is no right answer for every family there's only right for that family however governance instructor and agreements and guard rails can allow if everybody understands why they agree to them and we've had fair process to talk to those guard rails policies we can't promise that everybody's going to abide by them but what we can do is educate on how we got there and have people buy into the process it does help so having governance in place and creating agreements helps protect the family relationships I think the first question you asked Brian was something about a big picture what are we trying to do who we're trying to protect the family relationships and it was around something about how we get people to understand why why controls are put in place and this conversation goes exactly to it because if you don't put any controls in place what we're guaranteed of is resentments and breaks and family relationships and misunderstandings whereas if we can get the buy in and educate and then create the governance on top of that we're really working toward protecting both the assets and the relationships so I would leave it at that there's no right answer but all of the things we've talked about today are ways to get at the right answer for specific families I think that's right and we've talked about education but if I had to give you Brian you know I love to give you a sound bite so here it is we're talking about bespoke discipline that's all it is you know Jennifer is 100% right if there was a one size fits all everyone would just adopt it and go okay this is what we're going to do but it has to be nuanced and relevant to the personal dynamics of each family office of the beneficiaries of the executives involved it's a bespoke discipline that's required and with that the bespoke discipline you know those two words are critical bespoke it's designed to be cooperative and collaborative and malleable to the politics and the live blood of the family office but discipline is critical because if we approach every circumstance and every instance as well okay let's just talk about it and figure out what we're going to do every single time then you create this juggernaut where it's majority rules and very quickly you know when we're doing our job well where there is professional advisors and there's an element of administration as secretarial nature to it but if we turn to majority rules you know very simply this thing can crumble very quickly there needs to be leadership and the way we present leadership when it's not our money you know approximately the power and wealth that leads people into thinking they have it and they're entitled to it you have to be mindful of that it's not my money it's their money but by approaching it in a disciplined manner and offering bespoke solutions you will be protecting the family and in an unrighteous way in a way that is something that they will appreciate in the future though they might not appreciate it in the now because we're looking for the future of their family and their family office long after we've shuffled off this mortal coil I think the approach is an umbrella should always be how do we apply some bespoke discipline to the family office bespoke discipline I like it I want to thank you both and James and his in absentia he had to drop off but thank you Jennifer John today was great I think distribution policies are critically important and really underrated in a lot of ways when families talk about structure and organization so thanks for lending your expertise and experience and I hope to speak to you again soon [Music]