Stewarding The Family Foundation

By Mark Barnicutt on April 6, 2012

According to various estimates, there are currently approximately 28,000 households in Canada with investable assets in excess of $10 Million.  Although these households represent a very small portion of the total households in Canada (<1%), we believe that it’s a fast growing family wealth segment that is being driven by Canadian demographics primarily from successful entrepreneurial business activities.

So many affluent families that we’ve had the privilege of working with during our professional careers feel that – despite their diligent focus & strong work ethic – they’ve been blessed with both opportunity and people in their lives who have helped to shape & contribute to their economic & life successes. For this reason, we’re seeing many affluent families who are highly dedicated to ‘putting back to society’ in order to help others.  In a growing number of situations, such families are establishing their own Family Foundations.

In our experience working with such affluent families in the design & ongoing management of their family foundations, one of the belief challenges that they face is incorrectly viewing their hard earned philanthropic wealth as an ‘Investment Structure’ instead of a ‘Wealth Business’.  In other words, the family foundation’s investable asset base is of a sufficiently significant size and typically complexity that it is beyond being considered merely an investment portfolio (or legal structure) but should instead be viewed as a ’mini’ wealth management business that is a bi-product of their successful entrepreneurial business activities & generous philanthropic desire to ‘put back to society’.

For this reason, the key attributes of the Family Foundation – like any other business – that need to be considered are:

Purpose:

What is the purpose/mission of the family foundation?

Philosophies & Values:

– What are the philosophical beliefs & values to which the family foundation and it’s members adhere?

Beneficiaries:

– Who are the beneficiaries of the family foundation?

– What type of organizations/needs is the family foundation looking to support?

– What are the expectations & responsibilities, if any, of beneficiary organizations for receiving philanthropic donations from the family foundation?

Goals:

– What are the goals of the family foundation?

– For the family foundation, the goals can vary but often have both qualitative & quantitative measurements, tied to the philanthropic support of a focused group of beneficiaries, which we refer to as Strategic Philanthropy.

Board/Management Team:

– What are the key roles & responsibilities required within the board/management team and who will fulfill these roles?

– For the family foundation, the board/management team should ideally address key functional advice areas such as foundation regulations and investment management as well as who the key family members will be who will ‘champion’ the purpose, philosophies & values of the family foundation.

– Central to this Board/Management team should be a a set of selection criteria that addresses expected attitudes & behaviours of Board/Management participants, in order to truly make the family foundation sustainable for future generations. 

Governance:

– How will the family foundation be governed to ensure that its living to its purpose, philosophies, values & goals?

– What are the fiduciary, financial, educational & administrative standards to which Board members will be held accountable?

Affluent families who view their foundation assets as an ‘Investment Portfolio’ or ‘Legal Structure’ don’t consider the above attributes and typically end-up with professional advice that is both siloed and disconnected amongst their various professional advisors (ie: accountants, lawyers, investment advisors, etc.).

Additionally, their foundation’s investment portfolios are many times a ‘collection of investment ideas‘ instead of a series of prudently designed, purpose-driven portfolios that are aligned against specific family philanthropic goals.  In contrast, affluent families who view their wealth as a ‘business’ bring a set of philosophies, disciplines and purpose to their family foundation that makes it sustainable in the same manner as their operating/entrepreneurial business that initially created the family wealth.

Mark Barnicutt
See Beyond

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