June 15, 2023: Helping families leave a legacy

Bob.Allen
Jun 15, 2023
10 months ago
Shannon_Kennedy
Credit: KRISTINA RUOTOLO

Shannon Kennedy on helping families leave a legacy​

Shannon Kennedy, global president of the BMO Family Office, understands the ultimate importance of legacy planning, focusing a great deal of time on helping families begin that journey. Here she discusses how hard this process can be for some as well as her experience being a key female leader in the male-dominated wealth management industry.

For families beginning the legacy discussion, where should they start?

Legacy planning starts with purpose of wealth. What is the money for? Families’ main priorities tend to be protecting what they have, minimizing tax liabilities and maintaining their lifestyle. From there, everything that is left over is what can inform how they want to leave a legacy. Our main goal is to educate clients on the importance of building a legacy planning framework as well as understanding options for leaving their money for the next generation, community or passion interests. We try to align their purpose with optimal strategies and solutions to maximize the impact. Most important, we encourage communication with the next generation so they are prepared inheritors.Shannon_Kennedy

What are the key considerations in legacy planning?

Legacy planning looks different for different families; what’s important is that it best reflects the wants and desires of the current as well as the future generation. Consider not only what legacy you would like to leave behind externally — i.e., what social or market impact you would like to make — but also what the core family values and morals are that you would like to pass on to the generations to come. This can be reflected in a family coat of arms, mission/vision statement or leaving a plain-spoken family letter outlining the reasons why certain core values are important or why financial decisions were made.

Legacy planning can be overwhelming for some people. How do you help families through the emotional component of that?

It can feel like an overwhelming task for the family to establish just what they would like their legacy to look like, but that is where financial advisers and wealth planners can help. We help facilitate family meetings — mitigating tough conversations, ensuring transparency among family members throughout the decision-making process, establishing trust among all family members, helping the family understand their different learning and communication styles while always keeping the shared vision for the future at the center of the conversation.

Philanthropy is an integral part of overall wealth planning. How does it fit into a holistic picture?

It’s important to distinguish, first, the difference between charitable giving and philanthropy. Most people are more likely to be familiar with the former — writing checks to notable charitable organizations without the expectation of getting personally involved in them. Philanthropy, on the other hand, reflects an individual’s or family’s values, interests and expectations. This can take the form of establishing a foundation, being an active board member of an existing charity, reviewing grant proposals and more. Philanthropy requires more careful attention from the family or individual on how, where and what their money is being spent on.

How can philanthropy and legacy planning come together?

More often than not, the two are intertwined. Families looking to leave behind a lasting societal impact often turn to philanthropy to carry out their vision. Getting involved in philanthropy helps a family reflect their core values in their work and leave a lasting, tangible impression for generations to come, both within and outside their family.

How do you work with women on wealth planning and encouraging them to take hold of their financial future?

I have always stressed the importance of financial literacy with women and encourage them to be involved in the wealth planning and management process from the get-go. At some point, people die, get divorced, pay taxes or make big purchases, and it is important for women to understand the impact of those events to their net worth and cash flow. Women want to be heard and educated, and I have found that female entrepreneurs often look for a financial coach to help navigate business and personal decisions. A very easy thing I tell young women is to maximize as much as they can in savings — especially in a 401(k), where an employer can match, because compounding is a very powerful tool to take advantage of.  

You’re a senior woman in wealth management. How do you help other women get started in the business?

During my time as global president of BMO Family Office, I have helped establish and launch the Women’s Advisory Network, which focuses on coaching, mentoring and sponsoring women private wealth advisers at BMO. I’ve also acted as a mentor to a number of young women. When I joined the workforce in 1988, I found that women were very competitive with each other, and I am so glad that has changed.  We need to lift as we climb and go beyond mentorship to sponsorship.

How to handle the sudden complexity of wealth

By KEN STERN

To paraphrase a popular expression, with great wealth comes great complexity.

It’s not unusual for a family or an individual experiencing a significant windfall to be shocked at how complicated managing a large amount of money can be. They quickly discover that they cannot manage their new wealth by doing more of the same.

They not only have more questions to answer, but the scale, complexity and time frames for their decisions have exploded. For example:Ken_Stern_mug

¶ Previously, their primary focus may have been on funding their retirement. Now they’re thinking about complex questions around multi-generational wealth transfer, including:

• Qualitative questions about the best approach for their family, such as transferring wealth in stages or establishing controls that tie transfers to incentives around education, life goals, or business and professional achievements.

• Quantitative questions, such as managing potential estate taxes if their wealth grows beyond certain thresholds.

¶ Even an avid investor may be overwhelmed by the challenge of effectively diversifying millions of dollars in assets or identifying opportunities with sufficient scale.

¶ The challenges faced when artistic pursuits and charitable work go from being a passionate amateur interest to a sustained, organized undertaking.

¶ Creating plans and appointing guardians for managing family wealth in case of incapacitation of the head of the family.

There’s no question that experiencing a windfall is enormously life-enhancing. But no one tells you how challenging the day-to-day complexity will be. Even individuals who have the skill set may not want to take on the full-time job of managing their family’s wealth and legacy.

An alternative may be hiring teams of specialized professionals for every aspect of family finances and then “managing the managers.” That’s the approach in creating a family office.

FAMILY OFFICE SOLUTIONS

Not many investors have heard of family offices and many of those who have do not understand how they function. In brief: they are teams of professionals who manage all the financial needs of a single ultra-wealthy individual or family across investments, taxes, estate planning, philanthropy, art, home purchases and more. A family office can manage everything from paying bills to facilitating discussions around how and where to live. 

One potential benefit is that the family office establishes a holistic vision of the family’s aspirations and ensures that all financial activity is coordinated with that vision at the heart of every financial decision. For example, investment decisions are made fully cognizant of the family’s tax considerations and legacy objectives, and so on.

More important may be the potential investment advantages family offices pursue for their client families. Traditional thinking about stocks, bonds, and cash (not to mention mutual funds) may not be efficient enough or produce returns sufficient or predictable enough on their own for large-scale portfolios. Instead, they explore alternatives and non-traditional strategies similar to those used by large endowments or foundations.

Family offices typically manage investments on a long-term basis suitable for multi-generational wealth. This opens up possibilities for private equity or asset-based opportunities, many of which have extremely long investment horizons or are illiquid. Both endowment-style alternative strategies and private equity investments are typically beyond the reach of many investors due to the scale of the investment required.

Coordinated, holistic wealth management and specialized investment access offer attractive potential. All too often, separate professionals managing tax and estate guidance don’t work together in a highly aligned, communicative process. In a family office built around a coordinated, holistic vision and process, they do.

The drawback? Size. Opinions differ, but we believe that $250 million is a minimum to establish a family office. There are, however, alternatives.

MULTI-FAMILY AND FAMILY-OFFICE-STYLE EXPERIENCES

A case can be made for family office and family office style wealth management beyond holistic service and specialized investment access. Today’s markets are brutally efficient. Asset classes that once provided diversification frequently move in the same direction in response to the same economic trends. No one has consistent access to insights about stocks that are not available to everyone. To be successful managing wealth, a different set of research tools is needed along with a non-traditional lens to find returns through an opportunistic yet conservative approach.

Managing sudden wealth can be difficult, challenging, time-consuming and overwhelming. Today it may be more difficult than ever.