Normalcy Bias – The Biggest Threat to Wealthy Families -

Normalcy bias, or normality bias, is a phenomenon which leads people to disbelieve or underplay imminent threats. It is the false premise for thinking that because everything is okay today it will always be okay in the future. As a result, many people do not adequately prepare for adverse events and are slow to take remedial action when they occur. So how does this affect wealthy families and their businesses? We all know the story. The family business is going great, the family finances are robust and all because one family figurehead is taking the lead and sole responsibility for everything that involves the family finances. They manage everything, like they have done for years and the outlook for the future is bright and full of optimism; BUT, one day, that person dies and the weakness of the family structure becomes apparent as all hell breaks loose. Although death is inevitable, no犀利士 one had prepared for this outcome, especially the family figurehead!A will has been prepared, but it is the first time the family are aware of how the assets will be distributed. The investments are tied into complex and convoluted structures which the family are unaware of. No exit strategy or plan had been formally agreed for the family business which has just lost its CEO and inspiring leader. No one in the family has created any form of relationship with the professional advisors and nobody even knows who the Trustees are! All knowledge of family finances and investments are in disarray and the future of the family business is facing a major crisis due to a lack of leadership. For the first time the family’s financial future is in doubt. There’s mistrust and infighting amongst family members which leads to lawsuits and a power struggle within the family. The emotional and financial costs escalate beyond control at a time when the family is in desperate need of stability.From thereon resolution is long, arduous, and seldom achieved.

A carefully built family enterprise has descended into chaos because of the one inevitable event that no one had the foresight to prepare for.

Whilst the family assumed their house (family structure) was built on bricks,in reality, it was built on straw! Unfortunately, this is a far more common occurrence than one would imagine. It is one of the main reasons why 70% of families lose all their wealth within just two generations!

However, all of this could have been prevented by doing one thing. Implementing the Four Fundamentals of Family Prosperity. Just like a building a house the focus must always begin with the foundations and for families to achieve multi-generational financial success this means effective communication.

The onus is on the head of the family, the leader, to pave the way for the future by implementing a clear and well communicated path. This involves several aspects:

Preparing a successor for the family business
Mapping out roles and responsibilities within the family dynamic
Hosting regular ‘family board meetings’ to discuss key areas and aspects of the family finances and investments
Introducing the professional advisors and trustees to several family members and if the business is to be sold, make it clear how the proceeds will be shared. Most importantly, discuss the will with everyone involved. Many family heads do not reveal the contents of their will to heirs while they are still alive. Hedge fund mogul and one of the richest men on the planet Warren Buffet did not execute his will until his children had given their feedback on it. “They have two things to decide. First, do they understand their responsibilities, and second, do they think that what I’ve done is fair,” said Buffett at a Forbes 400 summit in 2018.

Nobody wants to see their family implode and nobody wants to see their life’s work be destroyed by their heirs. However, history has shown that this is the reality for more than 90% of families!

Our message is simple if you do not implementa plan for your family you are planning to fail! Statistically 70% of all families will lose all their wealth within just two generations and more than 90% lose all their money within just three. If you want to avoid becoming another desperate statistic, then take action.

At the Charles Group we appreciate how difficult it can be to implement a strategy and a plan for one’s family which is why we have created Family Prosperity – a service designed to help your family retain its wealth for multiple generations. Please visit our website www.familyprosperity.com to discover how we can help.