Family Banking

Unlike investments in financial assets, where investment theories are abound and governance is routine, processes for families to govern their non-financial assets have only recently been developed and deployed. The Family Bank is an excellent tool to deploy when families attempt to govern these non-financial assets.Family Wealth Coach has frequently been asked about this valuable tool and we want to be the go-to resource for building Family Banks for our client families!Many people are still unaware of the value of investing in a family's human and relational capital. For this perspective, I highly recommend James. E. Hughes' many teachings, but particularly his book, “Family Wealth: Keeping it in the Family”.To summarize Mr. Hughes, the best way to defer the proverb of “shirtsleeves to shirtsleeves” for more than three generations is by investing capital into growing better people, and for those better people to invest time and resources into better relationships. Where financial assets are used to support those human and relational initiatives, the family can thrive much longer. However, if the family prioritizes the financial assets over those initiatives, the family wealth will more quickly erode.The Family Bank will take many forms depending on the size and complexity of the family, but all definitions will include a focus on building a formal structure to follow when families invest in their human and relational capital. The first step when establishing a Family Bank is to derive an Investment Policy Statement. The IPS should include a clear decision-making framework for making investment decisions and a declaration as to how to prioritize the family’s values and goals in that investment process.Values enumerated in an IPS statement will be quite different from family to family and may include personal development goals like artistic pursuits, a liberal arts education and the value of emotional and intellectual growth. Often, families want to enshrine one particular core value that greatly assisted in that family’s wealth creation: Entrepreneurism.There are many benefits for using a clear and unambiguous Family Bank process besides better investment decisions. All other family members will clearly understand why capital is being deployed into specific family members and their endeavours. The other family members will also gain clarity on why the family has chosen certain investments of time and capital. This open communication and transparency is critical to family harmony. Of course, a formal structure around investing in risky pursuits can only improve what would historically be an area of poor returns.Family wealth is the sum of its human capital, relational capital and its financial capital. Particularly for stimulating entrepreneurism, but for many other reasons, a well-structured Family Bank can grow all three capital sources in parallel, not at the expense of one another.For more information about creating a Family Bank, please reach out!