The Hindu : Front Page : Advisors must change too as business family changes: management expert

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Advisors must change too as business family changes: management expert

Priscilla Jebaraj

More important than succession within family is succession of trusted advisors

Part of advisor’s role is to groom his own successor
Advisors need to give families a global perspective

CHENNAI: Most people think that succession issues are the biggest challenge facing wealthy business families. The U.S.-based family wealth management expert Charles Lowenhaupt agrees with this general perception — but with a twist added in.

“More important than succession within the family or business is the succession of trusted advisors to the family and the business,” he says .

Advisors must change

Mr. Lowenhaupt should know. He is not only a trusted advisor to select wealthy business families around the world but his own firms, Lowenhaupt Global Advisors and law firm Lowenhaupt & Chasnoff, are family businesses themselves — passed on from his grandfather to his father and to him over a century.

In a recent interview to The Hindu, Mr. Lowenhaupt pointed out that advisors must also change as the family changes.

“In too many cases, the trusted advisors are old people advising other old people,” he said, explaining that in such a situation, the advice has little relevance to the new heir.

“It is part of the advisor’s role to groom his own successor…Where advisors have a good succession system in place, the families can handle the change.”

Mr. Lowenhaupt argues that in today’s global village, wealthy families can do with some international advice rooted in local trustworthiness. Often, family members as well as assets and investments are scattered in different parts of the world.

“We need to give them a global perspective…with regard to investments, best practices and philanthropy.”

Indian tie-up

His firm intends tying up with family advisors in India — one each in the north and south — to work with select Indian families.

Lowenhaupt Global Advisors will set up an India office by the year-end to provide these advisors with the resources, support services, background systems and processes they need to take care of the families’ needs.

In one respect, families across the world are the same, regardless of cultural differences.

According to Mr. Lowenhaupt, they all need to answer the same question: What do you want to do with your wealth?

Mr. Lowenhaupt relates how a Chinese businessman answered this question with a Chinese proverb saying family wealth gets lost in three generations.

“That amazed me because we have almost the same proverb in Louisiana: ‘From shirtsleeves to shirtsleeves in three generations’…For so many families, their only goal is to beat that cycle. But that’s not what wealth is for — it should not be about preservation only,” he says.

He feels that while the head of a family can use the riches merely as a tool to protect — or control — future generations, a better option would be to use “freedom and functionality.”

That takes more work, since it involves training one’s children and being prepared to watch them fail, but it is more worthwhile in the long-run.

‘Strategic philanthropy’

One of the key strategies of the process could be philanthropy, according to Mr. Lowenhaupt.

“I have not met a family that can get functionality from its wealth without what I call strategic philanthropy.” It can be used to redeem the family name, connect the business to the community, unite the family, and train the next generation in good investment processes.

However, he warns that tying up the family fortune in a philanthropic trust could have a backlash, if it is not done with the right motives. “If a foundation is just one more way for the parents to control the wealth, that’s the antithesis of strategic philanthropy,” he warns.

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