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Want To Manage Risk Better? Build "Institutional Memory"

Tom Burroughes, Group Editor , London, 11 November 2020

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This news service speaks to Stonehage Fleming, the MFO, about the value of long-standing family history and institutional structures as ways of creating risk management discipline.

There are a number of ways to build discipline in managing risks and one of the most reliable is assembling a trove of shared memories and practices that are handed down the generations. 

This is the argument of Stonehage Fleming, the UK-based multi-family office built by a number of dynasties well used to handling adversity. The very fact that such families can trace business and investment success back over the decades, with lessons of what went well and what did not work out, creates a force all of its own, the organisation said recently.

“We are fortunate to be able to recycle learnings from the families we support to the benefit of others,” Guy Hudson, partner, head of marketing at Stonehage Fleming, told this publication in a recent interview. He spoke about the “institutional memory” that comes from a multi-family organisation, with embedded knowledge of how to ride through the peaks and troughs of market volatility and other family circumstances. 

This news service has been tracking how financial groups are thinking about – and sometimes re-thinking – how to handle risks in this COVID-19 period. And one type of organisation that has an angle on risk is the family office. They can address risks of family conflicts, wayward children (and elders), divorce, business failure, sudden death and other “slings and arrows.”

“For families taking a long-term, multi-generational view, events like COVID, dramatic as they are, may not be as impactful as risks within a family,” Hudson continued. “We would like to see 100 per cent of families having an approach to thinking about risks and this shows that we have a job to do.”

We interviewed Stonehage Fleming shortly after the MFO issued a study of 183 wealthy family members and their advisors. It found that 40 per cent of them do not have set a way of identifying, quantifying and mitigating all the risks they might face. Family disputes are still considered to be the greatest risk to long-term family wealth (34 per cent), followed by the lack of future family leadership and direction (32 per cent).

Almost a quarter of respondents identified failure to engage the next generation as a key risk. Some 25 per cent stated that there had been changes to roles and responsibilities within the family, with the majority (71 per cent) of this group stating that the members of the next generation were playing a more prominent role.

“The pandemic has in some ways brought families together,” said his colleague, Lucy Birtwistle, who is director, family office, Stonehage Fleming. 

She stressed the importance of communication as a way to deal with some of the risks affecting inter-family frictions and decisions. One big risk to consider is that of miscommunication which can lead to mismanaged expectations, she said. 

Of course, as these family office figures know, creating a sense of family “memory” can be much harder to do during a pandemic which severs normal human interaction, hits international travel and forces everyone onto digital communications tools. But what appears important is that the process of building structures such as family offices can provide some necessary “ballast” in a vessel – to use a marine metaphor – for the stormy seas that await.

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