The Wise Overseer by Bryan C. Taylor, CFA
Don't Lose the Farm - Protecting Your Legacy
As Published June 2014 - Focus on the Family FAMILYWISE NEWSLETTER
Sometimes the most fertile fields are those that have lain fallow for years, but sometimes fields that have been neglected produce quite the opposite effect. Neglect and mismanagement can drain a field of nutrients or lead to an infestation of weeds, like thistles or briars. Patience and consistency are investment virtues that when properly cultivated, lead to tremendous yield, but when abused or misunderstood often lead to devastating investment failure. Inherited wealth is like a field: when properly managed and structured, it can provide tremendous dividends for future generations. However, lack of oversight and engagement by the next generation can easily lead to neglect. Neglect of this kind facilitates the weeds of blind trust in a corporate trustee, fees, and proprietary products which can render even the best portfolio unproductive. We often believe that the stability of a corporate trustee provides protection from vagaries of youth and inexperience. However, ambivalence on the part of the owner is also a significant risk.
Corporate trustees may be hamstrung by internal regulation and respond slowly to the needs of young and growing families.
Fees are often unclear, fragmented and excessive. It is difficult for relatively inexperienced investors to determine the “all in” cost of the trustee relationship and consequently fees siphon off the potential portfolio yield hindering real wealth preservation. Finally, proprietary products may be legally acceptable, but the lack of transparency, coupled with high levels of internal cost, can lead to poor performance and ultimately benefit no one but the trustee.
Principal-agency conflict is hard to avoid under the best of circumstances. In the amoral, highly competitive, profit-driven world of the 21st century, it becomes a virtual certainty. When you consider passing your wealth to the next generation, be sure to equip them with the proper tools to manage the farm. A wise overseer can provide protection while at the same time shepherding the new owner and increasing the productivity of the farm, but blind trust is never a responsible behavior.