As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. It is important for every family business to communicate effectively and to reach decisions that optimally balance the needs of both the family and the business. As the complexity of family and business relationships increase, families can turn to a formal “family constitution” to create a healthy communication and decision-making environment. While not legally binding, a family constitution is held together by the positive recognition and buy-in from all involved. The process and the policies created within a family constitution are always reflective of the values and beliefs of the family group. The intent is to build around a sustainable model that promotes generations of pro-growth decisions. Here are six reasons why you should write your family constitution: 1 – It Will Lay the Groundwork for Tough Decisions Family business leaders have to make the same difficult decisions that any regular business leader needs to make, except that the family business leader often has to consider complex personal and family relationships. It’s easy to make judgments based on emotion in family businesses, which is why a pre-determined, rational family constitution can help cooler heads prevail. Through developing an effective constitution, the family will have already identified the basis on which critical decisions will be made. 2 – Your Chance to Create Ethical Guidelines Family constitutions are bound by moral force. If you are serious about building a unique, marketable brand – for both employees and customers – then it’s important to have a business code of conduct. Equally, your family constitution can lay out the preferences of the family in how they as shareholders would like the company and it’s capital to be directed, provide family thinking around certain shareholder decisions and influence the culture of the business and its employees. These guidelines can also include family conduct outside of the business, conduct with any social media interaction, and communication processes between family members. 3 – Build Cohesion and Internal Harmony Your family constitution is developed by the family group. Ideas are workshopped and opinions are shared. When consensus is reached, it’s done so with unity. Members of the family learn together through a participative process. The resulting document is a codified representation of internal agreement and harmony. 4 – The Chance to Improve Your Bottom Line Though not a cure all, the process of creating a family constitution performs a lot of critical functions that can make business more effective and, by extension, profitable. The family constitution defines the leadership structure, provides a tool for succession, informs communication and conflict resolution guidelines, and – perhaps most importantly – it clearly and concisely identifies the family business’ long-term goals. With that clarity in mind, it’s easier to take effective action to build a profitable company for the long term. 5 – Establish the Rules Around Conflict Conflict is a natural part of running a business. However, when colleagues and employees are also family members, ordinary conflict can take on new dimensions. You should have a plan in place to deal with conflict if your business is going to build a strong, multi-generational legacy. No family constitution can prevent conflict entirely, but it can provide a road map to successfully manage, resolve and define conflicts in a constructive way. 6 – Plan Ahead for Those Entering and Leaving the Family Business No challenge is as serious or as easy to mishandle for family businesses as the issue of family members transitioning both in and out of the organisation. Creating a family constitution provides a robust framework for families to commence their communication and education around succession. Policies such as the employment and remuneration of family members in the family business, education expectations, stewardship and philanthropic activities can all be discussed when writing the constitution. A constitution is a dynamic document so initiating formal family meetings as part of this process can ensure the items resolved can always be open for discussion and improvement.

Succession in terms of business leadership confronts the founder of a family business with a complex set of options as Peter Leach explains below. In broad terms these are: Appoint a family member Appoint a caretaker manager Appoint a professional manager Exit via sale of the business, in part or in par Exit via liquidating the business Do nothing. Each option is distinctive and carries its own set of advantages, disadvantages, opportunities and threats. Also, the scope and impact of these will vary from one family business to another depending on, for example: The ability to attract family and non-family successors who are willing and have the skills to carry on the business The financial needs of the family (for example, whether cash needs to be extracted from the business to provide for the retirement of the senior generation The personal and corporate taxation consequences of the different options The health and size of the business The external commercial and business environment at the time of succession. If there is a commitment to retain direct control over the business, the first option of appointing a family member to succeed is seen as particularly attractive by many founders. Research by IMD has found that, if there’s a suitable candidate, owners will choose a ‘family solution’ for several reasons: It gives their personal ideas and values a greater chance of survival They can feel their life’s work is in good hands They don’t lose contact with the business, and may even retain some influence over it They feel their sacrifices building up the business will have been worthwhile. The appointment of a non-family successor, either to a permanent position or as a caretaker (options 2 and 3), may become the strategy by default if no family successors are available, motivated or have the necessary skills for the task. Genetics do not guarantee that families can produce entrepreneurial business leaders generation after generation. In terms of exit routes, some form of sale as a going concern (option 4) is likely to recover most value from the business. Alternatives within this option include a trade sale (ie an outright sale of the business for cash),which may be particularly appealing where no suitable successors can be found, or a stock market flotation can be the best answer if external capital to finance growth is a priority. Similarly, a management buy-out financed by private equity funding (a sale by the founder to the existing management team, which may include family members), can offer a compromise between transferring the shares to the family and an outright trade sale. Liquidation (option 5) entails selling of all the company’s assets, paying its outstanding debts and dismissing the workforce. It also involves substantial expenses and is unlikely to result in the best price being obtained. Finally, the founder may simply avoid planning for succession by adopting the ‘do nothing’ approach (option 6), and here lies the central paradox. Despite founders professing that a ‘family solution’ is their preferred course, in practice the dynastic dream is rarely achieved. Doing nothing is the least logical, the most costly, the most destructive off all the options, yet is by far the most popular.

Expectations were set but transitions from Baby Boomers to the next gen have not materialised. Dozens of articles came out during the 1990’s about the coming tidal wave of business transitions from Baby Boomers to their Gen X and Gen Y children. The articles theorised that as Baby Boomers got to be 55 and older, they’d be looking to either sell their businesses or pass them on to their children. The writers looked at the demographics and numbers of closely held businesses, and they theorised that somewhere between $10 trillion and $140 trillion of assets were going to be transferred from one generation to the next. Financial services firms, charities, law firms, and consulting firms all licked their chops at the prospect that all these business transitions would somehow need to be managed and facilitated in an orderly way. The question is: What has happened to the family business transition tidal wave? Wayne Rivers explores further. Surely since all those articles were penned, some family businesses have indeed transitioned. However, the breathless predictions of a tsunami of family businesses moving from senior to junior generations simply hasn’t materialised. The demographers could not have been wrong; simple maths indicates they were not off that much in terms of the ages of the baby boomers. If there wasn’t a chronological mistake, then, why hasn’t the tidal wave come to pass? We believe there are six reasons why family businesses are staying in the hands of senior generation family business owners longer. 1 - Age 65 Is The New 50 A 65 year old family business owner today isn’t nearly as old at the same age as his father was. People today are in better health for longer than ever before. We eat better, exercise more, smoke less, and take care of ourselves better than previous generations. Therefore, when a family business owner reaches 'normal retirement age,' he is often far from ready to retire. He is still filled with energy, ideas, ambition, and there are so many exciting things left to do! 2 - The Great Recession The Great Recession shocked many family businesses, some of whom believed the hype that the Federal Reserve had made recessions obsolete. Now, their businesses from somewhat to a great deal smaller than they were before, senior generation leaders see much which needs to be done to restore the business to its former glory. Leaving the business at the tail end of a historic recession simply doesn’t seem like a good idea to many. 3 - Lack Of Ownership Succession Plans The state of family business estate and ownership succession planning is far better than it was when we started The Family Business Institute 23 years ago. However, many families still wrestle with the issues of ownership succession. How do I treat my children fairly and equitably when I have some in the business and some who don’t work here? How will my children get along when I’m no longer around? Is it fair to treat my daughter who is the CEO the same as her brother who works on the loading dock with respect to ownership succession? If I leave the company in the hands of my children, will my spouse have enough money to be comfortable after I’m gone? Many family business owners have undertaken to wrestle with these questions. Many others have not, and the questions aren’t any easier to answer now than they were 23 years ago. 4 - Lack Of Management Succession Plans It’s hard to beat experience. Even though a 65 year old family business leader might have incredibly competent forty-something children, they are at a severe chronological disadvantage in the sense that the senior generation had a 20+ year business head start, and that gap can never be closed! While the younger generation might have all the tools necessary for future success, they simply can’t replace the hard earned experience Dad carries between his ears. Most closely held companies also have two other management succession limitations: a lack of clear, written, transferable policies and procedures for the various jobs in the company and a lack of Knowledge Transfer (KT) which is the process for formerly transferring soft information (i.e. someone’s experience about business practices and processes) to younger members of the firm. 5 - Lack Of Specific Retirement Plans For The Senior Generation This item is related to item #1 above in that 65 year olds today have plenty of energy and ambition, and most family business seniors have no specific retirement plans remotely capable of consuming their energy and time. The idea of moving to a retirement community, puttering around in the yard, and maybe the occasional round of golf isn’t nearly as compelling and exciting as continuing to fight the daily battles necessary to put the family business back in its rightful place. Since murky retirement plans make for a nebulous future, and the concrete reality of rebuilding the family business is both present and exciting, staying trumps leaving hands down. 6 - Lack Of Buyers For Family And Closely Held Businesses A few years ago I delivered a speech in Canada before which we had surveyed the attendees to learn more about them. Somewhere between a third and one half of the franchisees (who were involved tangentially in the new home construction business) said that when they reached retirement age they were going to sell their businesses. Digging deeper into the demographics, we found that the average franchisee had one location with less than $2 million in gross sales. My message to them – which definitely put them on their heels – was that they couldn’t sell their businesses BECAUSE THEY HAD NOTHING TO SELL! When someone looks to buy a business they want to see a proven methodology for creating top line sales, a management team capable of executing the strategies of ownership, loyal employees who won’t leave the business if the family sold out, strong financials, and a business which isn’t dependent on one or a tiny handful of people to make all the decisions. Unfortunately, that is exactly what most family businesses continue to have to this very day! Even large family businesses, and we are talking in some cases well over $500 million in sales, depend on one or a tiny handful of family members to make virtually every decision in the business large or small. If one were to choose to buy a business like that, what in fact would he be buying? In essence, he’d be buying a job – a job that takes 60 to 80 hours a week sometimes, creates a great deal of mental and physical stress, and offers no escape hatch when things get hairy. Most family businesses don’t have anything to sell because they don’t have genuine businesses; they have jobs, and the jobs are pretty thankless ones at that. Will the family business succession tidal wave one day materialise? Given our steadily advancing ages, it must. Are most family and closely held businesses prepared for the ownership and management succession which must one day challenge them? The answer to that question is still “no” and that in and of itself constrains the possibility of successful family business transition whether it comes in a slow, steady trickle or a tsunami.

Latest research from Charities Aid Foundation suggest 25% of wealth should be donated to charity by wealthiest. For the study 2,085 online interviews were conducted with UK consumers by Populus between 20-22 March 2015. Britons think that the wealthiest in society should donate an average of 25% of their money to charity in the course of their lives, according to research released by the Charities Aid Foundation. More than half (53%) of people think wealthy people should give away more than they do. Those identifying as non-Christian wanted to see the affluent donate an even larger proportion of their wealth, this group believing richer people should give nearly a third (32%) of their money away. Over three-fifths (62%) agree that giving to charity by the more affluent sets a good example to others, and over two-fifths (46%) say the wealthy could help to increase giving by talking more about it. The research is released just days before the Sunday Times Giving List reveals the UK’s top donors of the year. People also welcome the idea of a UK version of the Giving Pledge, a US-born project spearheaded by Bill Gates and Warren Buffett asking wealthy individuals to commit to give away at least 50% of their wealth to good causes. Five British philanthropists have already committed to the pledge, including Richard Branson. Just under half (43%) would like to see something similar in the UK, a number growing to 55% among 18-24 year-olds. John Low, Chief Executive of the Charities Aid Foundation, said: “There is growing awareness of inequality around the world, and it’s clear people believe the richest in society could help to address this problem by giving significant proportions of their wealth away to help those less fortunate.” “We see so many incredible examples of generosity by the world’s wealthiest, and movements such as the Giving Pledge are leading the way in opening up the conversation and bringing giving and charitable organisations into the public eye.” “Driving a project like this forward in the UK could help more philanthropists feel comfortable speaking out about their work with charities, and help further grow giving and support among the wealthy and the public.”

Research carried out by Safestore has revealed that 31% of people aged 55 and over do not have a will and as a result, may be risking inheritance for future generations. Inspired by Free Will Writing month which takes place throughout March, the self storage company discovered that an alarming number of Baby Boomers may be putting their family’s inheritance at risk for all the wrong reasons. Out of 31% of adults aged 55 and over who do not have a will: 12% have children in their household 16% are separated or divorced 48% admit they ‘haven’t got round’ to writing one 18% feel that they don’t have anything of value to leave behind 12% believe that all assets would go to a partner regardless “Wills are essential life documents which really ought to be in place well before you reach 55. It is concerning that so many 55+ year olds have not taken the time to complete one, especially where there are children or marital issues involved.” says Simon Crooks, a solicitor and specialist in tax and estate planning with Argo Life & Legacy Ltd. “Without a Will you lose the opportunity to express your wishes as to what happens with your assets and who sorts it all out when you die. But a Will encompasses much more than the destination of your assets. You get to choose the people who will manage your affairs on death and they have power to act straight away. If you have younger children you can appoint people as Guardians to be responsible for their upbringing and welfare. One of the key benefits is spending time on yourself and considering surrounding issues – retirement plans, tax planning, care fee planning, policies and pensions. Not having a Will often means none of these issues have been considered which can cause problems in the future.” “By the time you get to 55 there really is no excuse for not having a Will.” The results also indicate that a vast majority of people do not understand intestacy rules as without a will, if you are separated but not divorced from your spouse they are legally entitled to most, if not all of your estate. Similarly, those who are married and assume that their estate will go to their spouse are technically correct, however without a legal document in place there are numerous complications. “When a marriage breaks down it is important to review your Will. Separation does not end a marriage and any Will written previously still has effect as do the Intestacy Rules where there is no Will. Under the Intestacy Rules if you are married (or in a civil partnership) and you have no children then your spouse gets your estate – whether you are separated or not. Where children are involved it is more complex as the estate is split between them depending on the value of the assets.” “People often think they will review their Will after a divorce is finalised – when they know what their financial position will actually be. But what happens if you die before this is sorted? You’re stuck with the Will already in place or the Intestacy Rules and your soon to be former spouse inherits some or all of your estate. It is best practice to write a new Will as soon as you can and review it when the divorce is complete.” Dying without a Will in place can cause a devastating impact on family and can add new challenges to an already distressing situation. Throughout March, members of the public age 55 and over are able to have simple wills written or updated free of charge by using participating solicitors.

The 2014 Survey of Corporate Governance Practices in European Family Businesses provides a snapshot view of some of the largest family businesses in France, Germany, Italy and Spain, along with some surprising facts. How are Europe’s largest family businesses run? What do their boards of directors look like? How do they function? And how do they decide who takes the title of CEO? For example, although 50 percent of board seats are occupied by family members, women make up only 16 percent of the average board. And while the professionalisation of Europe’s family businesses is evident, only about a third of their boards have any experience with CEO succession planning. Also, only a third of the boards have emergency CEO succession plans in place. The survey covers four topics: (1) board composition, (2) board efficiency, (3) CEO succession planning and (4) the CEO/chairman backgrounds. It was conducted by Russell Reynolds Associates, an executive leadership and search firm, and it was overseen by IESE’s Josep Tàpies, holder of IESE’s Family-Owned Business Chair. The 400 largest family-controlled businesses in France, Germany, Italy and Spain were targeted, with 106 of them responding. Who Sits on the Boards? In Europe, on average, 50 percent of board seats are occupied by family members representing ownership interests. With the average board surveyed consisting of 7.4 members, only two seats (27 percent) go to independent directors, while company executives and other shareholder representatives occupy a seat a piece. At the same time, there are relatively few female directors: women make up 16 percent of the board, on average. Yet gender diversity varies widely on European family-controlled boards, ranging from just 10 percent in Germany to 25 percent in France. Foreign diversity is relatively scarce, with only eight percent of the board hailing from another country. Family members’ presence on boards varies considerably country by country. In Spain, family members make up 62 percent of the average family-business board. Meanwhile, in Germany, family members make up only 25 percent of the average board. France and Italy are close to the survey average, with 51 percent and 56 percent, respectively. In Spain, independent directors make up only 17 percent of the board, while Germany pushes up the average with 51 percent. Understanding Board Efficiency Formalised corporate governance practices are important in family businesses. In this survey, almost all boards review their companies’ economic and financial situations, as well as their capital expenditures and sales performances. Meanwhile, competitive, industry and client trends are on only 80 percent of the boards’ agendas. When asked if they would describe their boards’ role as “informative,” “consultative” or “decision making,” more than half replied that their boards play a decision-making role. In developing the company’s strategic plan, 57 percent report that their boards’ role is “approval only.” Meanwhile, 40 percent feel that their boards both prepare and approve the strategic plan. Yet only half of European boards surveyed have more than a week to prepare for board meetings. Moreover, 22 percent have fewer than three days to prepare. The German and French boards tend to get more advanced warnings of their meetings than Spanish and Italian boards do. Interestingly, only 39 percent of boards surveyed have an “Audit and Risk” committee while 43 percent have a “Nominating/Remuneration” committee. CEO Succession Planning In family-controlled businesses, CEO succession can be a touchy subject. Just half of the boards surveyed (49 percent) have identified possible internal CEO candidates. Furthermore, only a third of boards surveyed have a plan to replace the CEO in the event of an emergency. French boards tend to be better prepared, with 62 percent having a plan, compared with only 18 percent of Italian boards. Boards also vary widely in their level of experience with CEO succession planning. On 95 percent of the German boards surveyed, at least one director has succession planning experience. In contrast, on the Italian boards surveyed, only 28 percent report having a member with experience. How many internal or external candidates to evaluate for the CEO role? More than half of the family businesses say they consider it ideal to evaluate two or fewer candidates. At the same time, 60 percent of boards say that their internal candidates are benchmarked against external candidates in the market. CEO and Chairman Background In the end, more than two-thirds of the CEO’s of family businesses in Europe are promoted internally. In Spain this number is higher: 85 percent of CEO’s hail from the same company. When CEO’s come from external companies, they are most likely to bring experience within the same industry. That said, it is surprising that only 20 percent of external CEO hires come from other family-owned companies. In contrast, when the chairman of the board comes from a different company, they are most likely to bring experience from another family-owned enterprise. While European companies tend to separate the chairman and the CEO roles, 27 percent of family businesses surveyed combine them.

Family companies may have a conservative heritage, but new research suggests they can teach us a lot about innovation. Family firms are generally characterised by their lack of social capital and trust in an economy. It’s said they rely too much on familial ties; are often conservative in outlook; and are reluctant to take on additional debt or other external financing measures fearing the dilution of control. All attributes which are thought to hinder innovation. Another train of thought however suggests businesses under family ownership are less motivated by short-term profits and show greater alignment between ownership and management; characteristics which are known to stimulate innovative behaviour. All of which paints a particularly paradoxical picture, and raises the question does the family-owned business model stifle or enhance a company’s capacity to innovate? Latest research supports the latter suggesting family-ownership boosts both the quantity and quality of innovation as evidenced by the number and substance of its firm level patents. To test the strengths of opposing theories associating family ownership and innovation, my study, The New Lyrics of the Old Folks: The Role of Family Ownership in Corporate Innovation, co-authored with Po-Hsuan Hsu Associate Professor of Finance at the University of Hong Kong, Sterling Huang, Assistant Professor of Accounting at Singapore Management University and Hong Zhang, Assistant Professor of Finance at INSEAD, researched a comprehensive sample of U.S. public companies between 2000 and 2010. The results were illuminating. We found family firms were associated with 11 percent more patents filed and 12 percent more citations of filed patents received. They scored 14 percent higher in originality (innovation output which considers the creativity of the firm’s patents) and 30 percent higher in generality (which considers the patents’ versatility), indicating that not only is there more innovation happening in these organisations, but it is of a higher quality than non-family companies. Surprisingly, family firms spent less on research and development (we observed a negative relationship between family ownership and R&D input) but were significantly more efficient with what they did invest in this area, when measuring R&D spending against patent output. That is, they produced more and better patents. So what are family firms doing right? A closer look at the data identified three channels which promoted innovation. Focus on long-term value. By sheltering managers from the short-term pressures of irrational and myopic investors, the family ownership model encouraged them to pursue technological advantages with long-term value. Reduced financial constraints One train of thought suggests that in their efforts to retain control, families may be less willing to resort to capital markets, investment partners or other external financing methods. However we found that lenders had a tendency to trust family firms more, thus reducing financial constraints that hinder innovation. Improved governance Based on the widely-accepted assumption that the presence of institutional investors indicates better governance and encourages innovation, we found family ownership serves as a substitute for these investors and replaces other governance mechanisms in spurring innovation by lowering agency costs and strengthening monitoring. The role of family ownership in corporate innovation changes over time. Innovation efficiencies in the firms studied were found to improve with the reduction of the estate tax, suggesting family-owned firms adapt to their institutional environment. Family firms account for a significant portion of business activities and constitute the backbone of economic development worldwide. But their link to innovation is less obvious. While family ownership can hamper a firm’s innovation – conservatism and nepotism can result in family businesses adopting sub-optimal investment policies and there may be higher capital costs due to under-diversification or exacerbating agency issues – family firms can also stimulate innovation. By taking advantage of economic channels that focus on long-term value, alleviating financial constraints and improving governance, family firms can make up for these negative characteristics – and through a balance of tradition and modernity- adapt to survive change. About the Author - Massimo Massa, is The Rothschild Chaired Professor of Banking and Professor of Finance at INSEAD. This article is republished with permission of INSEAD Knowledge.

China’s rich visa-seekers are discovering alternatives to foreign investment visa schemes in the US, Canada and Australia, and are increasingly applying to Europe and the Commonwealth Caribbean. Whether it is to send their children to elite universities or simply escape the polluted air, American and Canadian citizenship-for-investment programs have in recent years attracted wealthy Chinese in their droves. Chinese are the largest group of investor immigrants for the US, Canada, Portugal and Australia, and some visas have as much as 80 percent take-up by People’s Republic of China nationals, according to law firm Withers. But now with Canada’s programme closed down, the UK and Australia’s schemes growing more expensive, and strict taxation on US green card holders and US citizens, Chinese nationals are looking beyond the ‘usual’ options. “There are several ways to establish a foothold in the US. Not everyone realises that a green card is one of many,” said Mark Lanning, director of immigration at Withers. Excellent educational institutions, strong capital markets and quality of life have historically provided the pull factor to these countries. But now many are limiting their programs while they deal with the backlog of applications from China. There is a four-year waiting list for Chinese nationals applying for the US EB-5 ‘green card’ visa, according to Reaz Jafri, attorney at law at New York-based Withers Bergman. “If your 18-year-old daughter is about to start at Harvard and you apply for an EB-5 visa now, you’re not going to make it in time (to live there). In fact, you’re not even going to make it for her graduation,” said Jafri. The US’ EB-5 visa requires investment of between US$500,000 and US$1 million in return for a conditional green card. There are just 10,000 of these visas issued annually and a cap on each nationality, and many Chinese applicants are being forced to wait until 2018, reckons Jafri. This April Canada stopped accepting applications for its immigrant investor program and the federal entrepreneur program, of which around 90 percent of applications were from China. The initiatives, which allowed investors with a minimum net worth of C$1.6 million (US$1.42 million) to invest C$800,000 (US$708,000) in return for residence, had hit a logjam. The government’s Citizenship and Immigration Canada (CIC) has said it is ‘reviewing the programme’ which it may reopen. As for Australia, the good news is that from 2015 a foreigner can get permanent residency in just one year. The bad news? It will cost an eye-watering A$15 million (US$13 million) investment. Applicants for the new Premium Investor Visa will also be strictly vetted to ensure they meet eligibility criteria. And this month the UK Government doubled the minimum investment required for the Tier 1 Investor visa scheme to £2 million (US$3.13 million). The visa allows non-European citizens and their families to live in the UK in return for a £2 million (US$3.13 million) investment in UK companies or UK government bonds. Chinese are also the number one source of applicants for this visa, followed by Russians. What does this mean for footloose wealthy Chinese? If they want to go to the US there are lesser-known alternatives, according to Withers, like the L-1A visa, an inter-company transfer for executive or management level individuals. There is the O-1 for individuals of ‘extraordinary ability’ and the E-2, the treaty investor visa. Obama last week also extended a new visa law to make it easier for Chinese students and tourists to come to the US, as well as homebuyers, a sign that the US wants to encourage the flow of capital into its property markets. Armand Arton, chief executive and president and Dubai-based citizenship advisor Arton Capital, said the reasons for wanting a second citizenship are fundamental in deciding the destination and type of visa. “There are two kinds of investment programs, one that leads to immediate citizenship and one for longer term residence,” he said. St. Kitts, Antigua, Dominica, Grenada and Cyprus offer immediate citizenship and Bulgaria and Malta offer accelerated citizenship. Traditionally families in the Middle East or Pakistan have used these programs as the urgency for a free passport may be their main priority, he explained. Investor programs for residence, like in Portugal, Spain, Greece, Hungary, UK, Canada, US, Australia, where the investor receives only Permanent Resident (PR) Status, are more popular in China, he said. Under these programs it is legal for them to invest abroad and obtain PR, while applying for immediate citizenship is against the law in China. “Chinese have traditionally dominated residency programs and they will now start to dominate the programs for citizenship over the next five years, because some countries are limiting Chinese applications,” predicts Arton. He added that ‎Chinese investors are looking at more European options, especially since the UK visa price hike. “The recent increase of the Tier 1 Investor visa will have an important impact on demand, because Chinese investors can obtain citizenship in Cyprus, Malta or Bulgaria and still settle in UK.” The lower investment bar in Greece, Hungary and Bulgaria has attracted already over 2,000 Chinese investors in the three countries combined in the last twelve months, and Portugal and Spain are following the competition with around 750 Chinese families in the same time period, said Arton. While the US, Canada and UK have the appeal of being home to some of the world’s top universities, investment visas are not purely education-driven. Many affluent Chinese are simply looking for a bucolic bolthole which doubles as an investment, said Kingston Lai, chief executive of Asia Bankers Club. “By their nature, visas for investment are usually a temporary way for a distressed government to raise funds quickly, which is why so many schemes launched in the wake of the financial crisis,” he explained. “But as economies grow stronger some programs are drying up. So when the opportunity comes, you need to act quickly.” Lai said his members have recently been asking about Greece, after it announced a new three-generation citizenship visa for a US$250,000 property investment, the cheapest of all the offerings. Malta, Portugal, Cyprus and Spain are all promoting similar initiatives to wealthy Asians looking to diversify into a European pied à terre. The beleaguered Greek government is plugging the scheme in Asia, hoping to attract affluent Chinese on the hunt for a real estate bargain. With Greek real estate values as much as 40 percent below peak, it is could be great investment as much as a way to secure a European passport. But there are some investment visa schemes which look set to stay for the long run. The industry has seen a considerable move towards the citizenship by investment programs of St Kitts and Nevis and the Commonwealth of Dominica, according to Micha Emmett, the managing director of legal adviser CS Global Partners. “We’ve seen so many programs come and go but these two are the longest running citizenship by investment programs in the world, 30 and 20 years respectively,” she said. “These two have held their ground in being a sustainable and attractive option. Chinese investors are aware of this and have developed a strong affinity for these countries.” She added that even though Europe remains a popular destination due to the Freedom of Movement act, which gives the right to live anywhere in the EU as an EU citizen, ‎the investment thresholds are high for an immediate citizenship. On the other hand, the risk of only receiving the residence has prompted more investors to seek beyond the European residence options. And despite the EU stamp, some countries within the EU still do not hold the status that the Western European counterparts or Commonwealth Caribbean options offer. Clearly in future if governments want to attract the swelling wallets of the Chinese, they will have stiff competition. This article has been reproduced with permission from Wealth-X. For more information please visit their website at www.wealthx.com

When it comes to wealth preservation, why have some families businesses been so successful while others have failed miserably? In my opinion, the secret boils down to a family ethos that values one thing over all others: capital preservation. The bear traps of inheriting money without purpose have been well documented in literature, Hollywood and the media. Thomas Mellon, founder of one of the wealthiest and longest enduring families in America, set up a tacit understanding that while spending was acceptable, it came with the expectation that each generation would become the caretakers of this capital and push it forward to a larger amount than he or she was given. This sense of ownership and responsibility was central to the family’s vision. But conserving family business wealth isn’t always so straightforward. Family businesses make up the foundation of the Canadian economy, but not all owners feel adequately prepared for succession, says Saul Plener of PwC. In the annual PwC Family Business Survey, family business respondents tended to fall into the second generation, or ‘Baby Boomer’ category, and are ‘looking for the best opportunity to exit.’ Unfortunately, he points out, a significant number of those surveyed “haven’t put the necessary effort into succession planning and professionalising the business to ensure long term survival.” One of the reasons why the professionalisation of the family business has become as challenge is because these types of discussions can be difficult. But succession conversations should take place several years before the business changes hands and wealth is passed down to the next generation. Discussions should centre around the financial plan, tax and legal implications, as well as family expectations. If you run a family business, it’s never too late to start. I also recommend hiring a family business expert to assist these often tricky questions. To get the conversation started, family members should rate their knowledge on the following question out of ten: 1. I understand the expectations about the transition of the business by the current owners (parents) and also the next generation. Mr. Plener says that parents often think they know what their children want to do, but they’re not always right. The next generation has seen the stress that their parents handle and don’t necessarily want to take on that level of emotional strain. Founders needs to find out the interests of the next generation as a beginning to the succession process. One owner was pleasantly surprised to discover his daughter was interested in being on the board of the family business. He had assumed his daughters weren’t interested, but he had not started that conversation. 2. We have discussed the distribution of capital. Has there been a systematic building of capital in a diversified investment portfolio over the years? Having capital invested outside of the concentrated investment into the business is wise as the optimism of many entrepreneurs has resulted in spectacular belly flops. By systematically taking money out of the business and putting it into a portfolio, the family will be looked in the worst-case scenario. With the security of a portfolio in place, the family and retirement costs are covered, and then entrepreneur is in a far better position to take the risks required to grow the business. Families can relax and relationships enhanced if everyone knows the strategy around capital. 3. We are on the same page about our long term-family goal(s). The longer the family has been in the business, the more the business means to its members. In material terms, it usually represents their largest asset and primary source of income. Beyond this, it is also a source of personal wealth and family tradition. Family members are usually proud of being associated with the business, especially if it carries the family name. After a sale, these families have to look for new means to keep the family together, to continue its legacy and preserve its wealth over generations. This is often the reason to set up a family office to create a platform to manage joint family activities, such as philanthropy, family investments or special projects such as private equity. Capital preservation is recommended as the central family goal which the next generations will need to understand and embrace. The next generation and family can then have the security to reactivate the family’s entrepreneurial spirit and create the next family business endeavour. About the Author - Jacoline Loewen is director of business development of UBS Bank in Canada. She is also author of Money Magnet: How to Attract Investors to Your Business. Article first appeared in The Globe and Mail and has been reproduced with permission.

Buying well is key to successful art investment and is a delicate balance between aesthetic appreciation and financial savvy. Viola Raikhel-Bolot explains more. Investing in the art market can provide impressive returns, yet an even greater reward can be derived from an individual’s passion to acquire objects of great beauty. The benefits of investing in art include a low correlation with other asset classes. Economists have predicted that over the coming years a concern about future inflation or the return to financial instability may drive individuals towards increasing their portfolio allocation to art as an inflation hedge. In addition, the competition for artworks adds to the inherent scarcity to make art a desirable asset for investment purposes. Whilst anomalies can exist in the art market (as they can in any market), record prices, strong returns and increased institutional buying have sparked significant interest in art as an asset class. If one goes about investing in art with the right balance of aesthetic appreciation and financial awareness then you can ensure that what you have bought will appreciate over time. So, how does one know what the perfect balance is? To ensure you buy wisely, protect your asset and enhance its value we have compiled a short list of some tips for buying well: 1 – Identify the Seller It is important when considering an art purchase to identify who you are buying from. Auction houses, art dealers and art advisers are all incentivised differently. Understanding the seller’s motivation will assist you in making informed purchases. The objectives of dealers and auction houses is to sell consigned and existing stock, therefore advice from these parties can in fact be skewed with a focus on business profits and reaping in-house commissions. In contrast, the sole purpose of an independent art adviser is to identify the best source of works which suit their client’s collecting objectives without any bias. While auction houses charge both the buyer and seller a percentage on the same transaction and dealers sell at retail prices, an independent art adviser is able to leverage discounts for you in the market place and provide a completely transparent transaction. 2 – Do Your Research Discovering an artwork that appeals to you aesthetically is only one of the first steps in the collecting process. Ask yourself – does this piece represent the best possible work by this artist, within my budget? Researching the artist’s body of work will ascertain whether or not your selected Picasso, for example, is the best possible representation of his Blue Period. 3 – Provenance Another factor to consider is an artwork’s provenance. This can make a considerable difference to the selling price. In the current market, works from private collections with an excellent public exhibition history are in high demand and occupy some of the top lots by value at auction. While the prestige of being featured in an exhibition at a world-class institution adds to an artwork’s desirability and value, this is not to say that artworks kept out of the public eye are worth any less. A Monet painting, “Nympheas” (Water Lilies),1907, owned for many years by the reclusive heiress Huguette Clark and not publicly exhibited since 1926, sold at Christie’s in May 2014 for $27 million. 4 – Condition Condition is another very important element which can greatly impact the value of an artwork. It is essential to request independent condition reports before making a purchase. Similarly when identifying works privately or at auction, an independent examination of the artwork’s by your adviser with a UV light will immediately ascertain whether or not the existing condition report reflects the actual state of the work. 5 – Protection To protect your investment and ensure it appreciates in value it is important that your artwork is properly insured. If you have owned an artwork for several years, the initial valuation could now be out of date and not relevant for insurance purposes. Therefore it is recommended that an annual valuation is obtained to reflects changes in the marketplace. Where possible it is also recommended to identify if your artwork can be featured in public exhibitions as this will enhance the works future sale value and desirability. Buyers and sellers should always seek an independent and impartial adviser to undertake thorough due diligence at all stages of the collecting process. With an unregulated market, inflated prices and counterfeit works, a good adviser will ensure clients avoid the many pitfalls and potentially unpleasant surprises that can occur in the market place. This article was prepared by Viola Raikhel-Bolot, Director of International Advisory at 1858 Ltd Art Advisory, who is frequently called upon to assist clients when buying and investing in art. For more information please visit www.1858ltd.com

Make sure you plan so your estate ends up in the right hands. Penny Lovell shares her thoughts. Have you prepared a will? Have you made sure to plan your assets so that your estate will end up in the hands of the right people should anything happen to you? These may be personal questions but they are important ones that more of us need to ask our loved ones. Talking about death is uncomfortable, particularly with those we care about. However, making sure that your estate is in order could save a lot of money and heartache in the long run. New research from Foresters Friendly Society and ICM has revealed that almost two thirds (61 per cent) of us don’t have a will. On top of this one in ten of those who do have a will have told no-one else where it is. If you’re in either of these groups, and there’s a good chance that you are, you may find your money and possessions may not end up in the right hands after your death. All too often there are headlines about people who have died without a will, and sadly, while in many cases they would have preferred to have left their affairs in order, the result is far from ideal. A very good example of this is Stieg Larsson, author of the Millennium Trilogy books, who died intestate. As a result, his entire estate went to his father instead of his long term partner, who in turn has not benefitted at all from the worldwide success of his books and the subsequent films. Without a will or effective estate planning you don’t get to control where your assets go. Your estate will be divided amongst your relatives in accordance with government regulation and could even end up with the Crown. You may be under the impression that wills don’t matter if you are married with children and plan to leave everything to your spouse. However, your husband or wife will only receive the first £250,000 of your estate. After that they have a right to an income, but not the capital, from the remaining estate. This is the default position and one very few people would actively choose. If you fail to update a will post a break-up, despite being in a subsequent relationship, your estate might end up going to the wrong person entirely and cause great upheaval amongst your loved ones. Bob Marley died in 1981 without a will and, 30 years later, disputes are still raging with new claimants still appearing out of the woodwork. In addition, if you leave dependent children under 18 behind when you die then you may not have control of who looks after them. Instead, the courts may decide who is appointed as their guardians. This alone should be enough to encourage anyone to make a will. Worryingly the Foresters report also showed that more than three-quarters (77 per cent) of parents with children under the age of five have not made a will with nearly half those who have (46 per cent) not reviewing it in the last five years. This means that they have not appointed guardians or ensured their children’s inheritance is secured. Again, a famous example of this is what happened to Heath Ledger, whose will was not updated to include his daughter Matilda. Of course the older we get the more important a will is. Despite this nearly half (46 per cent) of those aged between 55 and 64 have not made a will with more than a fifth (22 per cent) having never thought about making one. One in eight (13 per cent) rely on self-written wills, the validity of which is more likely to be challenged upon death. March is ‘free wills month’, an initiative that brings together a group of well-respected charities to offer members of the public aged 55 and over the opportunity to have their wills written or updated free of charge. This is done using participating solicitors in selected locations around England and Wales. Whatever your background or situation it is important to have effective estate planning and a current will in place. This will ensure that you have control over your assets and make sure that your wishes are carried out if you aren’t here to control the situation. Making a will can also provide an opportunity for you to think through whether your beneficiaries require financial education. There are so many stories about people who inherit wealth without any financial training and therefore struggle to protect the assets for their own lifetime and for future generations. Financial training can help prevent this potentially challenging and unhappy outcome. Finally, there are many of us who wish to leave assets to charity and making a will is a great opportunity to explore the best way of structuring your gift.

According to recent research from Barclays Wealth, 40% of the UK’s high net worth individuals do not trust the next generation to protect their inheritance. Key Findings include: 37% of wealthy Britons have experienced family conflict as a result of family wealth Earned, as opposed to inherited, wealth is key to financial happiness 40% of the UK’s high net worth individuals do not trust their children and stepchildren to protect their inheritance The report, The Transfer of Trust: Wealth and Succession in a Changing World, is based on a global survey of more than 2,000 high net worth individuals. It provides an in-depth examination of wealthy individuals’ attitudes towards wealth transfer and succession planning, as well as offering insight into what the future holds for the next generation. Interestingly, it reveals how wealth in many cases can act as a double-edged sword, leading to distrust and conflict. Globally, developed countries display higher levels of uncertainty when it comes to trusting their children and stepchildren to look after their wealth. Respondents in Australia (59%), North America (61%) and Europe (62%) show lower levels of trust in their children and stepchildren when it comes to money management and protecting their inheritance, in comparison to the Middle East (78%), Africa (77%) and Latin America (75%). Experts featured in the report have partly attributed this lack of trust in the future generation to the changing structure of many UK families. As second and third marriages become more common, this is thought to lead to more complex relationships with both children and stepchildren in relation to wealth and inheritance planning. David Semaya, Head of UK and Ireland Private Bank, Barclays Wealth, said: “This report provides an in-depth study into the attitudes of high net worth individuals towards succession planning. It is clear that with wealth comes an increasing complexity of choice, and in some cases this can result in concerns about trust and conflict when considering the inter-generational transfer of wealth. Understanding options for succession planning in advance, and seeking professional advice can help address these fears and provide confidence that your wealth will be wisely managed in the future.” Wealth, Happiness And Family Dynamics Parents want to pass on their material wealth to their children, as well as a roadmap for a happy life, but the report reveals some interesting paradoxes about inheritance and succession. Source of wealth is seen as a key determinant of financial happiness, with earned wealth much more likely to result in happiness than inherited wealth. However, wealthy respondents in the UK remain committed to passing on their wealth, with 94% of respondents intending to do so. However, an unfortunate drawback of wealth is its ability to cause conflict – and in the context of succession – family conflict. The report reveals that 37% of wealthy individuals in the UK have had direct experience of family wealth leading to disputes. Accentuating this conflict, the report reveals that the risk of disinheritance increases in line with wealth for high net worth individuals in the UK. Whilst five per cent of those with wealth levels of between £1m and £2m have disinherited someone or cut a family member out of their wills, this rises to 13% among those with more than £10m. Catherine Grum, Director, Wealth Advisory, Barclays Wealth, commented: “In the case of wealth that has been inherited, tensions around entitlement may lead to disputes. However, it is surprising just how many wealthy respondents report experiencing such conflict and the impact that source of wealth can have on this, with wealthier respondents more likely to have encountered such conflict.” Despite all the potential tensions associated with succession and wealth, the report shows that the UK’s high net worth individuals remain committed to passing on their assets to the next generation, with only six per cent of UK respondents believing that this should not be the case. Globally, 60% of respondents say that they require a significant level of professional advice when deciding on an inheritance plan for their children and stepchildren, emphasising the need for expert advice to guide them through this decision-making process.