Stop Frankensteining It

Let’s talk family enterprise explores global ideas, concepts and models that help family enterprise advisors better serve their family clients. Brought to you by family enterprise Canada, all views, Information and opinions expressed during this podcast are solely those of the individuals involved, and do not necessarily represent those of family across

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Canada. I’m Jodi Betts, a partner at Watson. Board advisors at Watson, we work with family businesses across the country to help their boards lead with clarity and confidence. Right now, we’re inviting family businesses to participate in a national survey on private company director compensation. We’re running this survey in partnership with our friends at compensation governance partners. Why are we doing this? Well, if you’ve ever tried to benchmark director pay in a private company, you’ll know it’s because this data doesn’t exist anywhere else, and it should. Family businesses have unique needs, your governance, your compensation, your context, it all looks different than for example, in public companies, but your need for reliable, high quality comparison data to make decisions that serve your organization and your values are no less critical. So if you’re a family enterprise with a board, whether formal or informal, please take 15 minutes to share your practices with us. You’ll get early access to a snapshot of the results, and you’ll help raise the standard for everyone. You can find the survey link in the show notes. Thanks so much for contributing and for helping build

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something better.

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All right, hello and welcome to another episode of The let’s talk family enterprise podcast. My name is Steve Legler, and it’s good to be with you again. And this is the second time we’re doing it with video, and this is the first time we’re actually recording something together with our guest. And our guest today is Cindy rowdy,

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hello. This is a lot of fun. I’m looking forward to having a conversation with

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Steve, okay, and we are doing this at the family enterprise Canada symposium in Halifax, and Cindy just completed a wonderful breakout session about stop Frankenstein it. And so that’s what we figured, we just kind of do a recap of it, so the people who were in the room will have something to go back to, and the people who weren’t in the room will get at least some idea of some of the great content that happens at symposium. And hopefully we’ll see you next year in Vancouver. So Cindy, we started the presentation with the distinction between Frankenstein and Frankenstein’s monster. Can you kind of fill the people in on what that why the importance thinks, right?

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So this actually, for me, I was one of these people who always thought that Frankenstein actually was the image that we always think of when we think of Frankenstein, it’s the monster which is essentially the monster. So in the scenario, in the case study that we were looking at today, we were distinguishing clearly between Frankenstein as the monster and Frank whose middle initial is and last name Stein, who is actually the creator of the monster. Now, in classic Frankenstein, of course, the creator of the monster was very intentional of creating the monster, but in our and we’ll probably get into this in our conversation today, but really that Frankenstein role is the father in our example, and he has unintentionally created.

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So it’s about the fact that despite the good intentions of the person and their advisors that they envision, that they created, I think you had a slide there of the statue of David, and he’s imagining he’s creating this, but really what he’s created is what we commonly think of as Frankenstein.

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Yeah, it’s exactly it. So this great thought bubble of this nice gentleman who owns a business, and he thinks he’s created this little thought bubble of Michelangelo’s David, and then over his other shoulders, working the head of the monster.

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And you say that that a lot of these scenarios, which are pretty common, happen because there’s a disconnect between the family and the advisor. He just give us a little bit more on on how that disconnect happens,

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right? So my background, I’ve covered a lot of these different the different disciplines. So if you think about what you where you would typically, typically go with starting some of these conversations, you might go, for example, to your tax accountant, or you might go to a trust lawyer or a wills lawyer, and so you’re working with all these individual advisors, but they’re and they’re working in their specialty. They’re really deep, and they’re specialized, and those are very much silos that they tend to work in. And we talked about, sort of Sure, we’ll come back to this, but this idea of working more collaboratively with across these different silos. So whatever your entry point is might be, for example, insurance. Somebody might say you need an insurance to fund your tax liability, so you start going down that path. So whatever the entry point is, we tend to do that particular project in isolation, without coming way back, way up high, and saying, Okay, what are we really what’s the big picture here? What is our big goal? What is our

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goal? So it sounds like what you’re saying is that there’s a lot of parts that go into creating the monster, but that they’re created in isolation, so they don’t actually go to what together,

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well, exactly. And that was that fun image that we pulled together. So, yeah, okay.

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And so it’s a silo problem, and you talked a lot about the difference between cooperation, which everyone seems to be cooperative, and collaboration. And so, like, what’s the missing part to get us from everyone who wants to be cooperative, people say they’re collaborative, but they don’t really know what it is, right?

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So, I mean, a really good question, and I think this is something that’s really evolving, is shifting this lunch from lens, from cooperation to collaboration. So for me, cooperation tends to look a bit more like a handoff. It’s like, okay, I’m done. Like, I know, okay, I’m finished. Now you need to go to the lawyer. You need to finish the tax plan, but now we need to get the lawyer to draft the shareholders agreement, or the trust deed, or whatever that particular thing is. So yeah, we have this very different approach to come at it with a collaborative mindset. For example, we would be starting very differently. We would be having these the bigger picture conversations that a lot of feas are having with their clients. They might, as an FDA, not have the specialties, but they would then be able to help, kind of be the glue that integrated wealth person across the silos. Okay,

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and you brought up and showed the slide, and we’ll, we’ll put a note in or a link in the show next to this, about the 10 domains of wealth model. And so long time fans of the podcast episode 29 was one where I had Jim Grubman on and we talked about the 10 domains, yes. And so you talked about that. And so just give us a little view of what what the 10 domains, what they generally are, and why it’s so important to consider, all right,

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so there’s basically two hemispheres. I guess there’s cultivation of family capital and there’s wealth creation and stewardship. I think that’s what the other sphere is saying. And within each of those there’s sort of subsets, so wealth creation and stewardship would be more of the traditional things that you would think of in terms of, say, risk management or more the investment advisory philanthropy is also in there, and then the bottom half is really getting more into family dynamics and governance and leadership development. And you know, everybody who’s in this space doesn’t like the term soft skills, but that’s what it tends to get labeled as. But they’re critical skills to helping families really do succession and transition planning and

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mentorship well. And so that model is a good place to go to make sure you’re actually covering off all the bases. But it also underscores the fact that there are so many different specialists involved, and that working in isolation has its risks

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100% I mean, even if you just look at tax like tax law, for example, when I practice as a tax lawyer, I was a specialist in about three sections of the Income Tax Act. And there’s like hundreds of sections of the Income Tax Act. So not only are there silos across like countless lawyers, investment insurance, but there’s also sub specialists within each of those that so it gets very, very, very narrow. We just touched the tip of the iceberg on the silo situation.

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Okay, you had a great slide with all the different parts of the Frankenstein monster. And you talked about, there’s the debt, there’s the shareholders agreement, there’s the will, there’s the insurance policy, there’s the trust, there’s the marriage agreement. And then you finished it off with this heart. And why was the heart so small?

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Well, so, yeah, so there’s little, teeny, tiny heart and this beautiful, big monster, and the heart is small because it’s basically an afterthought. And that’s how much emotion and real conversation help, heartfelt discussions among the family members go into creating these these plans. Is

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it fair to say, then that the people come from the more technical domains have typically been the ones who take lead on all of this, and that’s how families end up with all these disparate parts, but that specialists on the bottom half of the 10 domains that are more of the family dynamics will have more of those conversations that will look at the holistic picture.

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Yeah, I think that’s fair and but what I’m really excited about is this, this new concept of this integrated wealth advisor, and so that’s somebody who really can bring both hemispheres of that 10 domains model together. And there’s some great resources that maybe you

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can put in here. Okay, so you’re referring to an article by Tom McCullough where he talks about the rise of the integrated advisor, integrated. So that integrated advisor is that the person who sits in the middle domain that which is the advisor relationship with the client. Yeah,

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so advisor, client relationships in the middle and and that, really, if you look at the 10 domains, model, permeates across all of the 10 domains. And it’s, it’s all, there’s one single person who’s, like, more important, or, you know, holds all the cards. It’s really you need to have, you need to have somebody that is that it’s the coach, the quarterback, whoever it is that you can’t go out we’re in the middle of hockey playoffs, right? You can’t have everybody just as everybody position just go out there. You need somebody

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that somebody has to be orchestrating and navigating to make sure that everyone is looking at all the parts and making sure that the parts go together. Yeah,

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we know what the strategy is, and we know what we’re doing when things go wrong and somebody’s in the penalty box,

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right? Okay, and so the one thing that I wrote down while you were presenting was about, you know, people are not having the proactive conversations and they aren’t asking the questions. So how do we get families to actually stop and have these conversations and start asking these questions.

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Yeah, so that’s the million dollar question. I think we’re at the FEC conference, and it’s fantastic. We’ve got advisors and we’ve got family members here, right? So building awareness is really key. I think as we get more families speaking about this and sharing their experience. That is really where the magic comes from, because advisors saying you need this oftentimes doesn’t land quite the same as when you get somebody else in your sphere that you trust and respect and have known for a long time saying, Yeah, we went through a process like that, and it was, it was fantastic, and I highly recommend it.

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So having families hear from other families who’ve been through it, and, you know, we always hear about the disasters where, oh, the family didn’t do this, and so bad things happen. But if we had more examples like we’ve had over the past couple of days of families talking about the good things that they’ve done, that that would help us as advisors, because often we come across, I guess, as trying to sell our services to the families, where really the families, if they had other families to model the behavior and show them how and why they need to do some of these things, that would be a useful and helpful

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thing. I think that would be a tremendous win for

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everybody involved. So one of the questions that that you asked of like, what if? What if? What if the family, in your case, example, what if the patriarch had asked his family questions? Why don’t people ask the question? Oh,

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because I would say they’re afraid they’re going to open the can of worms, right? Because there’s going to be somebody in there somewhere that’s it’s really hard to have these conversations as a family, typically, because you’ve got all this history and all these buttons that inadvertently get pushed, and you’re not able to talk about stuff you don’t really understand. So we might think that the will is set up this way, but it’s actually not. The will is set up another way. And so we actually need somebody in the room that understands how this stuff is actually going to operate. So having that neutral person that can help dispel some of the misunderstandings is really, really really

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important. So misunderstanding, so like, they just the word misunderstanding is people that people do not understand, right? And so they think they understand. And different family members all have their own assumptions about what they think they understand, and often they’re at odds with what’s really written down, and they’ve never had the conversation, so the family doesn’t have any clarity, and nobody knows what’s going on, and that’s what ends up with the confusion. So in the case that you shared, the guy dies all of a sudden, and now they’re stuck with what’s written on all these different legal pieces of paper. You mentioned something about litigation expenses that are going up like crazy, and how, how often families are sold on a very tax efficient plan, right? And then you, you said something about, you know, the tax efficiency might give you this amount of savings, but the litigation expense could be much larger. Is that, is that a fact, that that’s what people are seeing?

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Well, yeah, I think I mentioned just, we all know we’re in a demographic bubble of wealth transition, and you know, boomers are going to be dying sooner than later. And the reality is that we’ve got a lot of structures out there that people that people do not understand. And you know, how are we, yeah, how are we going to get some clarity around around that before it’s too late,

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and so families will end up with a lot of agreements and technical things in place that don’t work well together and that nobody understands. And so then your question that you asked during our case discussion earlier was like, What could go wrong? And then as you went around all the tables, after we did our little table discussions, we have this laundry list of all these things that could go wrong. Do people not realize that all these things are possible? Or they just don’t want to think about

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well, I guess that’s two prongs. Do the advisors not realize it? Did the family members not realize it? So advisors should realize it. But again, for whatever reason, continue to work in isolation. We work, as we’ve said, cooperatively for the most part, but you’ll get down your specific project that you’re working on, and nobody’s taken that you know big from the airplane lens on this. Family members, for sure, do not understand their structures. I’ve never met a family that’s understood their structures, even when there’s people in that, in the family that have some kind of technical training, why don’t they understand it? Because they’ve probably never seen the whole thing together, right? They’ll maybe have seen a will, or the mate, and then, oh no, we actually redid the will. That was an old will, right? Or, though we had to redo the trust because it hit a 21 year rule. We’ve redone all this. And you know, so this isn’t a one and done sort of thing, right? We need to be on top of changes that are natural and normal in the world that we live in, which is tax laws change. You know, family law

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changes, people die and people get married and people get divorced. You mentioned the wealth 3.0 model, which is where the 10 domains is part of that as well. And so there was an episode number 50, which was the other one, which has video that I did with the three authors of that. So I want to refer people back to that as well. How do we stop Frankenstein again?

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Well, I mean, I think conferences like this are really key, right? We’re spreading the word that we’re we’re saying, yeah, like this is really important, that we have these conversations with families. But I think the stuff Frank is studying is taking it to the next level. And how really are we working in the collaborative teams? And what is that going to look like as we move forward? What kind of contracting are we doing with the family and amongst ourselves? What kind of codes of practice are we going to put in place for ourselves as collaborative teams? And those collaborative teams are going to keep shifting as well. So I think it’s a really exciting and interesting time in terms of this is very nascent and exciting, and what will be creating it, I think in the weeks, years,

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months, days. I think it’s already evolving, like from when I did that episode with with Dennis, Jim and Kristen. That was, you know, we’ve already seen some evolution, and they’re now working on what they’ve learned and what’s evolved since then. So one of the things when that you noted in your How do we stop Frankenstein was know what the documents say, and so how do you get people who created these documents in good faith, with good advisors who think everything is fine, to actually go and open that up, or is it? Just give me the documents and let me review them. That’s how you work? Yeah. Well,

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again, because I have a legal background, I’m not practicing for law society, but I don’t, so I don’t draft documents anymore, but when I read these documents, I’m like, if I don’t understand it, guaranteed the family doesn’t understand it, or somebody in the family isn’t going to understand it, so I come at it with a fresh lens. And a lot of these documents were put in place years, maybe decades, even before. And circumstances have changed in the family, for sure, sometimes the laws have changed, and it might be like, there’s big there’s big gaps, or even little, tiny gaps that can throw turn, you know, it’s like the pebble in shape, something quite painful.

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Okay, so we want to move from silos to collaboration, and one of the things you mentioned was making sure we have all the advisors on board. And do we have the right advisors? But I think sometimes we run into families who have advisors that have been with the family for a long time, but the family’s circumstances may have outgrown that advisor. So what do we do in situations like that?

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Yeah, I mean, that’s a that’s a pretty delicate conversation to have. I I’m certainly not in a position to say you need to get rid of your advisor. I mean, there’s history there. There’s those important relationships. There’s

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this confidence. And

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so from my perspective, what, what I what I do, and what I would like people to do with me, if I was in that position, is to contact those advisors and say, you know, talking to this family, and they’re interested in having some different conversations, just so, you know, I don’t do any of the type of work that you, you you do, and I would like to make sure that you’re part of these conversations so we can do the right thing for the

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family. One of the questions you asked in your presentation was, what if they had been asked about the other family members. So before the guy died, if he had had the conversation and asked his family. And so we went around and did discussions at our tables. And there were some really interesting things that came out of that. And one of them was, if you asked, you would learn something. And so like how I mean, but it sounds so obvious, but that was one of the ones that struck me. And the other thing that I noted was, well, if you started to ask them, they would ask you a question, and you’d say, well, I don’t know, let’s go see what will says, or let’s go see what the document was. So it would force you to actually have to go and look at what’s there, and then, invariably, you’d probably find out that something is not the way you thought it was, or that as you explain it to the rest of the family, they would say, Well, why is it like that? Yeah, so I guess that’s like the invitation to just open things up and have the conversations and ask the questions.

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Yeah, for sure, I think again, the only caution there is if you have lay people, in other words, people who aren’t specialized in the language of the will or some whatever documents you’re looking at trying to read these things. These are rarely front to back documents. It’s not like you’re reading a book, right? So, and some of these wills can be very, very complicated. And I’ve actually done like Cole’s notes for some families, where it’s like a literal grid of what, what it says in legal, what that means in plain English, what the clause number is, what you have to cross reference so that you can read the documents and understand it. Because you don’t just pick up a will and go

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so you actually need to have some kind of knowledge and skill and training to be able to read a will properly and understand what it says and then explain it to people, yes, yeah. And that isn’t necessarily done as much as it should be, or as often or as regularly, yeah. And so you’re advocating for families to have regular meetings as well, where facilitated family meetings, where they can talk about these

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subjects. Yeah, 100% so when the wills, typically, when the wills are done, mom and dad are involved, right? And often, historically, still demographically, it’s the Father. I’ve sat in meetings where the wills have been discussed and the husband has said, Well, you know, you don’t need to worry about it, to the wife, it’s all taken care of. And and she’s like, No, I need to understand how this works. And it’s very interesting watching those, those dynamics. And I mean, you, you know me well enough to know that I’m not shy about saying is, she has a good point. We need to actually bring her up to speed, and then that’s just mom and dad right now, we need to bring the people who are going to be impacted by these wills. I either rising generations or or charities, right? Philanthropic gifts.

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And the way that wills are sometimes put together is like, oh, everyone, treat them all equally. And we had somebody brought that up today about how you know equitable versus equal is is not the same thing, but that’s there’s a conversation that needs to be had to understand what, what is equitable for this family. One of the things I wrote down was, where do where do we want to go as a family? The family has to ask themselves that question, and you noted that that family is going to be different from the family you’re going to see tomorrow and the one that you saw yesterday. If you just share a little bit more about that, we need to treat our families as individuals, individual

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families. Yeah, you know that if you have, if you’re part of a family, that everybody in family is different, right? And so when we start putting, you know, standard will or standard trust in place, and we don’t realize that there’s a, there’s a disability in the family, or somebody, oh, they moved to, you know, another country, right? Or even another province. And we’ve, we’ve got, now these, these templated documents that are based on, okay, everybody’s here, everybody’s in Canada, everybody’s healthy, everybody’s gonna live a great, big, long, happy life. But that’s not often, not often, right?

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So no two families are ever the same, taking the time to make sure that the package of technical instruments we’re putting together actually fits that family, that that family understands what it is, hopefully, that the people who are affected by it had some input in creating it. These are all things that we are always sort of working towards as family enterprise advisors. We’ve been trained to do this. We try to do it. Everyone says they collaborate, but it’s still not necessarily easy to do

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that. I would say it’s really hard to do that well, it’s hard to do it well. I think part of the reason it’s hard to do it well is because everybody is very busy, right? And, you know, certain of the professions have very specific cycles where they’re just not really available, like tax season, for example, the accountants will it’s just, you know, it’s really hard to get hold of them, so you have to sort of match those cyclical things. And if you’re aware of that, again, as sort of this integrated advisor, you can be planning these conversations out and mapping it out so that we can have, you know, the next, the next quarterly found in meeting is going to be the one where we have the conversation about, say, one of the tax structures that’s in place so the account can be there, he can be completely present, because he’s not worried about running back to the office

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because it’s April, because it’s April, Right? That’s interesting that we talk about the cyclical or the timing. I was talking to somebody yesterday, and they were talking about, they work with agricultural families, and there’s a real seasonality there, and it’s there. It’s not the professionals that aren’t available, it’s the families, because this is our busy season. We got to do this stuff during the winter, or else the family doesn’t have time, so just matching the professionals with family, making sure the right people are at the table. There’s always a lot going on, all right? I think we’re getting towards the end, and we’re gonna have to shut this down, but we always try to end with asking our guests for one piece of advice. You’ve worked with a lot of families, a lot of advisors. Is Is there one piece of advice, and is it tied to what we were talking been talking about today? What? What are you What should families be thinking of and the advisors? So

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the message is going to be, start early having these conversations and make sure you’re getting these things in place. I would share very quickly aside, aside things. So my sister, for example, had sinus surgery in March, and she did not have power of attorney, personal directive, anything in place. The surgeon nicked an artery in her brain, and the family twice made an end of life decision. Fortunately, she’s come out of the coma, but it has been incredibly stressful period trying to put all the pieces of the puzzle together while she’s been in a coma. So I cannot encourage families like we don’t know when we’re going to die and or become disabled and not have capacity, even if it’s for a short period of time. So please make sure that you are having these conversations early. It’s so important and sharing your wishes and your values and all the what are we all about as a family, and what would we want to have happen? And if you come at it with that lens, I think it’s an easier conversation to get people

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started right. And I think advisors always have a key role to play in that, to help the families have the conversations, because left to themselves, often very difficult to even initiate those so that’s part of something. What the FDA advisors are doing is helping the families have those conversations. Cindy Radu, thank you so much for doing this right after presenting to the big group here. Thanks for doing this and for sharing your experience and your wisdom with us. Thank you, listeners, viewers, thanks for your continued Fandom of the let’s talk family enterprise podcast. Look forward to the next episodes, probably not necessarily on video, but I’m Steve Legler until next time, thank you.

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