A conversation on family governance with Ewald J. Scherrer

Ewald J. Scherrer is the Managing Director of Alpadis Group in Switzerland. He heads up the Group’s office in Zurich where he runs the wealth planning and family office services

With a lengthy career in tax and estate planning, family governance as well as fiduciary and trust advisory, Ewald has a deep understanding of the challenges faced by wealthy families and family-owned companies in the region, particularly when it comes to matters of succession and family planning.

We sat down with Ewald for a conversation on the needs of outside experts, what has changed over the years and the importance of honesty among other things:

Can you provide an overview of the role of a Private Wealth Planner?

Generally, we help to organise the assets of a wealthy family or family-owned organisation. This involves working with family members, usually the second or third generation, to provide expertise on wealth structuring, asset allocation and advice on managing their money in accordance with their requirements.

How do you approach a typical project?

We often deal with succession planning with the main asset owner having either deceased or wishing to put together a plan to hand over/down his or her assets in an orderly manner. One key question would be, who is the legal owner of the assets? There are often many asset classes that we are dealing with including family savings, art collection and real estate and these can be spread across different countries. I also want to know who the main decision-makers are (there could be a family committee or counsel), how often they make decisions and where these decision-makers are (within private companies, art collections, houses, portfolios etc).

I would take a detailed look at all the legal structures including delegation powers, who the custodians are and how is holding all of these legal structures. I would look at the capital allocation, whether or not it makes sense. For example, is the family holding too much art? Or they do not have enough cash and so not enough income for consumption.

What kind of results do your clients generally expect?

Most of the time our clients want absolute returns. They do not want to lose money and usually want to generate cash for their own consumption. It is not unusual to have second or third generation family members who have not conducted cash-generating activities themselves and so are not creating enough dividends to fund their lifestyles. We would then need to start looking at selling assets such as real estate to create the needed cash flow. We would need to be careful how we set performance figures, avoiding artificial performance figures or comparing performance to the annual return of certain markets.

Can you give us an example of how you work with clients?

One example was with a wealthy Italian family based in the UK. The family wanted to ensure a smooth generational transition and avoid any high-profile ‘family fight’, they wanted to stay together as a strong family unit for generations to come.

We started off by meeting the family and understanding the family dynamic, their needs and goals. Armed with this information we then set about developing our analysis and recommendations for them, as well as advising them on how they should implement these procedures and structures. Of course, we stayed in touch thereafter and offered advice and clarifications as and when.

Among other things, we provided advice on family office creation and re-alignment, tailored trust agreements for the family, created a family constitution and structured the Family Holding Companies. We also served as an independent board member for their private firms and family office, facilitated Family Council meetings and Family Retreats and advised on the governance of Family Foundations and Philanthropy. Lastly, we performed an educational role, educating and engaging the Next Generation, sharing global “best practices” for families with substantial wealth and shared our wisdom with the Patriarch about multi-generational succession.

What piece of advice would you give to potential clients before they engage an expert such as yourself?

I would advise clients to be completely honest, transparent and upfront with their Private Wealth Planner at all times. This will not only make the Private Wealth Planner’s work more effective, but it often ends up saving time and money for the client. Clients too-often don’t put everything on the table, they may not tell us the full extent of their assets, or who all the decision-makers are, family members and others. This makes it hard to set up family charters and other frameworks and makes it hard to properly manage their assets.

One very rich client of mine actually hired multiple advisors for different asset classes and gave each of us a partial picture of his wealth and assets. He thought that he would benefit from having advice from multiple parties but in reality, it meant that none of us really knew what was going on. Upon his death we were left with multiple problems. For instance, his daughter had control of the art collection despite not having any experience managing such assets, such as having the right insurance policies. Before his death the client had been flying the art pieces all over the world, violating multiple tax and import regulations in the process.

It is vital that clients be upfront and honest in all their dealings, allowing us to get all the relevant information together and providing the best possible service. It is also important to know that confidentiality is taken very very seriously by us in the family governance process. Of course, the client is obliged to adhere to all rules and regulations when it comes to reporting assets but as advisors we can be fully trusted.