(EP 23) Darren Heveren – Intergenerational Wealth Transfer And Growth

​Our next #CriticalFewActions™ interview is with Darren Heveren. Darren’s got a distinguished, career initially as a partner at Deloitte, before establishing his own practice that supports high net worth families and their family offices.

Today we’re going to discuss the role of the family office. Why have one. What’s involved and how to establish and operate one and whether or not you can outsource some of it. Darren, welcome.

Thank you, John. A very kind introduction there. And, it’s great to be with you and, yeah, looking forward to, to sharing my thoughts on family office, which is a very exciting space. for me, it’s, the only space that I’ve really ever wanted to work in.

How did you actually get involved in family offices? Yeah,

starting out my career in 1991, with initially Deusbury’s and then quickly merging with Deloitte, working in the business services area. started off my training, with small to medium sized businesses and the families that work in them and around them. So that, that really gave me the introduction to families that have that entrepreneurial spirit, and intergenerational,transfer of wealth and so forth.

So, and I quickly learned that I much preferred dealing with,the families and the business owners more so than, people within large corporates who, potentially don’t display as much, enthusiasm or, passion for the business that they’re working in than, uh, than family businesses

it’s pretty exciting and inspiring frankly isn’t it.

It is, and it’s, it’s really what gets me out of bed every day, working with those business owners and, and helping the families. themselves, through all the trials and tribulations of, of managing what is often quite a large pool of capital.

Yeah, and it’s both an honor and a privilege to work with them and to have their trust so. So, so tell me what is this thing called a family office.

Okay. So, you touched on, the word trust there. So, and the word trust advisor is, thrown around quite, quite a bit. So, that, but that is really a critical piece of the family office. situation. So in terms of a family office, it can really look like anything from a small family office for a family that might have a pool of capital of, say, $5 or $10 million through to the entire family office offering, or even a standalone one family office.

for a family that may have a billion dollars of capital or multi, several billion dollars of capital. So,and then there’s any range of, of setups in between, including multi family offices where, so three or four families might share, one family office.

Our focus is, the, high net worth, ultra high net worth space. and from that has grown, basically a family office offering, which means we tailor our solution for each individual family, to their needs.

Yeah. So, obviously they can be big or small and they can be involved or not, but if we think about a family office, what’s the objective of the family office?

Yeah, the core objectives of a family office is, many prongs. at the, most basic, it’s taking care of the annual tax compliance, for example. So, and from that grows, potentially moving into taking care of, or assisting the clients with, investment. So, once, once there’s, capital moving from, active businesses.

If there’s a divestment, situation or a sale, then the capital moves into a more passive mode potentially, and then it’s about redeploying capital with, sensible investment across broad asset classes to, ideally achieve a return for that family that is, that is fair and right for the amount of risk that family is prepared to take.

Thank you. With that capital. So,the investment piece is something that we’ve, been able to offer under one roof, because I’ve been a, authorized financial advisor now for 12 years, which is not something that many accountants and tax agents do have under their belt anymore. with the recent FASIA obligations, a lot of financial advisors have chosen to just hand in their ticket.

I think it’s becoming a really crucial part of that family office offering, being able to have a conversation with a client across structuring, tax, accounting, and investment advice.

And with the family office, apart from the compliance activities and addressing, you know, what’s the next investment if the, the family or the founders. Exit from one business and move into either a passive or an active investment in other assets. Is there also a transgenerational issue?

A huge trans intergenerational, issue. the intergenerational transfer of wealth, has been well publicized. I’ve heard words like tsunami, wave,and it’s true we’re saying it. So, you’ve got the situation where there’s been, the matriarch and or the patriarch, they might be now moving into their seventies, eighties.

and then you’ve got the next generation. You might have anything, you know, up to 3, 4, 5, 6, Children of the founders. And then from there on, you do the maths. each of those children have multiple children and all of a sudden you’ve got the family capital. needing to sustain, you know, potentially 20, 30, 40 kids and that’s before the grandkids start arriving.

So,it’s a real, it’s a real, challenge for family offices to, to, plan for sustaining that capital and allowing it to, sustain that many people.

Yeah, and I guess there’s sort of , that old phrase that I’ve come across many times. And that is the first generation makes the money, second generation preserves it, that the third generation blows it. I mean, spends it. is that part of the reason or the objective of actually having a family office?

And that is that from an intergenerational perspective, pre preserving, as much of that capital as possible, for the dynasty, but also to encourage future generations not to rely on that as much as. being able to stand on their own two feet, but also have that as,a capital pool that, that grows for future generations.

Is there something like that?

I think it would be, foolish bordering on negligent. for a, a high net worth family these days to, not seek advice on how to best protect the capital. and look, I think the world was very different 20, 30 years ago. People probably tried to go it alone a bit more back then.

I think people now are much more willing to bring in the experts. To guide them,and take advice from various directions, I mean, the critical things now I think is,you know, putting in place a governance structure around a family office. and again, every family is unique.

Every family is different.everything we talk about here is going to look different for, every family. There’s no one size fits all. Thank

there’s many establishment names in Australia who have done it very well. you know, people will be familiar with the Meyer family office.

that is a single family office that has grown into a multifamily office offering and their governance structures are well known. They’ve brought in the next generation into those governance structures gently and slowly. So they slowly get their head around how things work. they get involved in and understand the, let’s say responsibility that they have on their shoulders.

but it doesn’t come as a, like a train through a tunnel and smash them in the face when the, founder or the patriarch, passes away and they’ve known nothing about it. So that gently approach I find tends to work. much better thanlet’s keep it all hidden and quiet and not talk about any of it.

which, you know, I’ve seen a lot of families where money is taboo. It’s not to be spoken about, for example. Is that a healthy way to go about it?We don’t judge. We just guide and nudge. So,yeah, that intergenerational wealth transfer piece is going to be, something that’s going to keep a lot of advisors very busy for years to come.

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Yeah. Well, particularly as 50 percent of the population is now, what over the age of 55 or so on. So, so Darren, can you walk me through perhapsa bit of a case study example of, a family that, that,have been very successful in business and then decided that as with those sort of considerations in mind, the intergenerational wealth transfer and governance and responsibility for the family, how they, Address that whole family office.

Well, the family office is just a tool, I guess, is how they actually address that, that intergenerational,process.

Yeah, so the family office, is really a vital piece of. the solution, but it’s only one piece. now the trusted advisor side of things. you know, as an example, I’ve. I’ve now been working with some of my clients, since pretty much the first years of my career. So, yeah, I’ve got some clients that have been with me now for, and I’m, I won’t give my age away, but, yeah, it would be, it’d be getting on, 25 plus years.

So, in terms of trusted advisor, you clearly cannot earn the trust of anyone, in six months or 12 months. It’s something that is earned over a long period of time, and, you know, having clients that have stuck with you for that long. really reinforces to me, how important it is, to be that trusted advisor and, through the rest of our business.

we do have an association with a family office. we, we co share with a family and we act as their, family office as well. They also have, dedicated, family office staff members. So,that just gives you, I guess, a bit of a feel for,what the families are looking for in terms of their trusted advisor.

They really want to know that when,the poop hits the fan, they’ve got someone in their corner and we’ve proven that time and time again, that when they need someone in their corner, we are there.

Brilliant. And so if you were looking at,a range of medium to large businesses, who do you think really needs to establish a family office function?

Yeah, look, I’d suggest that, anyone whoaccumulated quite a bit of capital behind them. And by that, I would say, perhaps if you’ve got $10 million of investable assets,just as a rule of thumb, it might be $5 million if you’re, if you’ve been entrepreneurial and, but you’re not really, you know, compliant or investing or whatever the case may be starting to build that relationship with the right person.

And often it is the accountant or the tax agent, trusted advisors, uh, you hope. So if,if your accountant or your advisor, you don’t consider to be a trusted advisor, then. It’s time to move. And then if you can start to build a relationship with an advisor that does have a family office offering, you’re going to start hearing and seeing and, learning family office aspects, just through your association with that person.

So I would hazard a guess that, many of our clients. don’t actually know that we’re their family office. We introduce family office functions gently,if they’re not quite ready. So yeah, many of our clients, if someone asked them in,In the street, Oh, do you have a family office? They’d probably go, no.

yeah.

I have it, but I have a great accountant. Sothe family office function is evolving out of the traditional accounting practice where you start off doing the accounts and tax returns and then all of a sudden, next thing you know, all of the mail is coming to us. And then the next thing you know, they’ve asked us for help with the superannuation.

And then there’s asked for help investing in, low risk, passive index funds or something like that. And then the kids are growing up. The kids are in their twenties. The kids are thinking about buying their first house. how do I have a conversation with my child about that? We have the conversation, and we guide them through that process.

and then, you know, child A is having a disagreement with child B over money. We’ll have a chat with child A and child B. and then often we’re educating the next generation about, all things financial. you’d be very surprised, or you may be surprised to hear that, in a lot of families, there’s not a lot of financial literacy. in, in the next generation. So,there’s just so many, facets of, a family relationship that we can assist our clients to work through in a calm, rational manner. And, you know, often I feel that most of my, day is taken up with mitigating the risk of conflict between families and acting as a counsellor.

That’s actually within the family and really helping smooth the waters.

Correct. We take great pride in knowing that, all of our, if not all, most of our families are, having Christmas lunch together, for example. there hasn’t been a falling out over money. So if we hear about a falling out brewing, we take that personally, we consider that a failure because there’s absolutely no amount of money in the world that is worth having a falling out with your family over, Once there’s that, that much bad blood between a family, that they will no longer speak or, you know, they won’t spend Christmas together

in my view, that’s a massive failure. You know, no amount of money in the world will replace your relationship with your family, brother or your father or your son, whatever it may be.

So that’s a hell of a cry from preparing a set of tax returns and statutory accounts, and maybe using H& R block so. So,

That’s a very good point, John.

That, yeah, as you say, that really actually shows the breadth, not only of trust as a trusted advisor, but also, the breadth of support, that you can provide, not just the founder of a family, but actually all generations of the family

and I think with, yeah,

purpose.

The key, I think benefit of teaming up with somebody with a lot of experience in this space is, it’s not that often that I’m confronted with, you know, an issue from a family office anymore, where I haven’t seen it before, and where I haven’t helped another family solve this sort of problem.

So I know that resonates strongly with umm families that, s its new to them, but it’s not new to us. And we’ve, we can storytell about how we’ve helped other families. Another family through this situation, and there is light at the end of the tunnel,

yeah.

and

we will put in place, steps, policies, governance, you know, a family constitution, bring the family together, get everyone’s ideas on paper.

and as a family come up with the way forward that family wants to, map out together. So everybody has input, and nobody’s left out in the cold. So yeah, and to me, again, in terms of, what gets me out of bed in the morning,to me, I don’t think there’s anything more, satisfying than knowing you’re having that much of an impact

on a family. You know, again, you said it’s, H and R block can do the tax returns, et cetera. but we keep families together and we keep families functioning, whilst also having a large capital base. So that’s an achievement in itself. I believe.

It certainly is. So, so if I’ve been a successful business owner and I’m still running a business, it’s well worth well over $10 million. For example, how would I go about establishing a family office knowing for well that, you know, if I’m on my 40s or 50s and I’ve got kids coming up in their 20s and 30s and they may or may not have any idea what they want to do when they grow up.

Yeah. how might we go about establishing a, a family office and getting some clarity around its objectives and its parameters.

Sure. So with, you know, somebody in that $10 million, $20 million space,that’s probably not in the, space that’s ready to establish and fund a standalone family office. You know, it’s,it’s really hard to find that trusted advisor. At the moment, you know, there’s so much demand for professional services.

And it’s, you know, having that trusted advisor is something that you have to work on over a period of time. So to find somebody with all that experience that you can hire and run your family office is very difficult. ,I would suggest finding that right accountant, financial advisor, whatever the case may be,they’re most likely already in your orbit.

So it might be your existing accountant, or if you’ve been using the low cost H& R Block type accountant, I can guarantee it will be outside of their capabilities. So,we, you know, what probably one of the most typical new clients we see is, a high net worth family, such as the $10, $20, $50 million dollar, net worth that has stayed with the family accountant for 30, 40 years.

and it’s potentially a sole practitioner or a small suburban accountant still using, believe it or not, I have seensome still using paper lodgements, handwritten paper ATO. So, up from an abacus.

yes, often the trigger is,that individual is retiring. So there’s really no choice. So, you know, family, High net worth families are often very loyal

which is fantastic. but it can also be a bit of a trap. So if the advisors are not,living up to their promises or are no longer capable of servicing that individual or family, often the families are loyal, to a fault where they’ll stick with that person, even though it’s possibly putting them at great risk.

So,by that, I say, you know, the reality is now the ATO is getting more and more sophisticated. and they also have what’s called the Next 5000 Program. So,many high net worth individuals, families aren’t actually aware that they’re in the wealthiest 5000 people in Australia or 5000 families.

So, you know, , if you meet somebody and, often they don’t even know what they’re worth, for starters, and you do a quick calc with them and you go, Okay, so you’re worth about $35 million. Oh. Right? And then, you say, well, that actually places you in the Next 5000 crosshairs with the ATO.

So you, you will get a ATO audit within the next five years. No, surely not.

Really.

Yes. So,that, that type of,person that you meet well and truly needs to get their, tax governance up to scratch very quickly, because the ATO now in those Next 5,000 reviews,are looking for a tax governance structure, in the family.

So it’s not just, Oh yeah, your tax returns are okay. Tick. Well done. It’s what is your tax governance structure to ensure that you are complying with your tax obligations.

Right.

I mean, that’s

That’s a whole new level of sophistication.

Correct. and there would be, you know, in that next 5 000 group, I’d be staggered if more than 10 percent of that group have a tax governance, methodology or,

Or even knew what the hell it was.

correct.

Correct. So, so, yes, the ATO, bless them. They’re becoming more and more sophisticated. They’ve got a job to do. we understand that. And yeah, they do that job, in a more and more sophisticated way, with technology and so forth. They’re able to identify now through, you know, public records, land titles, registrate

amount of data matching. Yeah.

They know who the 5, 000 wealthiest people in Australia are. So, those 5, 000 wealthiest people in Australia, I dare say, need some kind of Family Office starting to support them.

Yeah.

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What are the things that come unstuck in getting your Family office set up.

Yeah. So I mean, like, like any organization, people, people are the biggest challenge. So finding the right person for your family office. is the be all and end all. It’s critical. So if you get the wrong person in there who rubs up the kids the wrong way or, can’t build a relationship with the family members, then you’re kind of dead in the water.

But that’s where having a, outsourced family office. can be a better solution. And you can start, as I said, softly. So you start with the basics of a family office offering, which might be just the compliance and, someone like me on call for just your general day to day advice, strategy or structuring or, you know, the kind of questions we get day to day are, I want to help this child, into a house.

How do I do that and be fair to the other children? or I want this child to go and buy their own house and do all the work themselvesto learn, but I want to help them as well. So, you know, , I’ve lost count of how many, kids I’ve coached through buying their first house. So, and we can help from go to wo So I’ll give them the conversation about researching where they wanna buy.

researching that area until they know it like the back of their hand, setting the alerts on realestate.com. so that everything that comes up in that area, they look at doing it for three months before they even think about bidding, for example, just get to know the market. and then if they need help with finance, whatever, we can put them in touch with those sorts of people.

And then there’s insurance and there’s stamp duty and then there’s stamp duty exemptions and blah, blah, blah, blah. So pretty much anything to do with a major financial decision, for anyone in the family, we can coach them through thatand then from there it can grow and grow. We can become, like the mailing house for all of their financial stuff.

I mean, some clients we even do their personal.invoices. all the bills come to us. Now, I kind of wish I could do that with my own stuff, in our office. I probably should, but,yeah, there’s families that just don’t want a bar of anything to do with financial, so

Right.

we’re the full mailing house, and then all through to financial planning for, individuals within the family and the entire family as a whole.

So how can we tax efficiently, transfer that capital from, the first generation to the second generation?

Yeah.

How can we boost the second generation’s superannuation, pool so that everyone in that next generation has the maximum amount of super possibly at retirement? So, that’s really long term stuff. Again, your H& R Block accountant is not going to think about any of that stuff. They’re just going to do that year’s tax return. So we’re constantly thinking about the whole family and how do we look after the whole family and how do we over 10, Efficiently transfer that capital.

Yeah. And how do you get the family and the various generations on board with the idea of having this construct when some of them may well be,feeling terribly independent and some of them might be feeling quite keen to be quite dependent.

So again, it’s it’s not a one size fits all. it’s not even a one size fits many. It’s completely bespoke. we get to know all of the family members. we broadly understand their strengths and weaknesses. we definitely do not ever, interpose ourselves in any business that we are not wanted.

So, I’d suggest you need a fairly high emotional, intelligence, in this space. and tolerance. so, yeah, it’s about learning who, who needs, and wants. And who doesn’t, for those who don’t, it’s just about making sure they don’t get themselves in trouble.so, which reminds me that one of our main critical roles is gatekeeper.

if I had a dollar, For every, very poor investment decision that we’ve managed to steer, people away, including scams, just fly by night stuff, stuff that people have seen on the internet,

Yeah.

That sort of stuff, I wouldn’t be sitting here talking to you, John, I’d be on a beach in, in the Caymans or something, if I had those dollars, but, yeah, Gatekeeper is, you know, is a core part of the family office role as well.

Just like anyone with wealth, there’s sharks circling constantly.

Yeah. And you mentioned before the concept of a family constitution. what’s that? And how does it fit into this process?

Okay. So a family constitution is essentially a document similar to a corporate constitution or,the constitution of a country, which just sets out the broad, Principles and guidelines of how the family agrees, they should operate. So,if a disagreement arises within the family at some point in the future, the family has all agreed to adopt the Constitution as a guideline as to how, everyone should behave, and work through the conflict or the problem, in a way that it can be meaningfully resolved and everybody can, stay harmonious.

So,look, it’s. It’s not a document you can put in place in a week. It’s generally something that takes a year or longer to get into place with lots of meetings, depending on the size of the family. and it really can be a critical piece. within the family structure to ensure long term harmony within the family.

And again, I think, you know, you’d find that a good number of the well known Australian establishment families would have a family constitution in place.

Yeah, because it really gives some good guidelines and boundaries for them to have full and frank conversations, but in a respectful and a constructive manner, and to resolve issues

Correct. I mean, let’s face it. the key here is that, put money aside. the word is Family. Families are families. Families have had, good times and bad times, conflict, fights all through time and they will continue to do so. And I think, unfortunately, if you add a significant amount of wealth to that potentially volatile mix,the opportunity for misunderstanding, bad blood, just multiplies many times over.

So, it actually takes a lot of actual thought and work to maintain harmony, within families that have significant wealth. And there’s unfortunately, way too many. publicly available examples of where it hasn’t worked so well.

absolutely. So Darren, if I’ve got my, $10, 20, 50 million worth of investable capital, and,

John. Well done.

patriarch, and I’m thinking about this because it’s, because I’m worried now that I might be in the top 5, 000, or the Next 5, 000 program without anyone letting me know.

What am I #CriticalFewActions™ tomorrow to, to get myself prepared or smart enough to embark on this?

Yep. I would suggest. That’s you start thinking about who within your, who within your orbit already might, fit this kind of description. You might already have a resource, a trusted resource that, that offers this kind of thing, if you don’t, often what I find, families rely on is, warm referrals.

So, within your network of peers, you might have heard over the journey about, your mate says, Oh, my guy is fantastic.ask for a referral. just, sort of making inquiries around, who are the best operators in this space.

and don’t be afraid to ask for, for referees. so, you know, if someone came to me and said, this is what I want to try and achieve over the longterm.

can you show me your track record? I could give you three, referees who would, I’m sure, quite happily, run you through what we’ve done for them over 10, 20, 30 years.,

yeah,

that the key call to action would be Do Something!Don’t Procrastinate any further!Don’t look at it as, oh, this is too big, it’s too hard, impossible. Just take that first step.

Yeah,

and then that second step and then that third step and start building your team of trusted advisors around you.

Yeah.

You don’t have to go all in on day one. You can dip your toe in the water with a new advisor, test them out for the first year, the second year. Then as the trust builds, you can give them more responsibility. If it doesn’t work out with the first one, you can always change.

there, but there are certainly,a good, group of, advisors in Melbourne whose sole focus is High Net Worth families, individuals.

And if you build a relationship with them, they will look after you for generations.

Fantastic. And do you know of any, good resources, videos, books, or checklists that they might look at to, to get themselves, a bit better, prepared to, to understand the family office and also how they can, how they, what they should be looking for. Yeah. Sure, I am glad you

asked, John. a colleague of ours, Craig Holland has produced some great,information on what a family office is about. And how you would go about building one from scratch potentially, and he’s also written a book on it.

He’s got a business called Generation Private, which his sole focus is assisting family officers,whether it’s getting off the ground or, helping with the governance, helping with having put together the family constitution. So we work together on, on several clients and, he’s, yeah, he’s a, quite a valuable resource and, lucky him.

He’s running his own family office.

He’s a good, running mate to have. So

So, Darren, thanks very much for helping us understand a lot more about the family office. I really appreciate it.

John, it’s been great to catch up, great to chat and, really appreciate the opportunity to share my experience with you. Thank you.

Thank you very much. ​