Lifetime Plan to Family Wealth - Part 4

Internal controls



Even with the best of intentions and strong confidence, bad investment decisions can easily happen.

Experts therefore often recommend that internal controls be set up to serve as a guide for the optimal investment of family funds, as well as to reasonably mitigate risk and provide assurance, in accordance with the family's expectations.

Certain individuals in the family should be appointed as key decision makers when it comes to managing the family's wealth. This will enable chaos to be avoided, especially in times of urgency.

Procedures that safeguard access to family funds or accounts should also be in place, said Deloitte Private Client Advisers.

For example, there should be policies and procedures for documenting significant transactions or decisions, with processes for conducting regular checks. There could also be a requirement for dual signatures for transactions above a certain amount, or specifying access to vaults or cheques.

Further mitigation of risk could range from asset diversification or exposure reduction to certain investment or financial risk-management techniques such as stop orders.

Essentially, it does not mean risks should be avoided; instead, a calculated risk-taking approach is strongly advised.

"Because risks evolve over time, it is a good idea to conduct a formal risk assessment every couple of years," said Deloitte.

"Additional controls might be considered - monitoring measures that assess why results are different and what they should be given the climate, benchmarking performance to understand whether it makes sense, and discussing performance expectations based on independent evidence."