Over almost 15 years as an Investment Adviser, I have worked with many families whose financial affairs have gradually become more complex.
A family trust may have been established many years ago for sound reasons. Over time, it may accumulate investments, cash, business interests and other assets. Family circumstances change, trustees change, and the original purpose of the trust can become less clear.
The individual investments may all appear reasonable, but there is not always a coordinated strategy connecting them.
The client situation
In this case, a family had accumulated substantial assets across a family trust, personal investments, KiwiSaver and business interests. The family was in a strong financial position, but the investment arrangements had developed gradually over many years. There was no single framework explaining why each asset was held, how much liquidity the trust required, or how the investments supported the family’s longer-term objectives.
The trustees also wanted to prepare for future distributions and the eventual transfer of wealth to the next generation.
Identifying information, values and some circumstances have been changed to preserve client confidentiality.
What mattered most
The family wanted to preserve and grow its wealth while ensuring capital remained available when required.
They wanted greater clarity around:
The issue was not simply investment performance. It was the absence of a coordinated plan.
Our approach
We began by reviewing the family’s complete financial position rather than assessing each investment in isolation. That included the trust’s investments, cash holdings, expected distributions, tax obligations, personal assets, KiwiSaver, business interests and likely future commitments.
We then separated the trust’s capital according to its purpose and expected timeframe. The first pool provided liquidity for known expenses, tax obligations and near-term distributions. The second pool was intended for medium term family requirements and potential opportunities. The third pool represented genuinely long-term capital that was unlikely to be required for many years.
This approach allowed the long-term capital to be invested with a stronger emphasis on growth. The family did not need every dollar to remain in conservative assets simply because some funds might be required in the short term.
We also worked alongside the family’s accountant and legal advisers. Investment advice should not operate separately from trust governance, taxation, estate planning or legal responsibilities.
Our investment philosophy in practice
One of our central investment philosophies is that capital should be invested according to its purpose and timeframe. Money required soon should not be exposed to unnecessary short term volatility. Capital that will not be required for many years can generally accept more volatility in pursuit of long-term growth.
The three-bucket strategy helped the family avoid treating all trust capital in the same way.
We also introduced guidelines around:
These guidelines were not intended to restrict the family. They created a disciplined framework for future decisions.
The outcome
The family gained a clearer understanding of what each part of the portfolio was intended to achieve. Liquidity improved, investment risk became easier to understand, and the trustees had a stronger framework for making future decisions.
The family also moved from managing a collection of investments to following a coordinated strategy. Perhaps most importantly, the process created a better foundation for conversations about succession and the eventual transfer of wealth.
What I have learned
In my experience, family trust investment problems rarely begin with a single poor investment. They usually arise because the investments have accumulated over time without a clear purpose, timeframe or decision-making framework.
A strong trust investment strategy should answer three questions:
Once those questions are answered, the investment decisions become much clearer.
At Yovich & Co, our role is to help families connect their investments with the wider purpose of their wealth.
Jarrod Goodall
FSP198885
Wealth
