The Family Bank Pt. 2 –The Family Bank Approach

As we mentioned in the previous blog post The Family Bank Pt. 1 – Succession Plans Fail, the family bank concept focuses on the human elements of the family. Then it explores strategies and structures that fit the family’s needs.

In order to successfully implement the family bank approach, a channel for clear, effective, and non-emotionally charged communication must be established. While emotion may play a part in decision making, merit must be the main focus of final decisions, and that must be communicated effectively to each family member. Every family member must be expected to do their part in supporting the family vision.

In order to successfully incorporate the family bank approach into your succession plan, you must first determine your family values, family vision, family bank policies, and lending process. You can learn more about these areas below.

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Determining Family Values

The family bank may choose to lend money to a family member at any point. However, the lending process should abide with the family’s values.

The key to maintaining a united front, requires each family bank to have a list of their core values. The set of core values will be passed down to each generation. Along with the responsibility to steward the bank assets. These values provide participating family members a foundation for expectations and goal setting.

It is important that the family values are easy to understand, and have measurable characteristics. The values of the family bank will be the glue that holds it all together, so it is important that they are meaningful. It is also important to ensure that future generations know they can change the values (ie. with a majority vote) as the economical/political times change.

Some family banks structure their family values in two sections. Non-negotiable and negotiable values. Some non-negotiable values may include a commitment to open communication and/or a strong work ethic. Some negotiable values that can change over generations may include the family’s commitment to philanthropy and/or business acquisitions.

One important value that most family banks share is the desire to see the human capital grow within their family. Due to this value, many families may find themselves lending the bank’s financial capital for a family member’s higher education or to fund a new business venture. For example, a family bank may not approve a borrowing request from one member who wants to purchase a new home but may approve the same size loan to a member who wants to borrow it to fund their first business venture.

Whatever the values, the most important thing to remember is that a family bank must have them, and they must be clear and well communicated. As ab additional benefit, the value system will ensure that any perceived prejudices within the lending process are accounted for.

Determining Family Vision

As business owners, we are aware of the term Vision Statement. This is something that guides an organization to success. Keep in mind, that in the family bank structure, transactions are of a business nature. Having a clear and concise vision statement is an essential component to help guide the members and trustees.

It is important that every current member of the family participates in developing this mantra. Everyone has a different value set, and combining them can be a great way to capture what is important to the whole.

Visit to read some examples of how families have developed their unique family vision.  

Determining the Family Bank Policies

Just like in any business or civil partnership, you want to be prepared. Not for the good times when everyone gets along, but for the bad times when there are disputes.

Given the potential size of the family bank, and the number of members involved, it is important that a family has policies in place to make decisions easy when there are challenges. It is especially important to make sure that the policies are rigid and well understood.

As the first post in this series states, succession plans usually fail by the third generation. Most of the time this is due to a lack of stewardship. However, it has been proven that people who have greater financial security handed to them, are less driven.

However, there are a few examples where heirs can use their inherited financial security as a motivator to take a beneficial calculated risk. The purpose of the family bank is to ensure that you have a family full of the latter. This means that you have to have the policies in place that leave no room for the former.

The reality is that everyone has something they are passionate about. Knowing that you have the financial resources backing you if you decide to chase your thing, is encouraging. This, coupled with rigid rules, will push all parties to work their hardest to earn the financial resources and opportunities available to them.

It is important that the policies are not bias. Say you are predominantly a farming family. This doesn’t mean that you should only lend money for farming ventures or careers that make sense from a farmers perspective. Your family policies should include statements like “member must provide adequate proof of cash flow” to support any future business ventures or educational upgrades.

The Family Bank Lending Process

As mentioned before, a successful multi generational wealth transition requires the family’s financial capital to be re-circulated. Rather than depleted through handouts, with no expectation of repayment. As a result, it is important to stress the need for each generation to have gainful and lucrative employment.

The family bank lending specifications may look very similar to the process of your local credit union or bank. Including compounding periods, interest rate, loan terms, etc.

However, there should always be one major qualification difference. Let’s say a member of the family wants to borrow from the family bank. The borrower must provide a compelling proposal to the members who sit on the board. This proposal to borrow capital should be based on the potential it provides the individual to increase their earning potential. And ultimately add to the overall ongoing health of the family bank.

If the opportunity is beneficial to the family bank, the member will be approved for their funding. Whereas most banks focus on the GDSR and credit scores, the family bank focuses on the quality of the business plan/opportunity or the educational/increased future earnings potential.

One thing that some family banks do to simplify the lending process is to hire a trustee to manage the money and lending portfolio. The trustee(s) will work along side the family bank board members to determine who receives funds, how much they receive, and of course, will facilitate and handle the administration of the process.


We hope that you have been enjoying the family bank series so far. I know we have really enjoyed learning more about this uncommon, yet seemingly simple and successful concept and sharing it with you.

If you would like more information about how this tool could improve your succession plan, feel free to give us a call. We offer complimentary consultations. Tell your friends.

The Family Bank Pt. 3 – Earning a Voice

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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy