Like every successful business, a well-run household needs a financial backup plan. Over my 40 years of experience in the financial planning industry, I have found that most successful households have one or more of the household members who are designated as the family’s Chief Financial Officer (Family CFO).

The Family CFO is often responsible for paying bills, maintaining bank accounts, monitoring and reviewing investments, and collecting information for taxes. This person is usually the primary contact between other financial professionals like insurance agents, loan officers, and estate attorneys.

It is inevitable that one day the family CFO will no longer be able to serve in that capacity due to complications from aging or simple lack of desire. This is why all successful households need a financial backup plan.

Document, Divide or Delegate

There are three ways to develop a backup plan for your Family CFO: Document, Divide, or Delegate.

Document

If the Family CFO is disciplined about documenting the family’s financial situation and the related plans, then the backup CFO will more quickly and easily assume those responsibilities. For example, if the Family CFO has a net worth statement showing all the family assets, where they are held and how they are titled, the successor can more easily come in and help to manage them.

A budget for cash flow management purposes will help the backup Family CFO understand where the money goes and who needs to get paid to maintain the household. Ultimately, a filing system is necessary to collect all important information to file taxes and potentially make changes to your investment portfolio or estate plans as your family’s situation or goals change.

Successful implementation of this financial backup plan is directly related to the technology the Family CFO uses to maintain the documentation and letting other household members know where to access that documentation.

Divide

When the heads of household both work full-time, the family may choose to divide CFO responsibilities. By dividing and conquering, each team member can avoid feeling overwhelmed. Generally, both team members have a basic understanding of how the family finances operate. Therefore, if one of the Family CFO team members cannot complete their tasks, the other team member can assume full CFO responsibilities for a period of time.

The success of this approach often requires regular Family CFO meetings – a necessary evil to keep each other informed about the different aspects of the family finances. The downside to this approach is that unless communication about the family finances is constant and consistent, certain aspects may not be coordinated and executed. An example of the lack of financial coordination due to a lack of consistent communication could be if the family’s portfolio got out of balance and the team member responsible for the rebalance was unaware of the tax consequences when they rebalanced the portfolio.

Delegate

This is typically the most successful backup plan strategy because the delegation is to a full-time professional, but it is the strategy that often has the most resistance. Many households do not want to follow this strategy because they feel like they give up too much control. Regarding control: if the family delegates a third party to be the Family CFO, the heads of the household still maintain all the decision-making authority; they just delegate the record keeping, communication and execution to someone whose full time job it is to the help the family make smarter financial decisions.

A good family CFO needs to know that someone who is a full-time financial planner will likely have a deeper knowledge about the disciplines involved in managing a financial life and will generally make more informed recommendations. It’s the same reason that we visit a doctor to check our health or call a lawyer for legal assistance.

Family CFO

Successful households, like successful businesses, need a Chief Financial Officer (Family CFO). Some characteristics of a good Family CFO include an interest in managing taxes, watching the market and economy, and knowing how these different areas affect their family’s financial plan. A good family CFO also needs to recognize that a good financial backup plan requires the Family CFO’s responsibilities either be documented, divided or delegated.

Donald D. Duncan Financial Advisor / Managing Director CFP®, CFA®, CPA/PFS, CSEP, MBA

Don focuses on high income and/or $1 million net worth clients. He earned an MBA from DePaul University and brings an evidence-based, risk management oriented, institutional perspective to investment management.