Just one in ten investment advisors are confident that they would retain assets under advice when wealth is transferred to a client’s family member.

The study conducted by Octopus Investment highlights a common problem between generations in UHNW Families which occurs when a wealth creator passes and their successor decides on a new team of people to manage that wealth.

This can happen for a variety of reasons. For some, they do not believe the existing team will be loyal to their leadership in the same way they were to their predecessor, others were raised by that very team and so feel undermined from the outset whereas others simply have different ideologies, approaches or requirements.

With the biggest wealth transfer in history already taking place and $35TRN expected to be transferred to the next generation over the next decade, should Family Office Leaders be worried?

While the ‘their team, my team’ debate exists within Family Offices, the first thing to mention is that the problem exists on a much smaller scale to that within outsourced investment teams. Longevity and loyalty are key and so unless a family fall-out has occurred or the next-generation plan to take the investment strategy in an entirely different direction, Family Office teams will generally stay the same. Or at least they should.

These are the three steps you can take to guarantee your Family Office Leader leads across the generations:

  • Hire the right person, the first time.

When recruiting a Leader to run your Family Office, you need to think Family first, Office second.

Think outside of the academic criteria or competencies required and look towards cultural fit, personality and values. Of course, the Leader you hire may well have a masters, PhD and 40 years of investment banking under their belt but this should not be looked at exclusively. This is a workplace where it is more than just business, it is personal. You are recruiting into a team that is managing, growing and protecting family assets. It is an environment where your hires may be required to go above, beyond and beside what their job title suggests and above all, they must be able to fit perfectly into the family as well as the team.

To hire the right person, the first time, you must think about their values, ambitions and long-term objectives and to achieve this, we have compiled The Complete Guide to Cultural Fit which you can download here.

In the meantime, here are some questions to ask your next Leader to ensure you hire right, first time:

  • What type of culture do you thrive in? (Compare this to your organisational culture which you can define in our guide)
  • What values are you drawn to?
  • In your friendship group, which friend are you?
  • What best practice would you bring to ensure a great culture?
  • Do you have any experience in working with a similarly sized team?
  • Award tenure as well as performance.

Compensating your employees well is vital but motivating them to stay with you for the long-term is critical. High compensation is enough to entice most professionals but having a sophisticated and structured reward programme in place that awards tenure as well as performance is key to keeping them.

The best way to do this is by implementing a long-term incentive plan.

LTIPs are an exceptional way to retain talent over a long-period of time while aligning their interests with the interests of the Family Office. While they were traditionally delivered in the form of a performance share, LTIPs have evolved to incorporate a whole host of rewards including:

  • Carried Interest
  • Stock Options
  • Co-Investing Opportunities
  • Forgivable Loans

Through our Compensation Benchmark Data, we have discovered that Leaders with longer-term reward structures are most content and driven to succeed within their Family Office. In fact, we discovered that having an LTIP was far more important to leaders than any annual compensation.

By embedding LTIPs with clear and correlating key performance indicators, you can use this structure to engage your staff, align your interests and incentivise them to stay within your Family Office across generations. You can also create a successful and meritocratic culture which is inherently more competitive and together strive towards reaching the same goal.

  • Involve the next generation in your investment strategy.

While this is not an area we can offer our advice on, it is something we can comment on qualitatively having helped hundreds of Family Offices find the best talent.

In our experience, the Family Offices which boast the best relationships between the generations have a variety of unwritten rules in place which includes the next-generation. This includes:

  • Having a next-gen member of the family on an investment committee or Board to offer their perspective and in turn, offer them an opportunity to be involved without having the responsibility of a decision-making role. 46% of Leaders in our network told us that they have a next-generation family member on their Board. They also told us it was the best way to keep them engaged and involved without craving too much more responsibility, something that is vital when 54% of today’s Leaders do not trust their children with making decisions on behalf of the Family Office and 42% do not believe their next-generation Leader is prepared for succession.
  • Making sure current leadership teams approach the next generations for their opinion while breaking down big decisions into a language they can understand. This builds a trusting relationship with your current Leader and future successor and also better readies your next-generation for their own style of leadership.
  • Giving them money. This does not mean inheritance or funding a lifestyle. We know of many Family Offices whereby the Principal will give his or her children and the broader next generation family members a sum of money to invest. They must follow the same guidelines as the investment team would, prepare a pitch, evaluate the risks involved and benchmark return. This may be an Impact Investment or a new business opportunity, however it is conducted, it offers the next-generation a way of again being involved while having exposure to the decision-making skills required. It also allows them to work alongside your current leadership team with professionals who may one day be under their command.Steven H. Hirth is the Founder and Principal of Hirth Family Office and offered an example of how he adopts this practice. He said: “When it comes to teaching the boys, I have asked them to start with something that is important and that teaches them skills, such as philanthropy. If I give them a certain amount of money, I ask them how they would allocate it, it doesn’t have to be to my causes, but it requires analytical research – how are these foundations using this money? Where are they applying it? What is their ranking? If I give them a dollar, how many cents are going to overhead and all of these skills can be applied to investing in companies, managing the family budget and so on. I know I am not always the best teacher which is why I am also making available to them the people I use who are validated and trusted.”

To continue the conversation about hiring a Family Office Leader that survives generations, please get in touch.