Succession in Family Office leadership has become a pressing issue as many Family Office leaders approach retirement age. However, with families being involved in Family Offices, there is an additional layer of complexity. This has resulted in concerns and conflicts over succession planning worldwide. Across the Family Office Landscape, North American Family Offices are found to be the least equipped for succession, with the competencies of successors being the biggest concern.
The North America Family Office Report released by Campden Wealth and the Royal Bank of Canada found that despite having the largest share of Family Offices in the world, North American Family Offices are less likely to have formal succession plans in place compared to their European and Asian counterparts. Another study by Campden Wealth and BNY Mellon Wealth Management revealed that while 85% of American second generation heirs believe that they are “prepared” or “somewhat prepared” for succession, only 39% of the North American Family Office executives believe the next generation is adequately prepared for succession. The divided views on succession and lack of succession planning are significantly hindering the transition between generations in the Family Offices in the region.
Succession planning is crucial for ensuring a smooth transition between generations. It ensures that family wealth is managed sustainably and responsibly across generations and is fundamental for the long-term success of a Family Office. However, many incumbent Family Office leaders are reluctant to engage the next generation out of unwillingness to relinquish control or the fear of them “snapping at their heels”. This is not a sustainable practice. Life is full of uncertainties, we have seen this during the outbreak of the Covid-19 pandemic where people across the world are forced to contend with unexpected deaths. Without a succession plan in place, Family Offices will not be able to deal with unexpected situations as such.
Reportedly, over one-third of North American Family Offices believe that they are not ready for succession. To manage the transition of leadership and preserve the family’s legacy, a succession plan that grooms the next generation of successors is essential. We believe that the doubts surrounding the capability and competencies of the next generation can be eased by gently integrating them into the Family Office prior to the official succession. This will allow them to gain practical experience and establish credibility with the staff, paving the way for a smooth transition. To allow the next generation to learn and engage, a milestone-based approach to inheriting responsibilities should be adopted.
Contrary to general reservations about their competencies, the next generation of wealth holders are very ambitious and proactive. Compared to the first generation wealth creators, the next generation leaders often want to make a positive impact from their investments. According to our findings, 90% of the next generation believe that they have the ability to transform their Family Offices and 73% value positive social impact as much as financial return. We found that second generation-led Family Offices often favour alternative investments and are more likely to adopt new technologies such as blockchain. It is important for Family Offices to keep up with the constantly evolving investment market. The tech and digitally-savvy next generation of family members will be able to offer fresh ideas and discover investment opportunities that are new to the Family Office. With proper guidance and succession planning in place, these dynamic and proactive individuals could grow to be great leaders of the North American Family Offices.