Whether a small entrepreneurial business or a Fortune 500 company, most senior executives recognise the importance of succession planning and the need to take steps to prepare the next generation of leaders.
But all too often that tried-and-tested strategy is overlooked when creating or maintaining a family office. Instead, the patriarch or matriarch creates a structure and hires financial professionals to oversee the family’s assets, without consideration of the potential need for changes after his or her passing.
Often times, that approach ignores the needs, desires and goals of the children and grandchildren. Unless they are made part of, or feel included in the family office discussions and decision-making, they are likely to decide to go in a different direction, once there is a changing of the guard. That can mean the end of the relationship for the current financial professionals who are almost always seen as the patriarch’s people. After all, it is difficult for the family members to recognise that the CEO and his staff can shift gears and represent them.
So, if you want to ensure that your family office will outlive you, it is imperative to engage the younger generations as early as possible. That means implementing family governance (including family meetings) that will ensure inclusivity and involvement of all the relevant family members. That might or might not include spouses, stepchildren, nieces and nephews.
Since every family is different, there is no cookie-cutter approach to creating a sustainable financial model for managing wealth through the generations. Therefore, an experienced, outside professional can facilitate the planning and discussion process with the family members, as well as the current team of financial professionals.
This personalised approach is like going to a tailor or couturier, where clothing is made to your exact measurements, rather than picking up an “off-the-rack” suit or dress at a department store that will not be a perfect fit. It typically requires several conversations and discussions to develop an initial draft of the governance document, followed by as many tweaks as necessary.
For instance, is ESG investing important to some family members? Do the children have a greater tolerance for risk than their parents? What about providing a solid financial foundation for the children, grandchildren or even the great-grandchildren?
These are some of the questions that need to be raised during the discussion process and reflected in the governance structure. These conversations provide an excellent opportunity for the next generation and the family office team to create rapport and an exchange of ideas. By partnering together, they can bring more value to the bottom line.
In fact, preparing a multigenerational governance structure is in the best long-term interests of the family office CEO, because it allows him or her to develop those all-important personal and professional relationships with the next generation instead of suddenly being shown the door of the family office, as generational control changes. In this manner, they have a far better chance of staying on and continuing to manage and grow the family’s assets.
In summary, all parties need to remember that this is a family office, not a founder’s office. That means creating a sustainable structure for wealth preservation and investment management to extend through multiple generations..