Why isn’t proper succession planning taking place at family offices? It depends which family members you ask.
More than half (54 percent) of 144 family office employees surveyed in North America said the family’s younger generation is inadequately qualified to assume a leadership role, according to a report by RBC and Campden Wealth published Tuesday. Age is a big reason — 46 percent of family office employees said their heirs were simply too young.
That’s a reasonable explanation. For example, a newly minted tech billionaire might be relatively young, with children just learning to walk or read — not preparing to become the steward of a fortune. But heirs and family office employees have far different perspectives and say that family leaders are at fault for succession plans not being created or executed.
One-third (33 percent) of the employees surveyed reported that discussing succession planning would be uncomfortable for senior family members and 29 percent “anticipate their current family heads will resist ceding control in the near future.” Out of the 144 employees surveyed, 46 percent were family members and 42 percent held key leadership positions as chairpersons, chief executives, or founders.
The COVID-19 pandemic was a healthcare “awakening” for family offices, with 17 percent of employees surveyed saying that the health of a family leader is making succession planning a challenge and 13 percent reporting that infighting is a problem.
“In many cases the next gen is just way too young. They’re barely getting into college and whatnot,” Angie O’Leary, head of wealth planning at RBC Wealth Management told Institutional Investor.
But other hurdles exist. Even if a patriarch or matriarch is contemplating or talking about succession planning, the survey shows that they are not necessarily prepared or willing to give up control, O’Leary explained.
Tough markets have added to the problem, pushing family offices to focus more on their investments and less on succession planning. However, determining who will lead a family remains one of the biggest worries. “It’s so important if the goal is to sustain that wealth beyond one or two generations,” O’Leary said.
When survey respondents asked what their top concerns were in terms of operational risk from “weak controls,” 44 percent said succession planning, the third most common choice. The top concerns were a data breach or cyber attack (61 percent) and the volume of manual processes to keep the family office running (60 percent).
Many family offices feel earlier succession planning is needed, according to RBC. Ultra-rich families almost unanimously agree (92 percent) that instilling values in their heirs when they are young, and exposing them to the family office (84 percent), are critical to succession planning.
“In three generations a lot of the wealth is lost and most of that’s around preparing that person who’s going to receive that wealth for the responsibility of having great wealth,” O’Leary said.