Family Offices and Succession Planning – handing over the reins

Succession planning is a crucial aspect of the ongoing advice that family offices must coordinate for their principals. As such, it is no surprise that the popular television series "Succession" resonates deeply with many advisers in the private wealth sector.

As Graeme Kleiner highlighted in the recent Knight Frank Wealth Report, although the series is highly dramatised, it does depict real life issues that ultra-high net worth (UHNW) families encounter. One significant challenge is ensuring family “buy-in” to the succession plan, so that the next generation and future generations understand the long-term goals and support the family strategy. This inclusive approach mitigates the risk of family tensions, beneficiaries seeking to exit wealth holding structures, and potentially disappointed family members. It is essential for family members to feel included and have clarity regarding their expectations.

Achieving family buy-in can be approached in various ways, several of which are outlined in the Knight Frank Wealth Report. One effective method is next generation education, which helps to cultivate future family leaders. As the report notes, although primary decision making responsibility still rests with the older age groups, 58% of family offices are actively involving the next generation.  Ensuring that the next generation has the expertise and the willingness to engage is the foundation for a successful handover of power. 

Charles Russell Speechlys recently commissioned a survey of 4,000 people looking at Gen Z's attitudes towards financial planning and, interestingly, the report found that Gen Z adults are more likely to be open to talking about inheritance, with four in five (81%) of those surveyed having discussed what they might inherit in the future or the inheritance they’re planning to leave. It is useful to have these kinds of conversations about inheritance and family buy in sooner rather than later but these topics have traditionally been a bit taboo for older generations. Hopefully, Gen Z’s attitudes will make it easier for these discussions to take place. 

Another strategy that we regularly see is the use of family constitutions. As Piers Master notes in the report, large families might have a family constitution, family charter or other similar document which sets out agreed principles for how the family will regulate itself. This document can also delineate key strategies to help ensure smooth succession, for example:

• An investment strategy that can adapt with the next generation and changing times. This is particularly relevant for next generation planning – the report shows that one of the key areas where next generations are taking an active role in family succession is in the investment strategy, in particular with the increased interest in ESG and sustainable investment amongst millennials and Gen Z.
• A clear and fair exit and distribution strategy, which builds in flexibility for generations that are further distanced from the principal who built the wealth. This can help to prevent the risk of disappointed beneficiaries. 
• A plan for power-holder roles. This requires careful consideration, as wealth creators may be reluctant to relinquish control. We often see family offices helping to set up committees of family members to help spread the decision making and gradually hand over to the next generation – this can be helpful for asset protection and reporting purposes as well as succession planning.
• Family constitutions are also helpful for solidifying and communicating the family values, whether they are religious, cultural or otherwise. 

The complexities of succession planning require thoughtful strategies and long-term thinking. By actively focusing on next generation education, helping family buy-in through documents such as family constitutions, and encouraging active participation from the next generation, family offices can help the families they support to navigate the complex dynamics of succession planning. As the industry sees a transition of power to the next generation, the insights from the Knight Frank Wealth Report highlight the importance of these strategies for preserving the legacy of UHNW families.