Experience key to successful succession with $3.9 trillion at stake

Experience in managing successful successions in family businesses will increase in value as ultra-high net worth individuals worldwide transfer more than $3.9 trillion between generations over the next decade.

The new Global Family Office Report by Campden Wealth, in partnership with UBS, revealed 43% of family offices expected a generational transition within the next 10 years, rising to 69% in the next 15 years.

This looming issue was not lost on the family business community, with “implementing a succession plan” their main governance priority over the next 12-24 months.

However, only two in five respondents had personally experienced a successful transition of a family office. They pointed to several factors which were vital: a willing and able next generation; an older generation prepared to give up control; and a flexible and trustworthy family office.

The Family Business Institute reported 88% of family business owners believed the same family or families will control their business in five years. Yet only about 30% of family and businesses survived into the second generation, according to the Family Firm Institute. A mere 12% were still viable by the third generation while only about 3% of all family businesses operated into the fourth generation or beyond.

Philip Higson, vice chairman of the Global Family Office Group at UBS, said the risk of disruption from a generational transition should not be underestimated. It was the number one reason for beneficial owners to make changes to their family office structure and management team.

Higson said poor investment performance could jeopardise the smooth transition of ownership or control from founding or elder generations to the next-gens in waiting.

“The other thing that can trigger disruption is potentially arrogant behaviour towards the next generation, that they are sort of still the children,” he said.

“And there are many cases where people aged 50 are considered to be the children, because the primary generation that's calling the shots is 75.

“If they are treated like children, they will actually be not satisfied when the next generation shift takes place, and they will just get rid of the family office managers who didn't treat them with sufficient respect. So it is a whole emotional thing about treating people with the appropriate respect given their age, their education, and their understanding.”

Stuart Rutherford, director of research at Campden Wealth, said there was “no one silver bullet” when it came to smooth successions.

“It is about doing a whole range of things that cater for the older generation, the newer generation and the family office structure governance. So I think it is about developing a really well thought through succession plan that's very much tailored around the family, and then obviously implementing it with all speed given just how soon the succession is likely to happen.

“I think it's interesting that so few executives, or relatively so few executives have actually gone through a succession event. And I think from their point of view, experience in succession may well become a very valuable skill set or point in your CV within the family office space.”

The Global Family Office Report was published just before Wealth-X and sponsor NFP released the separate Preparing for Tomorrow: A Report on Family Wealth Transfer.

The report said more than 14,000 UHNW individuals are likely to transfer assets in the next 10 years.

Those UHNW individuals have an average personal wealth of $272 million. This total combined wealth of $3.9 trillion represented 13% of all UHNW assets globally.

“The United States will experience the most wealth transfers globally in the next 10 years,” the report said.

“Private investments represent the largest holdings for UHNW individuals set to transfer their wealth in the next decade, accounting for 36% of their net worth, an average of nearly $100 million per person.

“This same group has an average liquidity of $92 million and $16 million in real estate and luxury assets.”