Risk and the family office: Next generation development
14th July 2020
This blog post is the second in our series on “Risk and the family office”, and explores the family office executive’s top risk concerns, as voted for at the Deloitte Private 2019 Family Office Symposium. Based on an audience poll of over 50 senior executives of single family offices, succession and preparedness of the next generation to assume control was among the top risks that family office executives are currently facing.
This echoed concerns expressed by the respondents in Deloitte Private’s 2019 Global Family Business Survey: only 41% said their business was ready for the next 10 to 20 years in terms of succession planning while 25% of respondents said that they were not ready at all (with confidence levels around strategy, governance and ownership significantly higher).
So what are the issues here?
Naturally, the reasons behind these concerns vary from family to family but one that we most hear about from our family office clients is a lack of skills and engagement from the next generation.
Families tend to acknowledge that this often stems from the lack of support and structured framework to develop and empower the next generation, which impairs their ability to realise their potential and take on the mantle as informed and responsible stewards of wealth.
So what can the Family Office do about it?
In our experience, the next generation tend to be more engaged, and succession is less complicated, when family offices play a central role in creating and delivering development programmes which can include the following:
- Education about family values and vision for the family wealth - if family values and vision have not been articulated yet, there are significant benefits for the overall succession process in doing this first, and engaging all generations to create alignment between them;
- Leadership skills;
- Education about what the family owns - transparency and delivering the information in an age-appropriate way are key;
- Placements in the family office - depending on the age and background of the next generation, these could range from merely ‘shadowing’ family office employees to working alongside them and having the ultimate responsibility for managing a standalone pool of assets;
- Philanthropy and impact investing - Millennials and Generation Z tend to be much more purpose and value-driven compared to previous generations. Giving them an opportunity to support the causes they feel strongly about, making a positive impact with the support of the family office, could be both extremely educational and empowering.
What about external programmes?
Some financial institutions and universities delivery group programmes covering core financial and investment education and programmes focused on topics such as leadership and innovation, which can be a valuable resource. The programmes delivered by financial institutions are usually focussed on their clients and are therefore free of charge, and all of them can provide great peer networking opportunities.
However, in our experience, the most impactful programmes are custom-built based on the needs and capabilities of the next generation, their aspirations, the age and involvement with the family enterprise. Such programmes can be developed and delivered internally by the family office team as well as with external professional help.
We would suggest the following course of action:
- Assess development needs - You should keep in mind that the term “next generation” is likely to include at least two generations for most families - therefore it is important to consider all the varying needs; an open dialogue around the next generation’s vision and aspirations could be extremely beneficial;
- Create a plan - it should include a prioritised list of actions with responsibilities assigned for each of them and clear deadlines;
- Assess internal capabilities to deliver - you should consider both the required time commitment and the necessary expertise. You should also bear in mind that the next generation consume information and learn in different ways and seek different experiences (which is why a dialogue at the initial stage is so important);
- Get external help - You should not underestimate the benefits of getting an external perspective and professional input at all stages of this process, in particular, professionals who have a breadth of experience dealing with multigenerational families and tools and resources to engage Millennials and Generation Z in a way that resonates with them.
Supporting the family in the next generation development can feel like a daunting task, particularly with the myriad of other priorities and risks you might have to deal with. However, it also has the potential to become the most important thing that you ever do for the family as it is a crucial element in the succession planning process. It will also allow you to build lasting relationships with the wealth successors and enable you to stay connected and relevant to their needs and aspirations.
This article was republished from Deloitte, find out more here.