I recently met with the principal of a family office who was concerned about what will happen when he retires. He is already in his early sixties and has a full-time position as a financial advisor serving ultra-high net worth clients. His family owns a significant amount of real estate though, and he has always loved serving as managing partner for his family’s estate. His children and his brother’s children, however, are not interested in real estate and are pursuing their own passions. How are they ever going to continue to the next generation?
Sound like a familiar story? Are you perhaps in a similar situation? Succession planning in a family business is challenging enough. Succession planning within your family office though, may be even more critical to the long-term sustainability of your family.
You have likely read the statistics that most family businesses do not survive even to a third generation. In the United States specifically, that number sadly is well over 90%. Unfortunately, it is not uncommon for many families to lose their significant wealth during these same three generations. Whether your family operates a business or you are an enterprising family with an established family office, the following key strategies can enable you to sustain your family office from generation to generation and preserve your family’s legacy.
1\. Define the role: Before considering who the right successor may be, it is imperative to define the requirements of the position. Are you replacing your CIO? CFO? Perhaps the head of development? Until you know what your successor is going to do, you aren’t likely to select the right person to succeed you and your other family office leaders. For example, if you have an outsourced CIO already supporting your family, you may not need a new principal with significant investment experience. You may need someone with a legal background who understands trusts and can manage your family’s distributions.
2\. Engage your Rising Gens: Once you define the role(s) to fill, speak with your children and other Rising Generation family members to gauge their interest in performing these positions. Don’t wait until you or your other leaders are ready to retire – or heaven forbid, fall prey to life altering experiences – to consider your options. You may have a vast sibling or cousin group in the next generation who will be thrilled about the opportunity if asked. They may not proactively approach you though, as many Rising Gens defer to their parents and grandparents. They will also likely need plenty of time – years in some cases – to develop the requisite knowledge, skills, and abilities to perform your needed positions, so start early and provide that coaching and mentoring in advance.
3\. Consider non-family successors: If you don’t have Rising Gens present to serve your family office, you might need to consider non-family leaders to succeed you. You can of course look to external trusted advisors to take over as well. It is quite common though to have non-family leaders perform specific functions within larger family offices. The recruitment, qualification, and selection process will take time, so again start early to determine the best path forward.
4\. Develop a transition timeline: Once you confirm who will succeed you in performing your family office functions, develop a timeline for when you and your other family office leaders will transition each of your key functions to your successors. It is not effective to drop everything all at once and exit abruptly. While that happens when someone gets ill, for example, it presents significant risk for the continuity of your family office. Instead, plan ahead, stage things slowly with your key stakeholders, external partners, etc., and transfer your tasks and those relationships to your successors more intentionally. This process might last a year or a few years depending on the complexity of your family office and the positions you are transitioning. Be practical and patient with the process until your successors are truly ready to take over.
5\. Monitor your progress: You have likely been in your position for many years – if not decades – learning and perfecting your craft along the way. Whomever takes over won’t be as well-versed in every aspect of the role, so don’t expect them to be perfect on Day One. Give them sufficient training and support and establish major milestones for the transition. Maybe your successor assumes responsibility for all investments early on but doesn’t report status to family shareholders right away. Maybe you and your successor co-facilitate your annual family meeting together the first time,
and then you shadow your successor the next year. Rising Gen successors will need your active support before completing the transition, so monitor their progress and provide both positive and constructive feedback to them as they gain experience and confidence moving forward.
Running a family office is not the same as working in a corporate setting or even managing a family business. Just because someone is successful in these environments doesn’t mean they will thrive in your family office.
If you want to experience a smooth and successful generational transition, develop a plan. Many are afraid to create conflict between family leaders and don’t discuss their transitions until it’s too late. This however creates significant risk to family relations, which ultimately can be even more costly than depleting the family’s wealth.
