How the largest family offices preserve wealth through generations
Wealth management within one lifespan is already challenging. And making sure that this wealth will both last throughout generations and continue to grow for future one's lifetimes, is an exponentially complicated task that requires experienced and sophisticated expertise.
Article Published on Simple June 11, 2021

For a family office, managing wealth for just one generation can already be challenging. Ensuring the family wealth will continue to grow while preserving wealth for future generations is an even more complicated task. There is so much to consider, and then when you add the complexities of family politics into the mix, the task becomes that much more ominous. But as with the most tricky terrains, with a thoroughly considered, pre-emptive, and future-focused-thinking, there is no reason why future generations’ wealth should come under threat each time generational change is on the horizon.

Why do family offices need to focus on preserving wealth through generations?

Generations exhaust wealth

Family businesses appeal to consumers all over the world, and this is not exactly surprising. The general assumption is that if a group of related people wholeheartedly invest themselves into something, the result will most likely be a good-quality product or a service. Yet, the organisations that families control don’t usually survive the generational transition the way they should. More specifically: nearly all enterprises get entirely wiped out around the time when founders’ grandchildren step behind the wheel. Why is that?

There is no one way to answer what goes wrong and brings a well-established company down from the pinnacle. In the majority of cases, it is a combination of factors rather than one specific flaw. Considering all possible threats to your family’s wealth is the wisest approach to take. Because only by recognising and acknowledging the enemy can we find the most optimal solutions to conquer it.

The most common disruptors of family wealth stability are lack of communication and an inability to stay on top of structural changes, which often happen in divorces, for instance. Failing to understand where younger family members come from often result in policies and practices that create a gap between customers and heirs.

Then there are miscalculations in financial planning that include unbalanced investment portfolios, inadequate succession planning, disregard of taxes, etc. Of course, managing multiple monetary streams is complicated, however, it isn’t the reason to neglect your wealth and let it run down with the stream.

Faulty governance can also contribute to the exhaustion of family wealth. While being efficient enough to sustain through mild turbulence, many internal organisations fail when faced with a global crisis.

As mentioned above, the primary purpose of listing all sources of potential threats is to take preventive measures. Once the entire scope is outlined, you can assign appropriate care to each channel and do your part. This plan contributes to preserving wealth through generations and ensures this wealth will live long and prosper. Next, let’s consider some of the approaches that families and advisors should not ignore in the process of establishing a family business’s longevity.

Keep in touch

The generational gap can be a tiny crack in some cases, while in others, it appears as a bottomless ravine able to swallow the family business whole. What are the families to do? Build bridges.

It’s often easy to fall into a routine of considering your successors unqualified to take control. But the age difference isn’t the real issue here. What needs to be adjusted is the mindset.

Current family leaders need to find the capacity to acknowledge the new generation, a segment of globally-oriented and digitally skilled people. After all, curiosity and innovation always go hand in hand with prosperity. Taking a moment to hear out your heir and doing your best to accept their point of view is healthy not just for your business but also for your interpersonal relationship.

At the same time, the younger crowd has to agree that there are few things to learn from their elders. For one, sharing the company’s foundational values can help get to the same page faster. Plus, if the preceding generation established the business, they will most probably have a story or two about getting through the times of instability and discomfort.

Embrace transparency

In addition to communicating effectively and frequently, one of the best practices in wealth succession is absolute transparency. All family members should know how each decision is made, at least on a larger scale. This includes re-allocating roles within the company, expanding the investment portfolio, altering internal policies, and others.

The reason why everyone has to be up to date is primary the honest human connection. Apart from that, the more knowledgeable your successor is, the more insightful decisions they will make in the future. 

Think globally

Families are often spread over different countries and continents. Some might look at this fact as a complication in monitoring tax policies and jurisdictions. And while that is partially true, having a family member in every corner of the map can also be a great asset.

As family gatherings get more logistically complex, the connection with remote regions and cultures grows stronger. Of course, it will require extra effort to supervise everything at once effectively, but as long as the right person is on the task, it won’t be too much trouble.

Another aspect of having an opportunity to benefit on a global level is the chance to make impactful decisions. Whether it’s philanthropy or investment in futuristic technology, it is always better to approach it locally. Consider your family member in a remote country a regional director, if they aren’t already, and trust them to make socially and environmentally conscious decisions on the spot.

Continually exploring and expanding your horizons can help adapt a global mindset when thinking about wealth.

Master adaptability

Their adaptability and resilience characterise the families that survive the longest – this isn’t only a personal quality but rather a skill to be mastered. The world will keep on changing, and those changes will not always be pleasant. Taking a philosophical approach and learning to recover from a fall, no matter how hard, are essential for longevity and preserving wealth for future generations.

A part of adapting is a sometimes painful shift from putting family first to putting business first. Although it might sound counterintuitive with the previous statement of how important the internal bonds are, it makes sense regarding wealth preservation. In the long run, you will be faced with choosing between indulging a family member and doing what’s right for the business.

For example, it might be very tempting to appoint the oldest son as the company’s head, even though the history of his professional experiences might suggest otherwise. Decisions like these ultimately put a start to family wealth destruction. So, focus on taking a rational approach and find someone who fits the role with their professional qualities, even if it isn’t family.

Engage and collaborate

Why wait for your own passing to create a space for the next generation? Successful family businesses will confirm that the sooner you begin to include the heirs into the process, the higher the chance they will become personally involved and skilled to accomplish any task.

There is a whole sea of potential when working side-by-side with representatives from several generations—starting with invaluable experience and outlook on any specific scenarios and developing a standard skillset suitable to deal with all kinds of situations.

Not to mention the unique relationship you will be able to build with your heir as you exchange knowledge and share insights. The important thing here is to keep in mind that children from all marriages are equally essential and attention-worthy, so if that’s the case, work out a plan to accommodate everyone.

Give back

Finally, the act of acknowledging your wealth is not just about showing its significance to the next generation. It is also the window of opportunities to apply a portion of your affluence towards helping the less fortunate. You might notice that the younger generation can be slightly uncomfortable with the thought of how much they control. A great way to deal with this discomfort is by working out ways to make a difference.

This will also include levelling up with your employees and showing your appreciation every step of the way. As you do it in front of your successors, they will know that fortune isn’t just a load of responsibility but also a tool that can bring visible changes into the lives around you.

Family wealth forever

Comprehensive wealth management between generations can be complex and painful, but it doesn’t have to be. By constantly dealing with the elephant in the room, families should set up a long-term culture of transition that will adaptively benefit each generation. All members can remain on the same page through clear and constant communication as older leaders start to ease up on the reins and give their successors more space to grow into their future roles, safe knowing the next generation will carry through the original value set.

There is no one-size-fits-all fix to prevent generational wealth erosion. Being aware of these issues and adequately dealing with them is the first step in preserving wealth through generations. Knowing what lies ahead and keeping a dialogue of strategies to mitigate the known risks is certainly the best form of prevention.

About the Authors

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

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