Although succession planning is crucial for a family office, a paper produced by UBS in partnership with Campden Wealth Research reported that only 54% of family offices have a succession plan in place. And to top it off, out of the 46% that do have a succession plan, only 32% of those are formally written documents. According to Rosplock’s Handbook, this tends to happen because many families are uncomfortable with the succession planning process. After all, it requires one generation of leaders to recognize their own mortality.

Besides this, succession planning by itself already has its fair share of challenges. As a matter of fact, The UBS-Campden paper report mentioned that the three most significant obstacles to developing a good succession plan are the lack of previous preparation and strategy of the current family office leaders, the skepticism that the next generation may not be properly qualified to manage the family office and family fortune, and the lack of experience and acquaintance of this next generation that will take over the family office. So, in this article, we will go over solutions for each one of these 3 obstacles.

1. Write it down.

One of the most crucial steps for successful succession planning is to have the succession plan strategy written down. Although simple, this is less common than one would expect. The Global Family Office Report 2019 revealed that 22% of all family offices don’t have any formal written documents regarding their succession strategy. In fact, 12% are merely informally agreed written plans, while 10% are just verbal agreements without any written documentation whatsoever. Therefore, to stay ahead of the curve and ensure the family office’s survival, it is crucial to develop a succession plan designed specifically for your family office’s needs. As Marta Albert, Principal at QG Family Office, UK, a speaker at the Global Investment Leaders Club Family Office Gathering, said, “Family offices are absolutely different from one another, just like there are no two families that are completely alike.”  So, once you have a succession plan in mind, write it down. Then, make it clear there’s a plan in place for when the inevitable transitions happen. Whether you’re a family member or a non-family head of a family office, it’s wise to begin discussing and writing succession planning best practices as soon as possible.

2. Prepare the inheritors and don’t leave loose ends

When planning to pass on the management of a family office, the transition will go much more smoothly if every loose end is accounted for beforehand. Check your data management system every month to make sure that there are no missing or incorrect records that could potentially create more significant problems over time for the future inheritors of the family office. Ensure that all relevant information for the family’s holdings is in the correct place. Remember, it is quite confusing for a next-generation member to have a large amount of information spread out in spreadsheets on a computer desktop, and on an on-premise software system, but this is a very likely scenario, especially if the family has a diverse investment focus that could include real estate, private equity, publicly-traded stock, and more. This is why it is important to properly educate future inheritors about wealth and data management from a young age. Elaine Chow, Principal at Trinity Capital, Hong Kong, stated at the GILC Family Office Gathering, “It is to not impose anything onto future inheritors but rather we educate and help them find out what they’re really good at and give them the resources to do what they want best.”

3. Provide for the Family’s next-generation lifestyle

Equipping the family office to enable the family’s lifestyle is crucial, especially when considering the transition to the next generation, which may or may not be used to this environment. To make up for this possible lack of experience, it would be best to determine what members will need to live life on their terms, help pursue what interests them and determine what is useful, what isn’t and educate them. As Guneet Banga, Executive Director for The Caravel Group, Hong Kong, said at the GILC Family Office Gathering, “Education is an essential part of the process, one that cannot be skipped. Having access to the best education that a family can provide really does make a big difference in the long run for the next generation of leaders and managers.”

Making use of these insights will allow you to prepare the next generations and equip the family office with a set of services that could help them during the adaptation process, such as recommending an organizational structure, providing professional leadership and support staff, and implementing technologies to facilitate and automate repetitive processes where appropriate.

Leadership transitions in a family office bring a tremendous amount of change in a short period of time. During this period, you can prepare your family office for another generation of prosperity or set the stage for its untimely collapse. Implementing these key succession planning steps will ensure that your family office will continue running smoothly for generations to come.