Family offices worry next generation is not prepared to manage wealth

Family offices do not have confidence that the next generation is well prepared to manage family wealth, a report from UBS and Agreus Group has indicated.

When asked whether the next generation was ready to manage family wealth, a quarter (25 per cent) of global family offices said it was not prepared.

Almost half (45 per cent) believed the next generation was 'somewhat' prepared to manage wealth, while 7 per cent were unsure.

Just 14 per cent felt the next generation was prepared and 9 per cent said it was highly prepared.

The global report noted that 45 per cent of family offices did not engage in succession planning to help prepare family members to be leaders across the family enterprise.

It found that families that do engage in succession planning were almost four times as likely to rate their next generation as prepared than those who did not.

While the report highlighted the benefits of having a family constitution in place, under a third (29 per cent) of family offices had one.

Those who had incorporated a family constitution were more than twice as likely to rate themselves as having effective communication, 1.5 times more effective at joint decision making, and 1.5 times more likely to have effective oversight of family decision makers.

UBS and Agreus Group also emphasised the importance of holding regular non-financial meetings, with those that do twice as likely to rate their communication and joint decision making as effective than those who do not.

The report also looked at the effectiveness of investment committees and highlighted the importance of having an Investment Policy Statement and an annual self-review.

Furthermore, family business boards were 2.5 times more likely to rate themselves as effective when engaged in an annual self-review process, as well as 2.5 times as likely to consider themselves effective when engaging a third-party governance consultant.

Half (50 per cent) of families that had a private foundation had a method for assessing their grantmaking, while only 19 per cent had a plan to incorporate next-generation family members.

The majority (59 per cent) of families that had a family bank believed it was effective at encouraging entrepreneurship.

“Families that rated their governance as effective shared a common theme: they invested in time, people and purpose,” the report stated.

“These families were deliberate in choosing individuals - both from within and outside the family - who could contribute to long-term decision making.

“They were intentional about creating governance practices that do more than just check a box.

“It’s not one practice alone that drives improvement. Rather, it’s a comprehensive, consistent, and evolving total approach - applied over time - that moves the needle.

“Effective governance is rooted in a family’s total commitment to doing the work, together. To keep improving, knowing they must keep evolving."

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