Deidree Bain, our Americas lead for Suntera Private Office, was featured in an article by Sophia Panayi from TheWealthNet, emphasising the growing need for improved succession planning and greater involvement of the NextGen.
The great wealth transfer is set to see $18.3 trillion be transferred globally by 2030 and £7 trillion is predicted to transfer between generation in the UK alone by 2050.
It is expected to be the largest intergenerational transfer of assets in history, according to Vanguard with factors such as an aging population and increased wealth accumulation contributing to the transfer.
Despite this, a recent study which was part of the Deloitte Private Family Office Insights Series revealed while four in ten families are set to undergo generational succession in the next decade, 41 percent do not currently have a succession plan in place.
With such a large amount of wealth due to be transferred between generations, the role of family offices and family governance more generally has become increasingly important.
Lucy Birtwistle, a relationship manager at Stonehage Fleming, described her role as a “conductor of an orchestra”.
As a relationship manager for family offices, she often coordinates with other teams, such as investment, legal and tax, to provide families with the solutions they need when succession planning.
“We are generalists,” she said. “We solve every issue and collaboration plays a key part in this.”
It is important to the firm to “put family first” which also means involving the next generation when planning for the future.
In Ms Birtwistle’s view, the more families engage the NextGen, the more likely the wealth transfer within a family is to succeed.
“I have found most of the NextGen are eager to be involved in the process,” she stated.
She explained that Stonehage Fleming wins clients because of its work with the NextGen, which includes running two different programmes for them.
The first is a week-long course in the summer for final year university students. They are taught the importance of purpose and having their own drive, in addition to other skills such as communication and presenting.
The second is a bespoke course for family groups. This focuses on offering financial education to the NextGen, which includes learning how to interpret balance sheets and about taxes.
“We actually get quite a lot of new work from NextGens being so engaged with these processes as it leads to them wanting to be more involved in the family discussion of finances,” Ms Birtwistle said.
Educating the NextGen is an important way for family offices to prepare for the great wealth transfer, according to Deidree Bain, director at Suntera Private Office.
“Prioritising the education of the younger generation earlier is also important,” Ms Bain explained.
“Some families incorporate educational sessions formally through family meetings while others chose to do so informally during holidays and family gatherings.”
Ms Bain feels the NextGen has been more involved with decision making in family governance meetings and processes post-Covid, even if only in “an observatory capacity”.
However, it differs from family to family.
Ms Birtwistle has found the NextGen’s attitude towards wealth tends to vary depending on what generation of wealth they come from.
For example, those who are first to second generation grew up in what Ms Birtwistle called “the beans on toast days.”
This means the children may well have grown up seeing the difficulties that their entrepreneurial parents have gone through when “literally all they could afford for supper was beans on toast.”
They were also more likely to be aware of some of the business decisions as they grew up surrounded by the business itself.
She commented: “The set of values are still quite humble and still quite down to earth for this generation.”
This differs slightly from later generations, as they have never known a different lifestyle or financial situation.
“This can inflict different feelings and possibly bigger feelings of custodianship,” Ms Birtwistle explained.
In both cases, there can still be feelings of pressure to make the right financial choices and guilt over inheritance.
In terms of succession planning for the NextGen, Ms Birtwistle stressed “every family is unique” and there is no one size fits all.
The type of structures put in place will depend on a variety of factors including the families’ long term financial goals, tax and philanthropic donations.
While discussing with families the best structures to implement, Ms Birtwistle said she often becomes a mediator in conversations.
“We ask provocative questions and open up dialogs before thinking about what the next steps will be.”
From these conversations, concerns can emerge.
For example, families may worry that the NextGen will use the wealth for something they do not believe in, such as donating money to a cause that opposes the family values.
Laura Nevitt, head of family office at Hawksford, agreed with this, adding that other concerns can include older family members being reluctant to relinquish control of family assets and the NextGen being unaware of the level of their family’s wealth.
These open conversations can also “play a really valuable role for families”, according to Ms Bain as they can unite family members over common interests.
Ms Bain used the example of the NextGen’s interest in as a way to engage them in conversations.
Having these conversations can help “to share and teach family values, ethical considerations and societal impact while galvanising a sense of collective purpose across the family.”
Nicola Roberts, private client leader for Deloitte UK, said a lack of formalisation of the family’s intentions is a common issue she has observed.
“This can be as simple as having a valid up-to-date will in place, to establishing a formal succession plan which aligns the family on their objectives, strategy and direction of travel for their wealth.
“Many family members find these processes overwhelming and as a result may delay decision-making which can cause huge issues and pave the way for potentially spurious claims into the estate after a family member’s death.”
Ms Birtwistle said such concerns can be resolved through communication and ensuring the family has a “shared set of values”. The more family members involved in these conversations, the better the outcome tends to be.
“We strive for agreement but that does not always happen,” she stated. “The best outcome will always be enabling the families to have an understanding.”
Though all professionals found there can be a disconnect between generations, Ms Birtwistle believes usually this can be explained.
The great wealth transfer will likely see a different use of wealth as a new generation takes the reigns. Despite concerns, there are also more opportunities which may come to light.
“While the older generations focused on building the wealth, this has enabled the NextGen to have their own purpose in life,” she explained.
This means the NextGen can focus more on personal issues such as sustainability.
The NextGen still needs to be prepared for the responsibility of handling large amounts of wealth and Ms Birtwistle believes this can be done through ensuring they are not just reliant on the previous wealth generated.
Meanwhile Ms Bain highlighted the specific NextGen committees Suntera Private Office is creating to allow individuals to make decisions at a smaller scale or encourage entrepreneurship by supporting new business ventures tied to the family operations as a whole.
“Tactically, combined these moves play a valuable educational role, and go a considerable way in preparing this generation to take over the helm in due course.”
Ms Roberts took a different approach, stating that one way to help the NextGen is by allowing someone else to manage the wealth.
“Wealth can often be seen as a burden for the next generation, but it needn’t be. For those less equipped to manage the responsibility, the key is to help them help themselves.”
She concluded: “Put sufficient controls in place to protect the wealth but don't let it weigh them down or strangle them. Generally that means getting someone else to manage it for them, but with some flexibility allowing them to be more engaged when they want to be.”
*This article was featured on TheWealthNet website. Click the link to view the 'Preparing the NextGen for the great wealth transfer' article.
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