Ultra wealthy families are rightly focusing on the risk of economic collapse to their fortunes, but in the longer term “succession risk” poses a greater threat, according to a report by the Stonehage Group.
Failure to carry out cross-generational succession planning can have a more dramatic effect on their finances than a banking crisis or collapse in market confidence, says the company, which has in excess of USD30bn of wealthy family assets under advisement.
Most family fortunes fail to survive three generations because the absence of clear leadership, effective communication and well-documented governance structures cause uncertainty and division, which is particularly damaging if there are directly-held business assets. The transfer of business assets to an increasingly independent younger generation with different life goals requires a strategy as meticulous as any of the tools promoted by wealth managers and private banks to manage systemic risk.
Andrew Nolan, managing director and head of Stonehage’s family office division, says: “At its mildest, this disagreement can result in a loss of direction and leadership and, at its worst, can result in a full-scale family war as different family members fight each other for the assets, the legacy or the family leadership.
“By the third or fourth generation, the chances are very high that those who inherit were brought up in luxury with little concept of the work ethic on which the family fortune was founded. The increasing independence of younger generations today, who are less likely to take the helm of a family business, is also an emerging issue.”
Stonehage helps to preserve entrepreneurs’ wealth by helping to create and administer the necessary governance structures, by playing a key facilitation role in major decisions and by helping to resolve differences in the family.