Succession planning needed to bridge family office generation gap

Survey confirms challenges from differences in values between older and younger generations

Succession planning needed to bridge family office generation gap

One way or another, each generation’s values will differ in some way from the last. And that creates challenges in succession planning, according to more than half of the participants in a recent Harris Poll of family office executives.

The online survey, conducted on behalf of BNY Mellon Wealth Management Family Office, was distributed to 200 key personnel at global family offices managing at least $150 million in assets from Oct. 14 to Nov. 8, and received replies from 120 of them.

Three quarters of respondents stated the next generation is more concerned about environmental, social, and corporate governance issues, as well as responsible investing.

Similarly, growing generational differences and rising economic and social disruption are forcing family office executives to change their approaches in a number of areas, including succession planning, investing, and philanthropy management. More than half of those polled felt succession planning is a challenge as disparities between the ideals of older and younger generations are difficult to resolve.

Vincent Hayes, global head of family office at BNY Mellon Wealth Management, said, “The past few years have been unparalleled, marked by pandemic-driven economic turbulence and rising social and political debate, which has brought discussions on the role of wealth to the forefront.”

More than two thirds of family offices indicated succession planning is extremely or very important in bringing differing generational values together. At the same time, 42% admitted that succession planning is a tough topic to discuss and that they tend to avoid it.

Other roadblocks hold back succession planning as well. Among the respondents, 45% of family offices say it is more difficult to engage next-generation leadership as they deal with their own family or career. and 25% believe they are not ready to engage the future generation of leaders.

Lack of knowledge and difficulty obtaining reliable advice were also cited as challenges in succession planning by many family offices in the survey. It revealed that 42% require outside assistance in building an effective succession plan, and 39% have difficulty in locating a reliable external partner to assist with succession planning.

The poll also shed light on plans and attitudes toward crypto investing. Nearly four fifths (77%) of those who have actively invested in cryptocurrencies said they plan to increase their exposure, and 72% of those who have actively explored cryptocurrencies said they plan to grow their exposure.

Cryptocurrency appeals to the goals of next-generation investors, according to 64% of respondents who want to include cryptocurrency in their portfolios. Seventy per cent said they do it to stay on top of emerging investment trends, and 45% said it's because the next generation of family office heirs is interested.

“Family offices have a long-term investment horizon and are in a unique position to consider investing in this emerging asset class,” according to Rajesh Nakadi, head of investments for Global Family Office at BNY Mellon Wealth Management.  “The regulatory climate continues to evolve, and digital assets are emerging as unique vehicles for families to store wealth, offering the potential for higher returns and further portfolio diversification.”

The survey also revealed that 73% of the family offices polled said they are involved in philanthropy in some way. Three-quarters of them make direct donations to organizations, and a fifth manage charitable grants worth more than $25 million.

Crystal Thompkins, head of philanthropic solutions at BNY Mellon Wealth Management, said, “Family offices have long recognized that philanthropy not only drives impact but is a powerful vehicle to unite generations.”

Sixty-nine per cent of family offices' interest in philanthropy is motivated by a desire to give back. Sixty-three per cent said they are actively supporting causes connected to economic inequality and 54% said they are using charity to advance climate change causes. Even though most family offices are motivated by altruism, they do expect some practical and tangible rewards such as track impact or a tax break.