Family offices can cultivate lasting legacies—as long as they weave together disparate strands of succession planning, knowledge about the business and effective governance into one tapestry
Family offices, which manage the wealth and personal affairs of HNI/ UHNI families, have long been crucial in preserving and growing wealth across generations. However, in recent times, they are undergoing significant transformations due to generational shifts and emerging economic realities.
The subject assumes greater significance if we consider the implications of the so-called ‘great wealth transfer.’ According to Merrill, a prominent investment firm, an astounding $84trn in assets is projected to be transferred over the next two decades. Of this substantial sum, approximately $72trn is expected to be inherited by Generation X, millennials and Generation Z, with the remaining portion allocated to charitable causes.
Having a Plan in Place
Given the substantial amount of wealth involved, it is crucial to prepare the next generation for such inheritance. The phenomenon known as the ‘third-generation curse’ is said to be pose a significant threat to the preservation of long-term wealth. Anecdotal evidence suggests that by the third generation, 90% of family wealth is lost—a striking statistic that highlights the intricate challenges families face in maintaining generational prosperity. Additionally, in case of business families where multiple generations are involved, it becomes imperative to have a succession plan for not only the ‘ownership’ but also ‘management’ of the business. Segregating ownership and management in family businesses is a strategic approach to preserving the legacy and ensuring smooth transitions across generations.
Although preparing the next generation presents numerous challenges involving tough emotional conversations coupled with generational differences, this process can be made smooth by proactively staying ahead of the curve and adopting a thoughtful approach. A number of approaches can help navigate these complexities and develop the next generation of family office leaders.
A Multi-Faceted Approach
The first is early involvement—getting the next generation involved early on can help clarify their interest, learn about the business and also foster an emotional connect. Increasingly, the next generation needs to feel they are involved in building their own future within the family business and empowered to forge their own path. One of the hallmarks of the rising generation is an increasing demand for accountability and transparency across every layer of the family’s activities. Leaders who are transparent and involve the next generation early on in decision-making will foster an environment for the next generation’s success.
Family offices should create tailored financial literacy programmes for the specific needs of their family members. From introducing essential concepts around investment strategies, estate planning governance structures to philanthropic activities—structured education can be an effective means to prepare the next generation for the future. Additionally, rotational business experiences, internships, coaching and mentorship from senior family members, along with external advisors, can also contribute to this aspect.
External value addition is important. It is equally vital to encourage young family members to gain professional experience outside their family business/office. Exposure to different work environments helps develop independence, problem-solving skills and a broader perspective. Heirs should be encouraged to gain experience outside the family business for a few years. This external exposure will equip them with a broader perspective on business challenges and best practices.
Talent should be developed for leadership roles. Giving meaningful responsibilities within the family office that allows members to make decisions and take ownership of projects or initiatives is extremely useful. Leadership in family offices spans governance, strategic direction and maintaining a strong value-based culture. As senior members of the family move from operational to governance roles, next-gen leaders must be familiar with the family’s business strategy and continue to contribute to its future. Developing skills in strategic oversight, rather than just operational management, will ensure that the new generation can guide the business towards long-term sustainability.
Instilling a sense of family heritage is vital and critical for the legacy to succeed and flourish. The next generation needs to understand and convey the family’s story, values and achievements in letter and spirit. This aspect of leadership ensures continuity in both financial management and the family culture, providing a foundation for decision-making.
Succession planning is often the most delicate aspect of family office management. Successful succession planning involves balancing the founder’s legacy with the next generation’s vision for the future. For the older generation, succession involves a gradual transfer of control and trust. It is essential to navigate this transition thoughtfully, allowing the next generation to assume leadership while ensuring they remain grounded in the family’s ethos.
Philanthropy today is key to engaging younger family members, providing a natural gateway for them to enter governance and investment discussions. At times of change, it is one subject that has the potential to unite everybody, ensuring shared values and passions are carried through to future generations.
Unlike previous generations, who may have been primarily focused on wealth preservation alone, the next generation wants to align their financial power with their values and working together to develop strategies where profit and purpose go hand in hand may be a good idea in solidifying a family’s legacy. In my opinion, individuals/families are not remembered for the wealth they created or that they own but for the work they did in shaping society and leaving behind a legacy of philanthropic work and institutions.
Establishing effective governance structures for the next generation is crucial for ensuring continuity, stability and growth. Family governance frameworks that include regular family meetings, clearly defined leadership roles and shared decision-making processes can encourage collaboration across generations.
As the author Elizabeth Aston puts it, “Anyone may have diamonds: an heirloom is an ornament of quite a different kind.” Preparing the next generation for stewardship in family offices is a multi-faceted endeavour that involves mentorship, experience and a sense of responsibility. By fostering leadership, encouraging external experience and creating structured career paths, family offices can ensure the smooth transition of wealth and values across generations. The goal is to equip heirs not only with the skills to manage wealth but also with the wisdom to preserve and grow the family legacy.
(The author is president, Kotak Mahindra Bank. Views expressed are personal.)