The leadership, risk management and inter-generational dynamics of families have been put under the microscope by the MFO.
A survey of wealthy families shows that far more of them would like to choose another way of picking a member who can lead its affairs rather than under the old system of giving the reins to a first-born son.
The traditional primogeniture system is still used by many families particularly as it does at least set out a rule to be followed, possibly removing the need for acrimonious argument. However, many families prefer to adopt a different process, according to a study by Stonehage Fleming, the UK-based multi-family office.
In its report, Four Pillars of Capital: the Next Chapter, the MFO made face-to-face interviews with about 30 ultra-high net worth families and advisors, and surveyed 140 people. The report delves into issues such as risks to families and how they can work together. A quarter of all the responses came from “next generation” contributors to tap into the views of younger adults.
Asked how leaders in families and businesses are chosen, 28 per cent said primogeniture was the way, and only 10 per cent of them said this should be used in future. Only one per cent said leaders are chosen by external parties; 10 per cent said they should be; 13 per cent said they are chosen by a committee, and 33 per cent said this should be the future approach. Some 20 per cent said leaders are self-selected.
Among other points in the report, the authors note that families address generational changes more frequently. In the past, they did so every 25 years but now this happens as frequently as every seven years.
There is also a wider gap between the values of different generations than in the past, but there is more appetite to talk about issues between families, suggesting a less hierarchical relationship than in the past.
Succession planning is now even more important than protecting capital as the top priority for the future, and non-financial risks, such as family splits, lack of leadership, planning and direction are seen as particularly important.
Asked what risks a family would put in its top-three concerns, 69 per cent of respondents said succession planning; 62 per cent said capital preservation; 48 per cent said tax planning; 40 per cent said capital appreciation; 31 per cent said income, 11 per cent said inflation and 7 per cent gave “other”.
Asked by WealthBriefing about how risks such as reputation and public perception can be problematic, the report’s authors said these risks are complex to manage. A problem for UHNW families is that the wider public is for various reasons fascinated by people with great wealth and not all of that attention is positive.
Families cannot just assume that philanthropic acts can manage a family’s reputation, Matthew Fleming, partner, head of family governance and succession at the MFO, said. On the other hand, he said families that have created businesses and hundreds of jobs should be less “British” and be more positive in what their entrepreneurial work creates.
Risks can cover a wide terrain. Stonehage Fleming outlined the
following: family succession; lawsuits; tax; reputation and
confidentiality; health; family disputes; being too busy; family
governance; family values; structuring/planning; divorce; family
legacy/image; death/injury/illness; family business;
expenditure/liquidity; investments; philanthropy disconnect;
cultural/religious; political, economic, geographic; travel;
terrorism, crime, identity theft; kidnap, ransom; reporting;
personal assets/collections; properties; banking, and relevant
Among recent developments at Stonehage Fleming, late last year it announced that it had formed a strategic alliance with Glenmede Trust Company, based in the US.