Lisa Quateman and her family worked hard to establish the family office and governance structure for Belldale LLC, which manages their real estate and other investments. But their work is not done: Quateman, who is CEO of Belldale, must now consider what will happen when she is no longer in that role.
“Succession planning looms large: figuring out how things will be run when I’m not doing it anymore,” Quateman says. “Will it be a family member? Will it be a third party? Will the next gen actually decide to sell the property and go their separate ways? What about cousins who were raised in separate families?”
Quateman and her family are far from the only ones facing these questions.
“A lot of family offices are in transition, whether it’s ownership, leadership or management,” says Kirby Rosplock, founder of Tamarind Partners. “We have retiring, boomer-aged executive leadership at the family level, at the non-family level and at the operations level. And there’s not always a seamless transition, where someone has been shadowing for three years and now they’re ready to take that mantle. Oftentimes, that is not happening.”
Planning for succession before it’s needed is key to a smooth transition.
“More families now are spending time further in advance to plan for succession. In the past, I think families were more reactive. Now they’re doing more thoughtful planning,” says Jonathan Flack, PwC’s Global and U.S. Family Office and Family Business Leader.
That is the approach Quateman and her family are taking.
“Succession issues are going to be on the table for the next several years,” Quateman says.
She is working to identify the questions they need to work through.
“You need to first identify what people’s goals are,” Quateman says. “Are they going to want to keep the real estate and co-own? If they do, who is going to do what I am doing today? Is it going to be a family member, or do you need to hire a third-party manager? And if you hire a third-party manager, are you prepared for the fact that your distributions will decrease because you’re going to pay a third-party manager? We’re looking at what our options are.”
Talent transitions
Family office leadership — whether by a family member or by professional staff — requires a specific set of skills, from understanding complex trust documents to navigating family dynamics.
“There’s a lot of detail and complexity there that you don’t find anywhere else,” Flack says. “Talent in the family office space is always challenging. There are not a lot of natural industry feeders into family office leadership roles — what I describe as the expert generalists. So for succession planning, family offices need to look both outside and inside.”
One question is what assets the family office is managing, Flack says.
“Is there still a core operating business with some additional assets on the side? Or is it an all-liquid investment pool? Is the family office actively managing private equity?” Flack says. “The asset pool will significantly influence the desires and skills that family members potentially could have to come in and help lead.”
Family members also need to be educated about family office roles so they know whether they’re interested in taking them on.
“A starting point is family members being educated and understanding the system. It takes years. It’s not a few-month process,” Flack says.
A thoughtful approach could take several years, during which rising generation members are encouraged to build their skills and consider applying for leadership positions.
“When families try to do just-in-time succession, asking at the last minute if someone is ready to jump in, it’s a fire drill,” Rosplock says. “Often, for the family member that might have been the best choice, the window is already shut, because they’ve just taken a different job because they didn’t know the family would need them. They miss the developmental window to prepare those family members for what they hope they will be ready to take on.”
Planning succession for professional staff often presents different challenges — but just as with family member succession, planning ahead is key.
“You have to get the right fit, so starting early is absolutely critical,” Flack says. “You can find experts that know investments but don’t know complex trust and estate laws. And it’s also really hard to find the right fit with the family because it’s such an intimate setting.”
Not all the questions center on the people involved. Rapid technological transformation is also affecting how family offices plan for succession on the operations side.
“Which tech stack do we migrate to? How do we think about our legacy systems? What does that look like in terms of who we hire?” Rosplock says. “All of this is really transforming the hiring, the operations, the efficiencies, the cost structure.”
Still, the people side of succession planning for non-family leaders is important.
“There are more and less graceful ways for some of these family offices and non-family members to make a smooth transition,” Rosplock says. “It comes back to family setting the intent and the direction, and then working with the non-family leaders to think about what is a meaningful, smooth transition for them is so that they’re ending on a high note, not with the door shutting on them as they walk out one day.”
Tips for a smooth succession
Experts offer these tips for a smooth leadership transition, whether it involves family members or professional staff:
* Listen to a lot of people.
“Not having a clear, well-documented plan is a challenge for many families, though it’s an area where I’ve seen a lot of improvement in over the last few years. In the past, you might see a small group working on succession. There wasn’t a lot of transparency with it, and there was a loss of trust through that process,” Flack says.
Flack encourages what he calls a “big tent approach.”
“Get a lot of people — from the family, from the business, from the broader leadership team, from the board — involved so that there’s good transparency as you go through the execution of that plan,” Flack says.
* Don’t wait.
“The most important piece is to start early, much earlier than you think,” Flack says. “It is so difficult to find talent. It’s a different business. Some families think, ‘Well, it’s not really a business, it just helps to manage our family.’ But it is a real business. And given the small number of people that tend to be in the family office, both family members and non-family members, you have got to start the process much earlier than you generally would think.”
* Follow a plan.
A strategic plan is an important part of a successful succession, Rosplock says. It helps with candidate selection — figuring out what qualities are needed in the next leader — and recruitment. Strong candidates are more likely to join a family office with a good roadmap in place.
“It de-risks the succession, because succession is a lot about implementation, and execution risk — how well the succession is actually executed — is probably one of the biggest risks around succession,” Rosplock says. “What if the person we hired quits in six months, or the family fires them? What if, all of a sudden, the new leader comes in, and nobody likes this person, and you have attrition of your key staff?”
Having a solid succession plan in place can help ensure the long-term stability of the family office.
“If your people infrastructure is weak, or is not clear, both on the family and the family office side, you are very susceptible to attrition,” Rosplock says. “Attrition in the family office could lead to being forced to outsource whether you like it or not, and that may or may not be the best option for the family.”