To smooth the transition from one generation to the next, families set up governance structures and make sure their estate plans are in order. But it’s important not to overlook an important piece of this transition: the family office. When the current family members who oversee the family office step away, who will take their place? And are the professional staff of the family office prepared to work with a new generation of family members?
“Currently we are in the process of putting a succession plan in place,” says John Michael “JM” Elder, president and chief investment officer of the Wellspring Family Group. “We’re working on both the family succession of leadership and engagement in the office and the succession plan for the staff inside the office. We see that as a risk mitigation process as well as an opportunity cost reduction.”
The current family leaders of the family office, members of the next generation and the professional family office staff all have a role to play in making this transition smooth. Experts offer advice for all three groups:
Current generation: setting goals and making space
Why does the family want to have a family office that continues into the next generation?
“The family needs to have real conversations around it — about what they want their family office to help them accomplish,” says Judy Lin Walsh, a partner at BanyanGlobal Family Business Advisors, which helps families that own significant assets together with generational transitions.
One crucial part of these conversations is a recognition from the current family leaders that the family office may evolve as new generations take over.
“If you’re the family member and you’re looking to step back, you need to be comfortable with the fact that that family office may evolve what it’s doing based on the new voices in the room,” Walsh says. “If you want the family office to last beyond your lifetime, to continue to help your family and carry out whatever mission you’ve set forward, then you have to make space.”
Next generation: strategies for engagement
It’s important to start engaging the next generation before a transition is imminent.
“There may be one person in the family who leads the office, then passes it along to the next generation. But by the third generation, it’s pretty hard to get people excited about continuing unless there was a plan in place for governance and education,” says Harry Cendrowski, managing director of Cendrowski Corporate Advisors. “It’s hard to just put a person in that role.”
Proactive engagement with the next generation can take many different forms:
Board service: Bryn Monahan’s family is planning for family office succession. “A significant focus has been on readying the next generation to take over the governance of the office. Of the six family board seats, four are next-generation members,” says Monahan, senior consultant at Relative Solutions and fourth generation family/board member at Foster Holdings.
Regular meetings: “A lot of family offices that are more proactive on governance and succession have a least one major meeting a year,” Cendrowski says. These meetings, which may focus on short-, mid- and long-term planning, can be a good way to make sure all family members, including the NextGens, are up to speed.
Community engagement: Involvement in the community can be a great way to get all family members working together — but it can also shine a spotlight on the ways the family may change as it grows. Families have to “make decisions about how involved they want to be in the community, and which communities,” Cendrowski says. “Are they interested in supporting the environment, or education? Maybe the family started out based in Chicago but now has homes in Phoenix and Miami and other places. Do they want to get involved in those local communities too?”
Philanthropy: Charitable giving can be an excellent way to engage NextGen family members in the work of the family office, paving the way for greater involvement. “They learn to interact with other people and start to form their own relationships,” Cendrowski says. “They start to understand how to give, what qualities they are looking for in organizations. Then they can take that acumen and apply it to business. It’s part of a long-term educational process.”
Family office staff: key players in the generational transition
The professional staff of the family office can help the family as leadership moves from one generation to the next.
“Effective family offices look at their continuity as a strategic initiative,” says Joshua Nacht, principal consultant with the Family Business Consulting Group. “They look at: What services do we provide now? What services does the family need in the future? And how can we make sure we have continuity at the family office level to meet the needs of the family currently and into the future?”
Professional staff who have known and worked with the family for a long time may have some unique insights that can help the family navigate the transition.
“You can have a phenomenal family office that is built around one person — one principal or a husband and wife team, for example — and it can do extraordinary things,” Walsh says. “But it may only last for that principal’s lifetime, and after that it dwindles. The families that also want to have a legacy that carries on beyond just one person’s lifetime — they’re the ones that are looking several steps ahead. Given your unique perch as a family office leader, what are the trends that you see across the family? I think that’s where the truly accelerated family offices are playing.”
Staff members’ insights can also help family members adjust to new roles.
“For parents, it can be really hard to shift from that parent-child mentality to viewing your next gen as a capable adult who may have differing views than you do,” Walsh says. “The family office professional can help: ‘Here’s what I am hearing and here’s how we can evolve.’”
And professional family office staff should not neglect their own relationships with the next generation.
“Succession planning is deeply about relationships,” Walsh says. “If you are a family office professional and the principal is nearing a retirement age, you should — the sooner, the better — try to get to know the next generation of principals. Get to know them as people, be curious about their lives.”
