Succession planning the number one concern of ultra high net worths

By: Stonehage Fleming

Stonehage Fleming, one of the world’s leading international family offices, has launched its report ‘Four Pillars of Capital: Practical Wisdom and Leadership for Changing Times’, an exclusive review and commentary based on consultation with some 150 multigenerational members of different families and advisers (see ‘Methodology’).

Practical Wisdom and Leadership for Changing Times’, the third report of a series, outlines the challenges in the transfer of wealth across generations, and analyses how the rapid pace of change is affecting the way families prepare for the future.

Stonehage Fleming identified that a changing and uncertain environment has caused families to focus on preparing the next generation to respond to future challenges and opportunities. This means a more sophisticated, better structured and increasingly democratic approach to family leadership, greater emphasis on training and development of young people, better communication and renewed emphasis on long-term planning. The risks of failing to prepare the next generation are now seen as greater than the management of investments or even of directly held business enterprises.

Matthew Fleming, Partner, Family Governance and Succession, at Stonehage Fleming said: “Given the rate of technological, social and political change, intergenerational relationships are also transforming. Nearly all respondents agree that the impact of societal change on a family and family wealth must be reflected in the way they prepare for the future. Traditional, informal approaches are thus being challenged as families look to more sophisticated governance and communication.”

“One of the leading concerns emerging from the survey results is ensuring the right leadership is in place, by and for the next generation. Our experience tells us that having a clear leadership structure will provide the best chance of managing unforeseen risks – both internal and external – pursuing opportunities and ensuring that the family prospers.”

Key Findings

  • The report identified a shift in the primary concern by UHNWs from capital preservation to succession planning. The 2018 research found that 69% of respondents identified succession planning as one of their top three concerns for future financial planning, followed by capital preservation (62%) and tax planning (48%).
  • Primogeniture (the right of succession belonging to the first-born child) was the number one way that leaders of the family or of the family business were selected (28%). When asked about their intentions for the future, however, the figure is around a third of that at 10%.
  • There is a growing preference for wider consultation in the family for the selection of new leaders, possibly including a formal process. Currently 13% use a committee to select the family leader, however at least a third (33%) expect leadership to be selected this way in future.
  • Respondents identified that the top risks to long-term family wealth relate to family disputes (68%) and lack of planning (67%) as opposed to purely financial or investment risks. Further risks were failure to appropriately engage or train the next generation and leadership issues.

Socially responsible investing not yet fully adopted

Over 75% of respondents acknowledge a preference for responsible investment, but only 21% are actively incorporating a values-based approach in investment portfolios. Said Guy Hudson, Partner and Head of Marketing at Stonehage Fleming: “This indicates to us that though there is clearly an appetite for socially responsible investing, there is some confusion over definitions and how best to best achieve it in portfolios.”

Hudson concluded: “At Stonehage Fleming we talk about ‘practical wisdom’ – sharing the knowledge we have acquired by working with a diverse group of families over several generations and using this to address the many and varied challenges and opportunities that families may encounter. Our rapidly changing society has increased the awareness of a need for a more structured and transparent approach to managing intergenerational risk.”

To download the full research report please visit: http://www.stonehagefleming/fourpillars