Filling the generation gap

The ability to pass on wealth to the younger generation stands out as a major priority for families, and is particularly pertinent for ultra high net worths (UHNWs). Judging when to disclose the full extent of the family’s assets, promoting good communication between the generations and finding effective ways to train younger family members to take control are all issues close to the hearts of those who took part in a recent survey* conducted by the family office team at Smith & Williamson.

Although half of respondents considered the next generation either ‘well’ or ‘very well equipped’ to take over managing the family wealth, the remainder had misgivings. A third believed youngsters were ‘neither well nor poorly’ equipped while a significant proportion, nearly 17 per cent, described them as ‘poorly’ or ‘very poorly equipped’.

Where there were doubts, these centred on the ability of younger members to cope with the challenges of overseeing a complex financial portfolio. Respondents were asked what steps they were taking to address concerns. The most common tactic was promoting better dialogue between senior and junior family members, while more engagement with professional advisers was also cited.

When asked about differences between the generations regarding communication on financial matters, it was felt that there was greater openness than had been the norm as recently as 20 years ago.

Nevertheless, gauging when to reveal the full extent of the family’s assets remains a thorny issue. There was consensus among interviewees that there is now more willingness to involve the next generation at an earlier point, with the 30s being noted as the watershed age. However, there was widespread feeling that young adults need to have established their own careers and independence before benefitting from significant family income or capital.

Wealth matters: key findings 50 per cent had misgivings about the younger generation taking over management of the family wealth, so the priority is to improve dialogue between generations. 1 in 4 respondents felt communication between family members about financial management issues was ‘poor’ or ‘very poor’. 76 per cent hold some form of family meeting, either formal or informal. Of those who hold meetings, 79 per cent have one or more a year. More than half have changed their succession plans in the last ten years. Financial mismanagement ranked marginally ahead as the greatest threat to long-term wealth.

 

Interviewees commented on the merits of advisers bringing new blood into the relationship to strengthen links with emerging branches of the family, giving a clear warning that professional service firms risk losing clients if they fail to bring in younger assistants or partners to keep step with evolving family needs.

A majority of respondents had changed their succession plans in the last ten years. Those whose wealth had come along about two generations or more ago were less inclined to change plans, which could be partly explained by the more complex arrangements because of the far greater number of family members involved.

So while matters are evolving in the world of finance for UHNW families, it is gradual. Technology, the internet and social media facilitate better conversations both within families and professional advisers, but ultimately there is no substitute for getting round a table. Successfully managing family dynamics and good communication remained core to our findings.

Charles Gowlland is investment management partner and Frank Akers-Douglas is private client tax services partner at Smith & Williamson

The firm writes a regular in-practice article on asset management for Private Client Adviser

*Respondents comprised 39 families with a combined wealth of over £1bn