Inheriting The Single-Family Office


Source: Russ Alan Prince from Forbes

As part of the enormous intergenerational transfer of wealth expected over the next decade, single-family offices are being passed down to the next generation. As more and more single-family offices are being established due to the boom in private wealth creation throughout the world, an increasing number of single-family offices will be going to heirs.

According to Angelo Robles, founder and CEO of the Family Office Association, “Single-family offices are in many ways a family business, where the day-to-day operations of the office are often the responsibility of hired talent. Nevertheless, like family businesses, an often-critical consideration for many of them is transferring the single-family office and the affluence of the ultra-wealthy family to the succeeding generation.”

In a survey of 124 senior executives in 1st generation single-family offices, nearly all of them intend to pass the single-family office to heirs. “Where the single-family office is expected to go to heirs, formal financial succession plans are in place,” says Ellie Peters, wealth advisor at LVW/Flynn. “In their estate plans, with attention to dynastic concerns, the founders of these single-family offices have implemented structures and wishes to ensure the transfer of ownership to heirs and often across multiple generations. In contrast, slightly more than half of these single-family offices have formal operational succession plans in place. Gaining ownership is not the same as being able to effectively run the single-family office.”

“Looking at this issue from the other side…the conundrum is that many inheritors of single-family offices are unprepared to take over,” explains Usha Bhate, Executive Director Institutional Investor. “In a survey of 75 senior executives in 2nd generation single-family offices, about a sixth of them said the heirs were prepared when they took control of their single-family offices.”

Very telling is that inheritors are more likely to be directly involved in running their single-family offices than founders. “Overall, nearly one in five family members are senior executives in their single-family offices. This is the case for a little more than ten percent of them in 1st generation single-family offices. However, about 30 percent of ultra-wealthy family members are senior executives in 2nd generation single-family offices,” says Robles.

It is evident that while a preponderance of single-family offices are going to be passed down, the new owners are often not well prepared to take control, even though a greater percentage of them are likely to be involved in day-to-day decisions. Mistakes made by ill prepared inheritors can prove very costly and extremely problematic. They can easily result in poor investment performance, highly disruptive family conflicts, and overpaying for substandard expertise.

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