Are families Naïve or actually ready for transition?

Will your next generation be running blind when it comes to your whole-of-wealth strategy?

Are families actually prepared for the transition of their family wealth to the next generation? Many families think they are ready but instead may be grossly naïve as to what good family governance looks like, potentially leaving the next generation behind the proverbial eight-ball from the moment they assume the management of the family wealth.

The latest Citi Global Family Office 2024 Survey Insights report highlights the crucial aspect of equipping the next generation with the knowledge and skills to manage and grow their wealth responsibly. This is especially relevant for Australian families, who face unique challenges and opportunities in this area.

The report reveals that 59% of families prioritise preparing the next generation to be responsible wealth owners, second only to asset preservation. This underscores the importance families place on ensuring their heirs are well-prepared to handle the complexities of wealth management and continue the family legacy.

However, while over two-thirds of families have formal governance for investments, less than half have it for other family office affairs. There seems to be a significant gap in comprehensive governance structures, which are essential for managing all aspects of family wealth, including business operations, philanthropy, and family dynamics. Robust governance systems can help mitigate risks and ensure smoother decision-making processes, yet beyond the more formal Investment Policy Statement, there seems to be less of a focus on governance, preferring to rely upon the family's 1st generation stewardship, potentially leaving Generation-next to be left running blind.

Encouragingly, over two-thirds of families feel well-prepared for leadership transitions, a significant improvement from previous years. This readiness is crucial as leadership transitions can be challenging and, if not managed well, can disrupt family harmony and business continuity. The increased preparedness suggests that more families are taking proactive steps to plan for these transitions, ensuring a stable future for their family offices. When considered with a lack of family governance, could it be that families are scarily naïve as to what good governance looks like?

The focus on family education is sharpening, with 33% of family offices providing this service internally, up from 29% last year. This trend highlights the growing recognition of the importance of educating family members about wealth management, governance, and their roles within the family office.

Australian families can benefit greatly from focusing on these areas to ensure a smooth transition of wealth and responsibilities to the next generation. Let's work together to build a legacy of responsible wealth stewardship.

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