One of the most pressing issues family offices face is how to pass on wealth and family legacies to the next generation, but many North American family offices remain unprepared for the significant acceleration in wealth transfer over the next decade, a report by RBC and Campden has revealed.
While 80% of respondents to the 2024 North American Family Office Report considered their family office effective at intergenerational wealth transfer, only 53% had a succession plan, and a mere 30% of those had a formal written plan. However, this is higher than in Europe, where less than half (47%) have a succession plan.
The rest are either informal or incomplete, which raises concerns about their viability when a leadership transition eventually occurs, the report’s authors highlighted.
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Generational wealth transfer on the horizon
Despite the lack of formal succession plans, the transfer of wealth is inevitable.
A generational shift is anticipated by 60% of family offices within the next decade, driven by the surge in family office formation that occurred in the years following the millennium.
This transfer will likely involve the family offices that were established in the past two to three decades, as younger generations step up to take control of family assets and operations.
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‘Alongside the families they support, North American family offices are navigating real-world complexities and the looming wealth transfer with cautious optimism,’ said Manju Jessa, Vice President & Head of Family Office and Strategic Clients for RBC’s Enterprise Strategic Client Group.
‘Our findings show that these offices are well-positioned to both preserve wealth across generations and capitalise on emerging opportunities in a rapidly changing world.’
Succession planning concerns deepen
This lack of preparation can be partially explained by the fact that, in many cases, the next generation is either viewed as insufficiently qualified (54%) or too young (42%) to take on leadership roles.
Family offices are working to address this issue by offering educational support, mentoring, and hands-on work experience, the report said. Additionally, many family offices provide mentorship programs and facilitate next-gen involvement in investment and business decisions to better prepare them for leadership roles.
Early and frequent conversations along with a solid succession plan were vital in preparing the next generation to preserve their family’s wealth and legacy, Angie O’Leary, Head of Wealth Planning at RBC Wealth Management – US said.
‘Trust and communication are vital to preparing the next generation to preserve their family’s wealth and legacy,’ she said.
Family offices are increasingly putting investment management at the top of their priority list, with nearly two-thirds of North American family offices now having an investment committee.
But, the presence of a family office board remains less common, with only 40% of surveyed family offices reporting such a governance structure. This gap can be attributed to the fact many family offices are still controlled by first-generation wealth creators, who are often accustomed to making decisions independently.
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Why the delay in succession planning?
As well as a perception that the next gen is not sufficiently qualified for a post-succession role, another common factor is that the current generation, being healthy and active, may feel there’s no immediate need to address the issue.
But, as Asin Nurani, Managing Director of Family Governance at RBC's Enterprise Strategic Client Group, says, this mindset can be risky. ‘We often see cases where the current generation is suddenly incapacitated, leaving the family with a leadership gap. The best time to plan for succession is when family members are healthy and united, rather than waiting for a crisis to occur.’
Preparing the next generation
For 20% of family offices, the next generation has already assumed control. These are often the family offices that were established in the 1970s and 1980s.
Despite concerns about preparedness, family offices that have established succession plans feel relatively confident in their ability to handle the transition. Nearly 80% of family offices with a plan in place see themselves as well-prepared for succession, while the remaining 21% believe they are in an intermediate position.
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The report highlights an increased focus on responsible investing, which is becoming more intertwined with philanthropy as family offices seek to align investments with family values and engage the next generation.
'Families often find it more difficult to transfer family values than family wealth,” said Bill Ringham, Director of Private Wealth Strategies at RBC Wealth Management – US 'Involving the next generation in the family’s philanthropic mission helps bridge that gap.'”'
