Families will face numerous challenges as they work to manage their investments and wealth and protect their legacies. In the life cycle of a family office, the role that the rising generation (rising gen) will play is often a challenging question. Defining future roles within the family is one of the primary challenges of the rising gen. Here are some of the issues they face.
Five Primary Challenges
The Family Office Exchange (FOX) has identified five key challenges, and while they range in degree of prevalence, the primary areas that need addressing are:
- Defining future roles in the family
- Leadership and skill development
- Navigating family dynamics
- Communicating between generations
- Investment strategy
Those top two challenges are huge. Whether there’s an operating company or not, having a generational structure with defined roles and communicating expectations about what’s required at each stage of development are key. Sometimes, it’s helpful to view this process through the lens of transition planning and inclusion rather than “succession,” which we know can be a scary word.
Advisors who work with family offices on transitioning should focus on normalizing engagement. From very early ages, families should capitalize on opportunities for age-appropriate education. Think of the idea of a "kids' table" at family holidays—it's the right place to be for certain ages, but sooner or later kids move up and transition to the “big table.”
Defining Future Roles
Defining future roles is the greatest challenge for many families. It involves having positive and engaging conversations with children from a young age. Parents should always emphasize that children should pursue what they’re interested in, but even in the most supportive of environments, families aren't always able to articulate the exact roles of the rising gen. The leadership generation needs to define what family involvement and readiness look like, and the rising gen should understand clearly what it takes to meet those expectations. What special skills exist that may inform the roles they each play? It's never a "one size fits all" approach, which is why it’s such a large challenge.
Poor communication can harm transition planning, and it can play a part in the other identified challenges, such as defining roles, navigating family dynamics and leadership development. For the rising gen to be engaged in family office matters, they need to feel that they’re heard and that their opinions are valued. Simply being included in conversations, being invited to take part, can significantly help with this challenge. Without addressing this challenge, family offices risk failing with most, if not all, of the others. Only with communication can the rising gen find the space to come into the office and make their own way. It’s these softer, qualitative skills that can lead to breakdown in the family. Communication, trust and shared values are the top success factors that lead to thriving, healthy family systems.
Is the rising gen capable of planning for the significant assets involved in the family office? Too frequently, well intentioned families assume that the rising gen aren’t ready to assume any responsibility, and it’s not their time. Well, their time is running out. The rising gen are curious and interested now. If families push them out, they’ll spend their time somewhere else, and “when their time comes,” families may have missed the window of opportunity to seize their curiosity and eagerness It’s critically important to engage them if the family office is going to continue to thrive. For the rising gen to be capable of succeeding the active generation, there needs to be a careful and highly deliberate process for involvement, training and development.
When engaging with the rising gen, family office leaders—including family members, nonfamily member employees and outside advisors—should make no assumptions about particular individuals despite the sweeping generalizations or data we see about different generations. Most people wouldn’t want someone to paint a picture of them and their entire future based on how they acted in their teens to early 20s. Think about that and give the rising gensome grace. Allow them time to grow up while simultaneously making space for them to be involved in the family office.
The goal is incremental inclusion, which is achieved through clear communication around important topics, such as defining future roles. Although the rising gen may be a long way from having a vote, give them a voice by allowing them an opportunity to share opinions. Alternatively, simply extend an invitation to observe certain meetings and discussions. Incremental inclusion really, really matters. Families often collaborate on different group projects, assemble junior boards or appoint the rising gen as board observers. These forms of incremental inclusion promote open lines of communication and information sharing, which, in turn, foster inclusivity and engagement and provide learning and development opportunities, all of which prepare the rising gen for their impending transition.
Jaclyn M. D’Esposito is a Family Office Attorney at Day Pitney, and Mindy Kalinowski Earley is Chief Learning Officer at FOX