Rethinking family office succession 

When the transfer of authority within a family office is not managed effectively, it can put the preservation of a family's legacy at risk. A disrupted transfer of power and authority can result in the wealth and success built by one generation being eroded or lost by the next. Smooth, effective transition is facilitated by a well-designed wealth planning strategy, backed by a strong governance framework and capable investment managers. 

Successful succession planning therefore requires addressing a number of sensitive complexities. These include managing family dynamics and unity, navigating wealth transfer and inheritance matters, and finding a harmonious balance between the different interests of different family members. While global family office surveys have consistently identified succession planning as a critical concern for single family offices, a significant number of family offices are yet to establish a formal succession plan.^{1, 2}  

An issue that often arises in family offices is a tendency for younger members to feel frustrated or ignored by the principal or founder, particularly when the older party is reluctant to delegate responsibilities despite their advanced age. It is essential for the new generation to have the opportunity to gradually participate in investment management, take on responsibilities, and be actively involved in the decision-making process.

Extensive research indicates that incorporating a narrative into the governance framework of a family office can significantly enhance understanding and communication within the family, particularly between different generations. In the past, traditional family charters have been used to outline roles, responsibilities, privileges, historical context, guiding principles and vision. 

However, a governance framework that incorporates a narrative brings a personal element to this process — one that is very memorable. Unlike a traditional family charter, a narrative is a story that resonates with all family members. It often reflects their individual perspectives, and includes emotions, memories, and personal connections. 

Such narrative frameworks aim to mitigate conflicts, align common goals, and foster positive outcomes for the family. Indeed, academic studies on governance frameworks and succession have revealed that integrating family narratives into the process can improve these outcomes. Researchers have identified the following key findings in this regard.³  

Having explored the rationale for integrating a family narrative into a governance framework, we will now delve into the design and implementation of a bespoke target operating model,¹⁰ of which the governance framework is a crucial component.

To effectively design and implement a bespoke target operating model for a family office, it is essential to consider a range of factors. 

This process begins by asking pertinent questions about the family's vision and purpose. 

Next, conduct a thorough and honest assessment of the family office's past and current state. This involves gaining a comprehensive understanding of its history, maturity of investments, familial dynamics, prior experiences, governance practices and level of automation. You should also consider the impact of these factors on the business and the overall sustainability of the family. This assessment can be conducted through various methods such as interviews, questionnaires, genograms,¹¹ workshops and data analysis.

Once the current state is assessed, it is important to establish a baseline for the family experience by evaluating how different generations perceive the family office. Additionally, it is vital to consider the interactions that will drive the family office succession. For example: