Financial firms prepare for changing of generational guard

Having an open and frank discussion about investment objectives is a key part of successful succession planning

During the momentous week approaching the funeral of Queen Elizabeth II, financial firms have started to analyse the investment and family succession strategies which lead to the most seamless handover between generations.

While most families tried hard to review their investment portfolios during the Covid pandemic and its associated lockdowns, it is often necessary to delve deeper into a family’s finances and relationships when planning for succession.

“Besides strategic tax planning, succession planning is a key to successful family office management,” says Cara Williams, head of wealth management at the Mercer consultancy. “A clear understanding of roles and responsibilities in the family structure are key to the success of succession planning.”

Differing approaches

Those experts who oversee intergenerational transfers of assets and responsibilities highlight the different approaches of sometimes clashing generations, which need to be ironed out by wealth firms and family advisers.

“The Queen was known for her commitment to charitable causes. We see from working with high-profile, highly visible, and highly successful families that it can often be a challenge to ensure that the next generation will continue to be active in philanthropic activities,” says Jared Feldman, partner and leader of Anchin Private Client, a New York-based advisory firm specialising in the needs of privately held companies, investment funds and high-net-worth individuals and families.

“As we typically see values instilled by the elder generation, we can learn from the Queen’s example, and in seeing how her commitment to philanthropy has been embraced and carried on by her core family members.”

The dialogue with and within the family needs to be intensive enough to capture the values associated with investment appetite. This is demonstrated in the Royal Family, where King Charles’s investment goals involved climate change and ecologically friendly food production, while his offspring are more concerned with philanthropy and alleviating mental health problems.

“In our work with multi-generational families, we often see a disparity between the perspectives of younger and older generations, specifically when it comes to ESG (environmental, social and governance) investments,” says Mr Feldman. “In many cases, the younger generation is passionate about the impact of their investments and seeks ways for their portfolio to mirror their values, while the older generation may have been historically focused solely on ROI (return on investment). How these dynamics ultimately fit into a family’s overall investment plan is typically sorted out over time through a dialogue, an evolution.”

Defined objectives

More and more banks and family offices dealt with by consultancies such as Mercer are realising the importance of succession planning, particularly when it comes to defining investment objectives. “Investment goals, a thematic focus and overall outcome aspirations must be well articulated and documented, leaving nothing to surprise or potentially to conflict upon the passing of the matriarch or patriarch,” adds Mercer’s Ms Williams.

This deeper dialogue shapes better understanding between generations, when it comes to values and the investment strategies linked with them. Regular, thoughtful discussions of differing viewpoints between generations is paramount. “This ensures, that when the time comes for a transition of power, the decisions may be more aligned because each generation has had a chance to convey the meaning and reasoning behind their priorities,” believes Mr Feldman. “One of the best ways to ensure your legacy is preserved is to not only teach the next generation about your values and priorities, but to also be open and accepting of their views.”

Royal example

For wealth managers such as Anchin, the changing of the guard in the Royal Family could be pivotal in helping other, less high-profile families plan for both retirement and succession. “Typically, when there is a loss of a public figure and a resulting very public succession, it tends to remind us of our own mortality, says Mr Feldman.

“Events like this may be an awakening for some to ensure that their own estate and succession plans reflect their personal and financial wishes, and that their legacy will align with what they want to leave behind.”

But we must also be aware of the social aspects and emotions triggered by the high-profile handover. “There has been an outpouring of empathy coming from wealth managers,” says Mercer’s Ms Williams. “There is a recognition of how the Queen’s passing is potentially impacting people individually, whilst being mindful of the divisive topic of colonialism and balancing the two for their clients in the interest of diversity and inclusion.”