Considering that it is estimated that 90% of affluent families lose their wealth by the third generation, a proactive approach is needed to tackle the inevitable obstacles that family businesses will encounter with succession and inter-generational wealth transition. Family offices should therefore gain a clear understanding of the challenges and risks they may face and learn how to manage and mitigate these.

The following are three reasons for family wealth erosion and the actions that may be taken to overcome them.

1. Embracing The Next-Generation

Too often, family wealth is eroded due to a lack of trust, transparency and communication between current leaders and their heirs. The underlying concern is often that the next generation is not fit for leading the business into the future, nor managing the family’s wealth.

This becomes a self-fulfilling prophecy as future leaders are then not given the necessary exposure to the workings of the business and family financial matters, nor are they able to demonstrate how they can make a positive contribution.

The reality is that the business landscape is evolving so quickly that it is becoming crucial for companies to operate with increased agility and a purpose-driven, innovative mindset. For this reason, there is a strong argument for family offices to genuinely embrace the entrepreneurial value that a digitally and globally educated next-generation can bring to a business.

A study of family enterprises that have persevered for 100 years (Good Fortune: Building a 100 Year Family Enterprise, Wise Counsel Research, 2013) highlights the benefits of a positive attitude toward the rising generation and should be motivation enough for the current leadership to embrace the different priorities, principles and motivations that exist amongst these future leaders.

In order to overcome the intergenerational challenges a family may face, the following steps may be taken:

Build trust through proactive engagement

Family leadership is encouraged to involve the younger generation (from the age of 16) in family meetings where the structure of the family estate is discussed. This level of transparency ensures that expectations are aligned and that open discussions can take place around investment and wealth-transfer approach.

Provide the right education

Ensure a strong focus on experiential development to improve the knowledge as well as the hard and soft skills of younger family members. Examples could include internships on family boards or in the operating business or managing an independent venture.

In terms of formal education, consider a more hybrid, co-operative education program where there is a strong emphasis on applying academic learning in workplaces as part of the qualification.

Provide mentorship

Mentorship is becoming an increasingly important engagement tool in both understanding the principles, priorities and motivations of the next generation and providing them with the necessary opportunities and exposure to grow, develop and craft their own space within the business environment.

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