The exit of your family office team is inevitable. Time to take action

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It’s a prevalent, undeniable and universal truth: One day, everyone will exit. Morbid? We think not.

Rather, contemplating this fact is liberating, clients tell us. It serves as a power driver for everyone to simply seize the day, carpe diem. For the family office, it serves as the ultimate confirmation to plan today and always be ready for tomorrow.

The question is, though, will you be the succession planning architect for your family office, or will circumstances choose for you?

Such certainty underscores the importance of intentional thought, meticulous planning and strategic foresight, particularly when it comes to the leadership of your family office. This article aims to challenge family office leaders to embark on the journey of succession, today.

Reality check

Most family offices here in Canada are led by a patriarch and/or matriarch. As the family prospered, and wealth continued to flourish, the family office transformed into a complex ecosystem with a dedicated cadre of senior, highly trusted professionals. It is most likely that they have faithfully served in their respective roles for decades.

Those leaders are now finding themselves on the precipice of retirement. Some may even feel “stuck,” as the absence of a concrete succession plan casts a shadow over their future, as well as the assets and portfolios at their disposal.

Succession planning is not just about people; it’s about what’s happening with the whole portfolio, the whole asset base in the family. It’s about preservation and progress.

Key challenges

Succession planning for family offices poses challenges encapsulated in the four Ts: transition, talent, time and technology.

Transition: This is the cornerstone of the entire succession process. It isn’t a mere shift in roles; it represents a comprehensive transformation that facilitates the transfer of all assets, from investment portfolios to talent, experiences and even technologies.

Talent: The transfer of leadership and skill sets within a family context follows suit, demanding the skill to balance familial dynamics and professional merit. Identifying and nurturing the next generation’s capabilities while maintaining the integrity of family values is a complex task. Not for the faint of heart!

Time: This aspect of succession planning marks another obstacle. Dedicating time and energy to plan and nurture the next generation requires prioritization amid the dynamics of these leaders’ busy agendas. It also requires careful, caring planning to synchronize the departure of senior leaders with the readiness of successors – a balance of accommodation and encouragement.

Technology: The evolving technological landscape adds another layer of complexity, necessitating the adaptation of legacy systems to contemporary tools. A strategic, proactive approach is needed to ensure a seamless transition that preserves the family office’s legacy and values.

Consequences of unplanned exits: It’s all about risk management

Unexpected departures can range from senior leaders approaching retirement to the sudden resignation of key executives, perhaps because of health issues. What’s needed? Capacity, capability, energy and focus.

The repercussions of not having a structured succession plan are profound, leading to chaos and an untold and unpredictable emotional toll on the organization. In these uncertain times, senior leaders can find themselves stuck.

I recall the situation of a client, a 92-year-old patriarch with a family office. While not actively involved in office operations, he has realized that his 65-year-old CIO is on the brink of retirement, leaving uncertainty regarding the future leadership of the family enterprise and the very direction of the family.

Craft a dynamic succession plan

Just as responsible stewardship is crucial in leadership transitions at operating companies, a similar approach must be adopted when orchestrating the exit and entry strategy for a family office team.

Succession planning is not just about managing people; it’s about managing risk and embracing forward thinking for the family’s legacy.

The process may involve fostering a capable management team, potentially ceding leadership to a key individual or board, and ultimately facilitating a partial or full exit from the family office affairs.

Consider the following tips during the planning phase:

• Build a succession committee: This is a crucial step. Create a specialized team tasked with overseeing the entire succession process. This committee should be able to navigate the dynamic nature of succession planning.
• Identify and develop talent: Explore strategies for determining and nurturing prospective successors, either within the organization or through external talent acquisition.
• Seek guidance from external advisors: They can introduce new perspectives that the family office might have overlooked. This can challenge the family’s status quo, presenting innovative ideas and incorporating diverse viewpoints.
• Review regularly: As with any planning process, you need to regularly review and adjust the succession plan as circumstances evolve.

Planning is essential

Change is bound to happen, and leaders must stay ahead of the curve. This isn’t just a strategic choice; it’s a responsible commitment to the very essence of the legacy these family offices represent. By embracing the inevitability of change and developing a thoughtful succession plan, family office leaders can safeguard not only the financial prosperity of their portfolios but also the enduring strength and resilience of the familial bonds they have cultivated and the communities they support.

The significance of early planning lies in the options it affords, mitigating the risks associated with unexpected departures or lack of preparedness. The exit of your family office team is not a matter of “if” but “when,” and acknowledging this reality is the first step toward ensuring a seamless transition that safeguards the legacy you’ve built.

Jeff Noble, CMC, FEA, is Director of Private Wealth Family Office at BDO Canada LLP. He is based in Toronto.

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