Family offices express concerns as intergenerational wealth transfer approaches
Wealthy Canadian families are facing a challenging period with vast fortunes at risk from unprepared and inexperienced governance as older generations give way to their heirs.
As older family members, often those who built the fortunes, face the reality of passing on their wealth – and often the businesses and other assets that underpin it – a new report reveals the concerns of family offices.
RBC and Campden Wealth’s 2024 North American Family Office Report puts the expected acceleration of the great wealth transfer firmly at the top of the list of challenges with real concern about how a legacy built on hard work and astute decisions can be passed on effectively.
One of the concerns, is about the preparedness of the family office itself. While 80% of respondents feel their family office is effective at intergenerational wealth transfer, just 53% have a succession plan in place and only 30% have a formal, written plan.
On the other side of the coin is those who will come to control the wealth and whether they have what is required.
More than half of respondents fear that their heirs do not have the experience to take over and 42% say the next generation are too young to be given immediate leadership roles.
“These results highlight a key challenge we see not only for family offices, but ultra-high-net-worth clients in general when it comes to wealth transfer. It really boils down to trust, communication and planning,” said Angie O’Leary, Head of Wealth Planning at RBC Wealth Management – US. “Having conversations early and often, along with a solid succession plan, are key to preparing the next generation to preserve their family’s wealth and legacy.”
Succession concerns are currently being played out at a super-rich level with Rupert Murdoch’s court battle to shore up future plans for his global media empire. The court proceedings center on a trust set up by the media tycoon in 1999.
Back then, the agreement gave Murdoch’s four children one vote each while the patriarch had four votes with the eight votes informing the family’s influence on the boards of News Corp. and Fox Corporation. When Rupert Murdoch dies, his four children would each gain an extra vote. But while this seemed ideal when the trust was founded, a quarter of a century later and family feuds have led to the courtroom.
Investment management
While not all wealthy families will have the complex dynamics of the Murdochs, most will have significant investments which dominate the priorities of their family offices.
More than four in ten respondents to the RBC/Campden Wealth survey said they are seeking returns of 10% or more this year, up from the 9% they estimated in 2023. But few (16%) believe that the ‘Magnificent Seven’ stocks will remain rewarding as investments, with interest drawn to cybersecurity and semiconductors.
Private markets are also a key focus with 30% of the average portfolio share, largely private equity and private credit. With expectations remaining high, 39% of respondents plan to increase allocations to private credit, while 25% are looking at increased allocations to private equity funds and 33% to direct PE.
Real estate is held by many family offices with 81% of this in the residential sector. For those with US commercial real estate holdings, challenging conditions mean more family offices are planning to ease up on these investments.
Among responsible investments, renewable energy, climate solutions, and social equality are the main focuses. Three quarters of family offices in North America make philanthropic donations, most often education (69%), community development (50%), the arts (48%) and healthcare (46%).
“What’s clear from our research is that while the investment landscape remains complex, family offices are showing resilience and foresight. The data highlights how they continue to navigate volatility, leveraging economies of scale, and adopting new technologies to optimize performance,” concluded Adam Ratner, director of Research, Campden Wealth.
