Ed Lee | Ispahani Advisory Expert | Standard Bank | mail me |
It is a key objective for many wealthy families and those who own businesses to leave a legacy while encouraging entrepreneurial spirit, underpinned by the family’s core values.
There are various challenges families face when transferring family offices from one generation to the next, but there are also opportunities that can protect the family’s legacy while enabling individuals to forge their own paths.
Succession planning
One of the most vulnerable points for families and family businesses is that of succession. Without proper communication and dialogue, the next generation lacks a sense of clarity and purpose as to their role.
This isn’t necessarily due to a lack of interest between either generation, it’s that neither feel comfortable having these conversations at a time when the next generation should be exploring and learning – unstifled by the heavy weight of family duty.
This has created a feeling that the succession planning process is too prescriptive to the next generation in their formative years and too onerous in terms of demands placed on them.
However, strategic dialogue is most critical between the ages of 18-25 where decisions are being made about universities and business schools that ultimately influence future career paths.
This may require a change in the traditional way we think about succession planning by focusing instead on how to get the best out of the individuals in the family, and their respective natural skills, as opposed to trying to ‘crow bar them to fit into the main trading business’.
Fostering an engaging, entrepreneurial spirit
A family bank helps to addresses this challenge by fostering an engaging, entrepreneurial spirit in the next generation where they can benefit from inter-family financing while receiving critical support framework.
It is not necessarily a bank; it can be a private investment vehicle, legal framework or simply just a notion built on a families’ shared values and vision. The key is that is provides long-term clarity and strategy to all family members focused on providing a platform for preserving and transitioning wealth.
It can be an informal approach, made part of a family’s succession plan and reflected in trusts or wills. Or it can be more formal and may involve the establishment of a family investment vehicle or bank.
The main objective is to discuss and agree an approach to be taken to encourage and support entrepreneurial activity in the younger gen and promote diversification across active and passive interests.
If the next generation have clarity on structures in place for the different potential paths they may choose to follow, it increases the likelihood of making good choices for themselves and the whole family in terms of higher education and early career choices.
The clarity and understanding promotes the collaborative strategy and approach, which benefits all parties. Planning for family needs must be balanced with empowering the next generation to plot their own path and the family bank is something that can do exactly that.
There are many benefits to such an approach, all of which are centred around the vital ingredients to multigene success: diversification, innovation, succession planning, purpose and wellbeing.
Infrastructure and support for all family members
The notion of the family bank is not just there to protect financial interests it is also a way to provide infrastructure and support for all family members, giving them the best opportunities to positively engage and contribute whether that is in the main trading business or with pursuing their own dreams but it is done within the structure of the family bank.
Never has it been so timely to take an integrated view of health and wealth in family businesses. A family’s wealth is not limited to its financial assets. Human and intellectual capital also matter.
Many families are starting to question how you can upend the traditional approach of grappling how to fit family members into the family business and instead approach it from the opposite angle: tailoring the family operation to best use the skills of the individuals within it, promoting diversity and thinking about the broader perspective of the family bank rather than just the business.
How can a family bank operate?
Often, the most important of all are the discussions that take place with the family about how a family bank can operate. Just having these strategic conversations and considering the possibilities is an important first step for families.
The provided insights are for general information purposes only and does not constitute financial, tax or investment advice.
We do not guarantee that the information provided is fit for any particular purpose, it is your own responsibility to ensure that information provided meets your specific requirements and you should obtain independent advice.
