For family businesses to future-proof themselves, they must consider all the facets of succession planning, the modalities for passing on leadership roles and ownership across generations, family members, and employees
History repeats itself. High net worth families assume that a trust, family business, or foundation will naturally create the structures and opportunities for the next generation to emerge as mature leaders. But entities alone don’t prepare heirs for handling wealth carefully. They don’t necessarily address the biggest threat to a successful wealth transfer (even above investment and economic concerns): family dynamics.
As with all family businesses, GCC families experience several issues: from selecting a competent successor to possible friction that may hamper a successful transition. For family businesses to future-proof themselves, they must consider all the facets of succession planning, the modalities for passing on leadership roles and ownership across generations, family members, and employees.
Family businesses represent 80-90 percent of commerce in the GCC. They contribute 50-60 percent of the national gross domestic product and employ up to 70 percent of the region’s labour force. Yet only 25 percent of family businesses have an effective wealth transfer strategy and a legally appropriate succession plan in place.
How might families achieve a more successful and strategic wealth transfer across generations?
Parents can build a runway for adult children with a few simple steps, enhancing the likelihood that descendants will sustain the family’s wealth.
The importance of building a runway for adult children—a thoughtful process, not one conversation—became starker during the pandemic, as a widely shared sense of mortality reminded many decision-makers of the need to chart a course beyond their lifetimes.
We have found that the thoughtful use of estate planning structures—combined with clear and consistent family communication—sets up the next generation for the opportunities and challenges ahead while helping parents realise their intentions.
Understanding “money silence”
Time to learn and digest is one reason for discussing family resources earlier rather than later. Another reason is to allow children to plan for vocations of their choosing and pursue their passions. (We’ve heard from clients who didn’t because they hadn’t been told about their inheritance.)
Yet money silence is common and understandable. Among the many reasons for this is the fear it could disincentivise children and young adults. Yet imagine a medical emergency incapacitating a family decision-maker, thrusting the next generation into ‘power’ unexpectedly and unprepared to lead. How would the family’s entities fare with a young adult making the investment decisions, or hiring advisors under duress—after never learned how to make them wisely?
Family businesses represent 80-90 percent of commerce in the GCC.
It’s not just about preparing wealth for a family but preparing a family for its wealth.
The ages from 20 to 35 are often when young people emerge professionally, intellectually, and emotionally. In addition to providing financial education sessions and timely information, creating long-term aspirations can guide adult children on their holistic journey to wealth literacy.
An affirmation of values, expressed as a family motto or mission statement, can help articulate how the family intends to use its resources. Prioritising the family values builds a foundation for the next-generation’s decision making, whether parents and grandparents are around or not.
Perhaps it’s a belief in developing an entrepreneurial spirit, or an intention to make better one’s community via charitable giving. Communicating these values to children helps them understand the purpose of the family’s wealth and to plan accordingly.
To identify a set of wealth education milestones, we suggest looking at:
How to nurture your children’s individual passions, interest and purpose
Developing their financial awareness and competence through attending meetings and/or learning programmes with your advisers; for example, we host learning programmes on a range of topics from understanding and investing in the public markets to how to invest in more entrepreneurial ventures
Developing their knowledge on philanthropy
Cultivating their ability to work together as siblings/cousins
Consistent communication can align families and enable all members to reach their desired outcomes. Responding to the next generation’s wish for transparency and participating in regular, open dialogue are critical components of family cohesiveness and success.
Daniel Fleming, Head of Wealth Advisory for the MENA region of the J.P. Morgan Private Bank.
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By Daniel Fleming
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Preparing young adults for wealth
For family businesses to future-proof themselves, they must consider all the facets of succession planning, the modalities for passing on leadership roles and ownership across generations, family members, and employees
History repeats itself. High net worth families assume that a trust, family business, or foundation will naturally create the structures and opportunities for the next generation to emerge as mature leaders. But entities alone don’t prepare heirs for handling wealth carefully. They don’t necessarily address the biggest threat to a successful wealth transfer (even above investment and economic concerns): family dynamics.
As with all family businesses, GCC families experience several issues: from selecting a competent successor to possible friction that may hamper a successful transition. For family businesses to future-proof themselves, they must consider all the facets of succession planning, the modalities for passing on leadership roles and ownership across generations, family members, and employees.
Family businesses represent 80-90 percent of commerce in the GCC. They contribute 50-60 percent of the national gross domestic product and employ up to 70 percent of the region’s labour force. Yet only 25 percent of family businesses have an effective wealth transfer strategy and a legally appropriate succession plan in place.
How might families achieve a more successful and strategic wealth transfer across generations?
Parents can build a runway for adult children with a few simple steps, enhancing the likelihood that descendants will sustain the family’s wealth.
The importance of building a runway for adult children—a thoughtful process, not one conversation—became starker during the pandemic, as a widely shared sense of mortality reminded many decision-makers of the need to chart a course beyond their lifetimes.
We have found that the thoughtful use of estate planning structures—combined with clear and consistent family communication—sets up the next generation for the opportunities and challenges ahead while helping parents realise their intentions.
Understanding “money silence”
Time to learn and digest is one reason for discussing family resources earlier rather than later. Another reason is to allow children to plan for vocations of their choosing and pursue their passions. (We’ve heard from clients who didn’t because they hadn’t been told about their inheritance.)
Yet money silence is common and understandable. Among the many reasons for this is the fear it could disincentivise children and young adults. Yet imagine a medical emergency incapacitating a family decision-maker, thrusting the next generation into ‘power’ unexpectedly and unprepared to lead. How would the family’s entities fare with a young adult making the investment decisions, or hiring advisors under duress—after never learned how to make them wisely?
It’s not just about preparing wealth for a family but preparing a family for its wealth.
The ages from 20 to 35 are often when young people emerge professionally, intellectually, and emotionally. In addition to providing financial education sessions and timely information, creating long-term aspirations can guide adult children on their holistic journey to wealth literacy.
An affirmation of values, expressed as a family motto or mission statement, can help articulate how the family intends to use its resources. Prioritising the family values builds a foundation for the next-generation’s decision making, whether parents and grandparents are around or not.
Perhaps it’s a belief in developing an entrepreneurial spirit, or an intention to make better one’s community via charitable giving. Communicating these values to children helps them understand the purpose of the family’s wealth and to plan accordingly.
To identify a set of wealth education milestones, we suggest looking at:
Consistent communication can align families and enable all members to reach their desired outcomes. Responding to the next generation’s wish for transparency and participating in regular, open dialogue are critical components of family cohesiveness and success.
Daniel Fleming, Head of Wealth Advisory for the MENA region of the J.P. Morgan Private Bank.
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