Lessons in succession planning – Professional Wealth Management

Succession planning in wealth management is critical but often fraught with challenges, particularly those stemming from complex family dynamics.

Passing wealth to future generations is a top priority for many families, yet the process often leads to financial, emotional, and legal challenges. Research by wealth consultancy The Williams Group, which examined more than 3,200 families across 20 years, found that 70 per cent of wealth is lost by the second generation, and 90 per cent by the third. This trend echoes the adage, ‘shirtless to shirtless in three generations’. However, succession planning can help families safeguard their financial legacy.

Key questions – how and when to transfer wealth, and how to prepare the next generation –have long challenged families, according to speakers at the PWM/FT Live Global Wealth Management Summit held in London. Sasha Wiggins, Barclays’ CEO of private banking and wealth management, says globalisation of wealth has added complexity. She highlighted the impact of varied tax regimes, such as the UK Labour government’s decision to abolish ‘non-dom’ status and increase taxes, underscoring the need for more nuanced planning.

To protect their assets, families are increasingly implementing formal governance structures. Wealth managers must facilitate these efforts, with offering expertise and access to responsible investments a growing priority. Additionally, advisers must recognise the evolving role of women in succession, as wealth transfer increasingly occurs across genders.

Spanning borders

As Stuart Cummins, CEO of Nedbank Private Wealth, observed: “At the heart of succession is emotion, and that will never change.” Preparing heirs to responsibly manage wealth, to become “good stewards of wealth”, particularly in circumstances different from those of the wealth generators, is essential.

As families increasingly span borders, wealth transfer practices vary significantly by region, noted Arjun Nagarkatti, Deutsche Bank’s head of private banking for Europe and the US. In the US, philanthropy plays a much larger role in succession planning. Meanwhile, there is a trend toward formalising wealth structures as one moves from Asia to Europe, the UK, and the US. Trust structures, for instance, are deeply ingrained in the US and UK but less so in Asia, where succession planning remains more informal.

Cultural factors also shape the process. In India, for example, creating a will is often seen as an uncomfortable acknowledgment of mortality, leading to delays or avoidance. The Ambani family feud, where the absence of a will caused significant discord, is indicative of this widespread attitude. Tools for wealth transfer also differ: life insurance policies are widely used in Asia and often paired with lending to create a more tailored approach.

Planning early and deliberately is crucial, stressed Scott Ford, president of US Bank Wealth Management. Conversations about wealth transfer now start earlier than in previous generations, driven by the desire to maximise inheritances and philanthropic contributions amid evolving tax policies. In the US alone, tax regulations have changed six times in the past two decades, with further reforms anticipated in 2025 under the Republican-led administration. These regional and cultural dynamics underscore the need for bespoke strategies that account for both practical and emotional considerations.

“At the heart of succession is emotion, and that will never change” – Stuart Cummins, CEO of Nedbank Private Wealth

Common mistakes

Planning early is the cornerstone of successful succession, yet mistakes remain common across generations and regions. Research shows that only 30 per cent of wealth transitions from the first to the second generation, 15 per cent to the third, and single digits to the fourth. This highlights the challenges families face and underscores the vital role of advisers in guiding them, said Barclays’ Ms Wiggins.

One significant misstep involves business succession. While the founding generation may hope to pass their business on, heirs may lack the interest, skills, or motivation to continue it. Avoiding tough conversations can lead to poor planning and strained outcomes. As Ms Wiggins explained, selling the business is not a failure if it ensures financial stability. Without proper planning, however, businesses often falter in the second generation.

Another pitfall is overemphasising tax efficiency at the expense of long-term outcomes. Nedbank’s Mr Cummins cautioned that while structuring for tax efficiency is important, prioritising it over emotional and strategic considerations can backfire.

While gifting significant wealth, such as £1m ($1.26m) to an 18-year-old, may be tax efficient, it can have unintended consequences for their emotional and mental well-being.

Succession planning must balance financial and personal goals to preserve wealth and family cohesion over generations. Successful examples, like the Mars family, demonstrate how strong cultural and belief systems can underpin enduring financial legacies.

“Financial advisers are becoming the new therapists” – Scott Ford, president of US Bank Wealth Management

Family dynamics

Open communication between generations is critical to ensure that wealth transfer aligns with shared values and expectations. Avoiding difficult financial conversations can lead to unnecessary conflicts, as highlighted by Deutsche Bank’s Mr Nagarkatti. He shared a case where a younger client’s plan to invest in environmentally friendly initiatives to protect oceans was rejected by his father, sparking tension that could have been avoided.

According to Mr Ford of US Bank, advisers must “listen deeply” to understand the diverse aspirations of family members. Their role is “to facilitate dialogue”, align goals, and create a comprehensive, expert-supported plan.

Parents are more comfortable discussing topics like who they are voting for in the US presidential elections (76 per cent) or world events (71 per cent) with their children than addressing their finances (63 per cent), according to the US Bank’s recent survey. This hesitation underscores a broader challenge: the cultural and emotional barriers that make financial conversations feel taboo.

“Financial advisers are becoming the new therapists, focusing less on money and more on the emotional aspects and unique family dynamics that vary from one family to another,” said Mr Ford.

Governance structures, such as family boards, can provide impartial guidance and help manage complex discussions. However, as Barclays’ Ms Wiggins pointed out, peer learning can be equally powerful. Bringing families together to share experiences fosters understanding and collaboration. This blend of expert advice, intergenerational dialogue, and shared learning is essential for building sustainable wealth strategies that reflect the needs of all stakeholders.