Study Finds 85% of Ultra-High-Net-Worth Next Gens Confident About Preparation for Succession, While Family Offices Believe 39% Are Prepared
In a new study from BNY Mellon Wealth Management and Campden Wealth, the next generation of ultra-high-net-worth individuals (UHNWI) overwhelmingly indicate they are ready for succession in the family enterprise, with 85% reporting they feel either very or somewhat prepared. Yet, Campden Wealth’s 2022 research on family offices suggest that a clear disconnect exists, as only 39% of family offices believe Next Gens are adequately prepared for succession.¹
The study, “The Next Generation of Wealth Holders in the United States 2022,” surveyed 100+ next generation UHNWIs (Next Gens) with a total estimated family net worth of US$77 billion (average US$752 million per family), all of whom have recently or will in the future assume control of the family wealth.
“Being in the midst of the largest wealth transfer in U.S. history, the next generation of wealth holders understand and embrace the gravity of this significant responsibility for a long-lasting family legacy,” says Dr. Rebecca Gooch, Director of Research at Campden Wealth. “They want to live up to their families’ expectations and make a positive impact on the world, but face challenges with a successful transition based on complicated family dynamics, understanding their role post-succession and the absence of a formally written succession plan.”
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Next Gens Are Eager to Get Involved in Strategic and Finance-related Roles, but Family Conflicts Impede Succession Planning Preparedness
Next Gens’ involvement in the family enterprise gives them firsthand knowledge of its goals. They have an appetite to get more involved, with a preference toward strategic and finance-related positions, ranking investment strategy/management on top (42%), followed by financial planning (38%), and succession planning (38%).
The study found Next Gens have an interest in easing conflict within the family enterprise. Two thirds (66%) believe in the power of regular communication and another 63% seek external support for their succession planning/wealth transfers. Despite respondents’ eagerness to engage, their family members’ roles and responsibilities (41%) and concerns over business strategy (36%) pose obstacles to a smooth wealth transfer.
“Having worked over the past two centuries with ultra-high-net-worth individuals and family offices that span multiple generations, in some instances up to six generations, we have seen firsthand a willingness from Next Gen clients to be open to formal education, continued learning and community-building to ensure the successful transfer of wealth,” said Ben McGloin, Head of Advice, Planning & Fiduciary Services, BNY Mellon Wealth Management. “We have helped to support and work through the family dynamics between Next Gen clients and family members with the pressures accompanying succession and inheriting multigenerational wealth.”
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Switching to a More Growth-oriented Investment Strategy Is a Top Priority When Taking Control of the Family Enterprise
Despite some concerns about their preparedness, Next Gens have an appetite for growth and vision for shaking up the family enterprise. Once in control, 27% plan to shift towards alternative investments (e.g., private markets, hedge funds, commodities), while another 24% want to integrate new technologies (e.g., blockchain, artificial intelligence) into the family office.
Driven by a desire to diversify from traditional investments (78%) and to invest in an area before it becomes mainstream (70%), respondents see value in investing in digital assets/new tech when assuming control. Within the next year, Next Gens plan to increase their exposure to artificial intelligence (60%), fintech (60%), and robotics (53%). When it comes to cryptocurrency, those active in the space plan to stay committed, with more than half (57%) willing to maintain and 43% planning to increase investments in cryptocurrency.
Furthermore, more than half of respondents surveyed (51%) believe one does not have to sacrifice returns to invest sustainably and more than two-thirds (68%) assert that sustainable investing has become a permanent feature of the investment landscape. Sustainability will likely be a bigger proportion of Next Gens’ portfolios, with respondents expecting 43% of their average portfolio to be dedicated to sustainability five years from now versus, on average, 17% of their portfolio to sustainability today.
“In line with the study, we have seen many of our Next Gen wealth clients approach their investing strategy with a growth-oriented mindset and a profound sensitivity and passion for inclusion of sustainable investing,” says Leo Grohowski, Chief Investment Officer at BNY Mellon Wealth Management. “Next Gens are also breaking the mold from their parents’ generation by embracing alternatives and new technologies, but are being thoughtful and measured regarding the inclusion of digital assets in their portfolios.”
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