A growing number of single-family offices are transitioning to the next generation. What happens to the professional and provider relationships when control of single-family offices changes hands between generations? Based on the research, when inheritors take control of their single-family offices, they make significant changes. They regularly replace their current cadre of professionals with new ones. This goes for the internal experts as well as the external experts. It is out with the old and in with the new.
Angelo Robles, founder and CEO of Family Office Masterclass, “When the baton is passed, the inheritors will usually evaluate staff, the external professionals and other providers currently working for or with their single-family office. Commonly, after the evaluation, they make changes. Senior management, internal and external experts and other outside providers are usually replaced within two years.”
The inheritors will quickly replace a percentage of their single-family office senior executives. Sometimes it is because they are taking on the roles and responsibilities of senior executives. For example, they no longer need an executive director as it is now their job.
Very often, the inheritors will bring in new people who are their people. These are their relationships whom they see as being competent and loyal to them. It is important to note that, based on our experience, only sometimes is there a complete reset of ALL senior executives. Some senior executives tend to remain, thereby ensuring a degree of continuity.
According to Cliff Oberlin, chairman and CEO of Oberlin Wealth Partners and co-author of Family Fortunes: How Family Enterprises Thrive Across Generations, “Nearly nine out of 10 inheritors change some of their investment managers. There are circumstances such as gated funds or trust arrangements where switching out money managers is impossible or very difficult. Still, a change in control tends to result in a change of investment focus leading to a change in money managers.”
Many inheritors opt to change their external lawyers. In a survey of 148 elite private client lawyers, about 70% said their wealthy family clients regularly replace them with other lawyers when inheritors take over. The external accountants were slightly less likely to be replaced. Often, with the accountants, it is a function of price to value. The decision to change accountants tends to happen when inheritors seek more cost-effective arrangements.
A range of considerations prompts replacing professionals and other providers. A major factor is that the inheritors want to work with their people. Another important factor is a focus on cost to get a better price for the work. It is typical for wealthy inheritors to replace the professionals their parents used with their own choices, whether it concerns their single-family offices, family business interests, or other matters. Simply put: they want their people as opposed to their parent’s people.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He is a strategist for family offices and the ultra-wealthy.