The benefits of succession planning are of key importance to the UHNW population.
Succession planning is a strategy used to pass on leadership in a company. Sometimes ownership of the company can also be passed on. This is so that if a leader within the company passes away, retires or moves on, somebody is prepared to take over their role.
Key benefits of succession planning
One of the significant benefits of succession planning is that it is an important tool for long-term risk management. Even though it does not guarantee that the wealth will be preserved through generations, it does increase the chance that the wealth will last with succession planning.
As wealth is growing the benefits of succession planning becomes more significant. The global wealth report by the Credit Suisse Research Institute (CSRI) shows that total global wealth reached $280trn by the end of 2017, which is 27% higher than a decade ago. The report goes onto predict that the total global wealth will reach $341trn and 44 new dollar millionaires will be created by 2022.
Each family that has a certain amount of wealth also has unique culture which can be seen as an amalgam of beliefs, values, practises, norms and ideas. Succession planning aims to identify and understand these values and addresses the three key elements of next generational planning and family governance.
The succession strategy looks at how to divide the wealth between family members, making decisions which can be critical for the future wellbeing of the family and to agree on the purpose of the wealth when faced with decision of how to leave the wealth, to whom and in what form.
Implementation in the private banking sector
A number of key players in the private banking sector have started to implement succession planning strategies within the industry. Neil Moles, managing director of Progeny Group said: “We are focusing on the next generation, offering classes’ and one to one sessions with our UNHW clients’ children, helping them approach and understand their wider financial responsibilities.”
The benefits of succession Planning will remain a key issue continuing to be implemented especially for the UHNWI. It is identified that families go from ‘clogs to clogs in three generations’, meaning that wealth in one generation doesn’t often last through to third generation. Succession practises are a way forward in trying to prevent this from happening.
For an in depth view read PBI’s feature profiling different private banks’ succession planning strategies.