Private banking: Succession planning – more talk than action
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Private banking: Succession planning – more talk than action

A Citi survey of family offices finds some unsurprising things to say about the worries of the wealthy – inflation, interest rates and geopolitics – but discovers a shocking lack of preparation for succession planning.

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For most of its 101 pages, the latest global family office survey by Citi Private Bank is pretty run of the mill.

The US lender cast its net wide. It polled 268 high and ultra-high net-worth family offices with a collective net worth of $565 billion, two-thirds of them based outside North America.

With yields up sharply, 51% of respondents have raised their exposure to fixed income this year, against 20% in 2022 and 2021.

Private equity is headed the other way: 38% have boosted their exposure to PE funds, versus 52% last year. Publicly traded equities “saw the biggest retreat”, Citi noted: 38% cut their exposure to stocks, with 28% doing so in 2022.

Despite the past year’s torrent of bad news, nearly all respondents tipped their portfolios to grow over the next 12 months

Family offices are most bullish on global developed investment-grade fixed income (45% like the asset class’s prospects) and private credit (44%).

Their main concerns – inflation, interest rates, geopolitics – are those you would expect to find at the top of these lists. But they vary by region, rising or falling depending on a family’s proximity to the heart of the problem.

Whereas 64% of Asia-based families cite US-China tensions as their top worry, only 43% of North America families concur. And while 52% of EMEA families name Russia’s war in Ukraine as the main reason to fret, just 14% of North American families agree. Despite one’s ability to invest anywhere, anytime these days, it seems that wealth, like politics, is still local.

Curiously, and despite the past year’s torrent of bad news, nearly all respondents tipped their portfolios to grow over the next 12 months, with two-thirds anticipating double-digit returns. Just 2% expected them to shrink.

Dichotomy of purpose

But the most curious and most compelling part of the survey is the dichotomy of purpose that surrounds wealth transfer and succession planning.

As you would expect, family offices focus overwhelmingly on wealth management (74% say it is their main priority) and investment management (55%). Other top concerns are priming the next generation to be responsible wealth owners (60%) and the formation of shared family goals (52%). The last two numbers are similar across all regions but spike higher in Latin America.

Yet the clarity in this spoken desire to see wealth handed from one generation to the next with a minimum of fuss, gets occluded as you delve deeper. Just 24% cite “managing leadership transitions” as their primary aim or concern, falling to 23% for “strengthening family governance” and 18% for “enhancing philanthropic impact”.

The last number is a particular surprise, given that, as Citi notes, families are “increasingly aware that a generational philanthropic transition is coming”, with wealthy millennials and Gen Z-ers arguably more focused on giving away money than any previous generation.

Of those polled, just 32% of families have a constitution or charter in place, 28% a succession plan, while 21% have a tailored financial education programme for the next generation.

The numbers are notably – even shockingly – low in Europe, the Middle East and Africa.

“[Of greatest] concern is the insufficiency of leadership succession planning for families”, Citi says.

It adds, in tortured but telling prose, that there is “insufficient alignment” in how many respondents “prepare wealth for their family and their family for wealth”.

In short, the rich covet seamless succession planning – yet do too little to achieve that aim. They are more focused on making money and managing it well now than on perpetuating it after they shuffle off this mortal coil.

As this report shows, far from being financially far-sighted, the wealthy are often just as bad at making money last as the rest of us.

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