Dan Dobry

The Challenge of Transferring Family Businesses to the Next Generation

Family businesses are changing as we speak. The new generations in the business are better educated, more geographically dispersed, and more diverse in many ways. 

Gender differences in family businesses are becoming irrelevant and career paths for beneficiaries are changing. 

Families have always been focused on individual needs and supporting individual success with traditionally less emphasis on members’ responsibilities to their families. Family leaders now are being challenged to be more transparent and inclusive about decision-making. 

Families have now spread out over three or more generations thanks to longer life spans. Younger generations, raised in a digital world and highly attuned to a global reality, bring different perspectives, have different priorities, and bring new capabilities to the family business. They are waiting impatiently for a place at the board table or are sometimes choosing other career paths, often to fulfill their own dreams and aspirations. 

Retiring Baby Boomers are expected to trigger a huge wave of business transfers and the greatest wealth transfer in history. This means that we are witnessing the greatest intergenerational challenge for families ever.  

Most Boomers are choosing to remain involved in decision-making well beyond the traditional retirement age of 65, but the oldest of this generation is already 77 years old (in 2022), and the youngest will turn 66 in 2030. 

What are the Challenges for These People Ahead? 

Not surprisingly, the generational transfer of power and money is high up on the list. 

This includes the transfer of leadership, wealth, and ownership control to the next generation, different generational attitudes and priorities, and intergenerational communications. 

It is important to remember that impact can be positive, negative, or a combination of both. 

Are these families ready for the turbulence ahead? 

The world is not as we thought it would be pre-COVID-19, and it will become even more different with 5G and other advances.” 

This issue is one of the main challenges, not because of change itself but because of resistance to change, fear of change, and lack of experience to deal with change. 

Turbulence will affect family businesses differently, of course, but it’s their response to this that spells success or failure. 

Turbulence makes you question traditional business models. You always think that yours will last, but you must be ready to change and constantly ask yourselves, ‘what are the potential pitfalls and how can we avoid them.

The biggest opportunity is the flip side of disruption; it’s getting the family out of their comfort zone and presenting the family with new ideas, and new methodologies breaking out of the box. 

What is the Mission of the Family Advisor in this Process? 

Financial advisors are in a unique position to help their clients in such situations by helping them have conversations about business transfers and money with their families. 

While families may be uncomfortable and uninformed about how to talk about these issues, financial advisors talk about business and money for a living and often thrive on having these conversations! 

Moreover, helping clients improve their communication skills on these issues not only strengthens relationships within the family between family members themselves, but also strengthens the relationship the advisor has with the family as a whole. This is important when dealing with clients who are planning for wealth transfers, as it is very common for heirs to leave their family’s original advisor once they come into their wealth (and similarly is very common for surviving spouses to switch advisors after their spouses pass away).

How do Advisors Build a Client-Oriented Process?

When creating a process to help clients with these conversations, advisors can start by focusing on three core components: purposepractice, and people

Company and family mission statements are a particularly effective way for clients to crystallize their purpose around the transfer of power and wealth, as they are essentially declarations of the family’s long-term goals, attitudes, and beliefs. 

They can serve as powerful tools offering a framework for families to structure conversations around wealth and their businesses with each other, ideally lasting through future generations. Meanwhile, statements also help families practice not just talking about money but also using it (and teaching children to use it) in ways that are consistent with the values they identified

Finally, involving the right people in the process – family members and relevant professionals across disciplines, such as tax professionals, estate planners, financial therapists, and/or psychologists – can ensure that support is available in all areas where it is needed.

Considerations that Advisors Can Consider When Creating a Process to Use with their Clients include: 

How to structure the actual process – how frequently will meetings with clients be held, at what cost, and which professionals will be included in the meetings. 

How to network with other professionals – which professional associations and resources can be leveraged for expertise and support, and what types of training opportunities might offer a relevant experience?

Ultimately, the key point is that helping clients identify their values and beliefs around the transfer of power and wealth is an essential starting point for advisors to guide their clients through the anxiety they may have around these conversations. 

By becoming comfortable with and gaining confidence in talking about these issues with other family members, families will have an easier time imparting core values to future generations slated to inherit businesses and wealth and preparing them to use their own assets responsibly and with purpose.

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
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