This article was first published in the April edition of Transmission Private
Liz Palmer is Head of Private Client and Family at Howard Kennedy. She provides wealthy families, entrepreneurs, and property investors with comprehensive, commercial, and tax-driven private wealth planning advice to achieve succession without dispute.
How are clients thinking about their legacy?
Liz Palmer: In the last few years, there has been a significant shift. Many have only recently started to consider planning for succession. Covid and time spent in lockdown caused people to reflect on the importance of succession planning and of leaving a legacy to their families.
What’s driving these changes?
Liz Palmer: Recent world events, including COVID, but also concerns about climate change, the current war in Ukraine and the impact such events are having on the cost of living for many people worldwide. This has highlighted to wealthy individuals and their families the need for them to play an active part in solving, or at least alleviating, such problems.
Many of the conversations we are now having with clients involve a desire to increase their philanthropic contribution and to put ESG considerations further up the personal agenda. Clients increasingly want to know how they, and the trustees and family offices who support them, can make a difference.
How can different visions of the family’s purpose cause conflict?
Liz Palmer: Older members of wealthy families often view the business and investment aspects of the family’s activities and their philanthropic aims as separate entities. They may be sceptical that sustainable investments are capable of offering the same or better financial returns than more traditional forms of investment, and prefer to invest traditionally. They then use those returns to fund a charitable foundation or donate to their preferred charitable and philanthropic causes.
In contrast, younger generations tend to view a focus on ESG or other positive societal considerations as an essential part of the family’s entire philosophy.
The role of the trusted advisor is often to act as a mediator, and to suggest options for compromise. For example, an advisor might suggest creating a fund to be managed sustainably, whether by establishing businesses with an ESG focus, or investing in existing projects. This will enable more sceptical family members to see whether the financial returns of such an approach justify expanding this to other family business ventures.
How transparent should individuals be with philanthropy?
Liz Palmer: Many families prefer to retain their anonymity where possible, including in relation to their philanthropic and impact investment activities. This can be because seeking publicity for positive actions risks receiving as much, if not more, attention for anything negative that may come to light.
It is not unusual for projects that seem to have positive ESG benefits to be found in the future to have also given rise to other, unforeseen negative consequences. For this and other reasons, families should fully research any companies and projects into which they invest, and ensure they have a clear philosophy and strategy for what they are aiming to achieve. Whether they publicise it or not, any problems with a family's projects will be easier to explain and resolve if the family’s intentions are clear and justifiable.
How does the rising complexity of wealth affect succession?
Liz Palmer: As the complexity of a family’s business, investment and wealth holding structures increases, it becomes more vital to ensure that the successor generations are educated and prepared to inherit and manage them for the future. A successful senior family member may have established and grown a huge business empire from very little. They may have focused on the academic and social success of their children, but not on educating them to understand the values behind the family’s wealth creation, and the business structures that they will one day take over.
How can advisors best support clients during periods of change?
Liz Palmer: Advisors must invest the time required to build trust with a family and help them to understand the risks that neglected family, personal and business governance can cause. This includes all generations and not just the head of the family. Where all parties trust that you have their best interests at heart, it is possible to act as a mediator, introducing difficult topics and starting conversations between different generations or branches of a family.
For example, parents may think that their children will automatically take over a business, whereas the child wants a completely different career. Advisors can help to bring both parties to understand each other. They can also help parents to accept that adult children are capable of taking over aspects of the business and need to be given space to do so, ideally while the parent is there to provide guidance. This way, the well-known cycle of “rags to rags in three generations” may be avoided.
What’s the best piece of advice you’ve ever received about the art of being a trusted advisor?
Liz Palmer: To listen and observe. Lawyers are taught to understand and explain the law, and to offer solutions to complex problems. Family succession planning certainly requires such skills, but it also requires you to take a step back and listen to what each member of the family is saying, and to observe what they are not saying. Once you really understand their motivation and what is important to them, you can help them to achieve a governance or succession plan that will work for everyone.
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