The common triggers for establishing a Family Office include: ensuring wealth meaningfully benefits future generations; the long-term preservation of family wealth; asset consolidations; large influxes of liquidity; resolving family conflicts; and increasing wealth management efficiency. At the root of these common triggers is the desire to ensure smooth intergenerational transfer of wealth without serious intrafamily disputes.

Studies have shown that 70% to 80% of family wealth worldwide is lost by the end of the second generation, and 90% by the end of the third. In addition, according to the Family Firm Institute, Inc., little more than 30% of the world’s family businesses survive into the second generation, even though some 80% of families want to keep the business in the family. By the third generation, only 12% of family businesses will still be viable, shrinking to 3% at the fourth generation and beyond. We can attribute the disconnect between what most families intend and the far bleaker reality to inadequate family dynamics.

Studies consistently show that the largest contributing factor to the loss of intergenerational wealth is the lack of communication and trust among family members, followed by unprepared heirs. Specifically, in a study published in the Journal of Business Venturing (September 1997), the authors found that 60% of business succession plans failed because of problems in the relationships among family members. Twenty-five percent failed because heirs were not sufficiently prepared to take over ownership and management of the family assets. Only 10% failed because of inadequate estate planning or inadequate liquidity to pay estate taxes. That means that approximately 85% of family businesses that fail in the generational succession process fail due to the family’s inability to resolve intra-family disputes and the failure to properly groom successors to run the family business.

In addition, while facing new profound social, technological and economic changes, we are currently in the beginning stages of the largest intergenerational wealth transfer in human history. We believe these conditions will exacerbate the lack of healthy communication, trust and collaboration among family members that have plagued family wealth for decades.

Many families are not equipped to navigate uncomfortable issues, especially when emotional and psychological perspectives of family members lead to intense arguments. This can happen even among the most caring families. Or the opposite can happen, where discussions make individuals clam up or discussions get quashed before progress happens.

Yet, families who take their stewardship of the family’s wealth seriously can successfully preserve it for multiple generations. Establishing an effective Family Office plays an increasingly crucial role in the prosperous transfer of wealth and business management responsibilities to succeeding generations. An effective Family Office helps families overcome the relationship problems that erode family wealth by providing an early stage where family members can understand their differences and develop the necessary family dynamics to successfully preserve multi-generational wealth: transparency, mutual respect, healthy communication, common family values and shared consensus on the purpose of the family’s wealth.