A recent study of 800 companies in Latin America by Exaudi Family Business Consulting shows that family businesses are at the helm of private sector growth in the region. To manage their wealth and safeguard their legacies many families in are turning towards family office structures. We asked Guillermo Salazar, founder of Exaudi Family Business Consulting if Latin American family businesses should embrace the concept of the family office and what are the challenges involved.

About the study

There is a notable lack of research into family businesses in Latin America. Our advice is based largely on best practice information from the United States and Europe. For this study, we asked 800 companies in Mexico, Dominican Republic, Costa Rica, Peru, and Venezuela how they defined themselves. Pretty much as expected, around 70% of respondents defined their business as family-owned; this is indicative the economy at large and it tells us that this sector merits further investigation.

Percentage of Family Businesses in Latin America

Few family offices in Latin America

Family offices are still very few and far between in Latin America. To assess the extent to which families are ready to consider family offices as a wealth management solution, we looked at how far along they are with basic structures such as family councils, succession planning, and family protocols. Family offices tend to be based on at least one of the above structures as a premise for wealth management.

Over 59% of respondents said they do not have a family council in place and many of those that do have a family council feel that it is not yet working. Succession planning and family protocols have not made significant in-roads: over two-thirds (68%) of family firms said they had none of these systems in place.

Protect wealth from economic instability

Fifty years ago only a handful of countries in the region had democratic systems of government; the rest were military powers and dictatorships. Private wealth was not always safe and risk was hard to diversify.

Over the past years thanks to changes in the political environment (among other social and economical factors), we have seen wealth (including private wealth) increase in several countries, including Mexico, Brazil, Venezuela, Colombia, and Argentina. But businesses in the region still have a lot to learn when it comes to managing and protecting that newfound wealth.

Real estate is the usual option for diversification allowing families to reinvest their profits back into their business. In such cases, an embedded family office (an officer within the company) may be best – to help the family organize its private matters. It’s worth noting that families with this kind of structure in place rarely call it a family office.

Family councils