The Next Generation of Family Offices
By Lee Hoverd
In many ways, the convention of the family office is at a crossroads. Traditionally used to manage wealth and support preservation across generations, today family offices must grapple with additional, heterogeneous goals that include maintaining family cohesion and unity. Moreover, they must do it while confronting a future that will likely be driven by technological, economic and environmental disruption, and the next generation of business leaders whose priorities have often shifted from those of their forebears. With the issue of succession becoming a top priority globally, the future of the family office is inextricably tied to a generation of Millennials next in line to take the helm.
But the life experience of Millennials has been significantly different than the previous generation of wealth holders. Economic global upheaval brought on by the 2008 financial crisis has shaped a generation that places less trust in traditional institutions and long-term financial investment. Technology has been a Millennial mainstay like no generation before; its influence is felt in everything from automation and connectivity to environmental awareness, education, investing and philanthropy. Relaxed attitudes towards sharing and transparency, and a demand for convenience and rapid solutions, will all affect the purpose and performance of tomorrow’s family offices. A 2020 Deloitte Millennial Survey reported that Millennials and Gen Zs want “leaders to show a commitment to making the world a better place for everyone and demonstrating a purpose beyond profit.”[1] Future generations want change, and the role of the family office will be no exception.
The Rise of “Fam-Tech”
Generally, family businesses have been slow to adopt new technology and digital solutions, partly due to cost considerations but also the uncertainty that change brings. Legitimate concerns over security have also impeded the digitisation of the family office space, with 20 per cent of family offices globally experiencing a known cyber attack.[2]
However, technology will likely serve not only as the family office’s foundation but also the springboard for the majority of its future pursuits, providing a mechanism for family connection, a gateway to financial opportunity and an amplifier for new voices. A recent UBS survey found that 87 per cent of family businesses believe artificial intelligence will be the next substantial disruptive force in global business, while 57 per cent agreed that blockchain technology will fundamentally change how they invest.[3] The next generation of family offices will embrace and influence a new “Fam-Tech” to support their interests and those of their shareholders.
Building the Business Family
As capital from investment or liquidated assets grows, so will the opportunity for the next generation of leaders to leverage the family office as a vehicle to launch start-ups and the diversification, innovation and change of direction they’ve been campaigning for. According to a survey conducted by leading web hosting company GoDaddy, Millennials are the most entrepreneurial-minded generation over the past century, with 56 per cent placing entrepreneurship as a goal, compared to 43 per cent of Gen-Xers and just 21 per cent of Baby Boomers.[4]
Combined with the results of an HSBC survey concluding that Millennials are significantly more concerned with having a positive impact on their communities than entrepreneurs in their 50s,[5] the next-gen family office could become the ideal platform to advance the increasingly impactful agendas of the business family, not just the administration of wealth created through the family business.
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Shaping the Brand
Having a positive impact through investments may feature prominently in the next generation of family offices, but sharing those activities, and building a reputation through them, could be just as important. Connecting with consumers on a personal level, tapping into their values and priorities using modern platforms, and creating brand awareness and loyalty will take on a significant role in the family offices of tomorrow. Today, 70 per cent of teenagers trust influencers (celebrities who rose to fame primarily on social media) more than conventional celebrities[6] (who became famous through conventional media). And according to Fourcommunications, one of the leading UK and Middle Eastern integrated marketing agencies, 60 per cent of consumers have been influenced by social media or a blog.[7] Increasingly, the next generation of family offices might harness the power and cost-effectiveness of social media to create awareness and build their family brand.
Fostering Cohesion with IT
Managing family wealth with a focus solely on investment performance may be productive, but it's certainly not the only factor contributing to longevity. History has shown that families successful at sustaining their wealth do so by building unity and cohesion among their members.
Balance sheets are undeniably significant, but they’re not necessarily as meaningful or empowering as a shared vision, especially when that vision supports a family’s value framework and has tangible outcomes in the real world, as with philanthropic work, for example. Without consensus and a substantial degree of buy-in backing their initiatives, family wealth managers run the risk of disengagement, or worse, discord among the very principles the family office is intended to serve.
Communication is a key factor in building consensus and generating the cohesion that enables families to act decisively when opportunities are presented, or swiftly when confronted with disruption, even at the scale of a global health crisis. Whether through family meetings, a digital hub, collaborative learning or frequent reporting, the next generation of family offices can use communication technology to its advantage, bridging both gaps in geography and opinion by connecting family members across the digital ether.
From SFO to MFO
The approaching leadership transition of many of the world’s single-family offices (SFOs) is influencing a trend toward the multi-family office (MFO) format. Retiring key executives, as well as next-generation family members who lack the skillsets or the will to fill leadership roles, have compelled SFOs – particularly the smaller ones – to seek the advantages of the MFO platform. Leveraging aligned values and common interests, SFOs are joining MFOs for benefits that range from regulation compliance and administration costs to the growing demand for professionalism and structure in the family office universe. MFOs can provide the scalability that many smaller SFOs lack but are increasingly pursuing in lockstep with globalisation.
As the world grows more complex, the pooling of resources that MFOs provide can mean otherwise unattainable access to innovative technology, management resources and tools to meet unforeseen challenges for many family offices. Moreover, as the direction of a family’s financial participation takes on multiple perspectives due to growth or the departure of its founder, an MFO can serve as a compass that helps guide families based on other families' interests who share a similar vision. With the Rockefeller family office now comprising over 250 clients,[8] the allure and future popularity of the MFO appears manifest.
Turning a Corner
As future uncertainties challenge conventional family office models, and shifting family dynamics reshape them, the next generation of family offices will need to provide essential diversification and interconnectivity to guarantee its continued relevancy and exploit its potential. Newly wealthy families from emerging and growing economies will amplify the demand for the family office construct in the future. Perhaps unsurprisingly, the next generation of family offices will closely mirror the next generation of families — advancing fresh professional, philanthropic and personal ambitions. The family office in its current form may be at a crossroads, but there is no stop sign in sight.
References
[1] The Deloitte Global Millennial Survey 2020
[2] Global Family Office Report 2019
[3] Global Family Office Report 2019
[4] Entrepreneurship in 2019: new data shows that entrepreneurship is on the rise
[5] How millennial entrepreneurs are changing the business world
[6] 2020 Trends In Digital Marketing
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