Innovation is rapidly transforming how the ultra-wealthy live and work.
All aspects of our daily lives will be impacted, as will our understanding of self and the meaning of privacy, ownership and citizenship due to dramatic changes resulting from the Fourth Industrial Revolution.
What are some ways families of wealth can navigate the new world of possibilities?
Impact
The ability to adapt will increasingly determine survival for all players, whether they’re businesses or laborers, governments or citizens. The impacts will be significant for human, intellectual, social and financial capital.
In terms of human and intellectual capital, innovation will affect how we learn, hire, work, eat and travel. Some argue that privacy will be impossible to achieve and maintain down the line. Guarding one’s anonymity will be extremely difficult and will likely be extremely expensive.
Social capital will be dictated by what community looks like, how we establish and navigate community, how we influence it, what philanthropy looks like, how we protect our reputations and how we maintain our personal and professional brands. While virtual accessibility is seemingly limitless, families express concern about physical isolation, even while socialization is facilitated by connected devices increases.
In terms of financial capital, there will be many new opportunities and challenges. How we invest and what we invest in will change as local and global industries, institutions, economies and societies are disrupted by innovation. Unforeseen risks cause even greater uncertainty, suggesting an even greater need for integrated strategy than ever before.
Widespread innovation is expected to help relieve the strain on global resources. The transition from traditional energy to renewable energy will be accelerated. Alternative food supplies like cultured meat will be adopted. Unfortunately, these transitions won’t be equally distributed throughout the world right away. Initially, inequalities of health and wealth are expected to increase throughout the world, leading to class conflicts and increasing social unrest.
We may be entering a phase of de-globalization, similar to the one we experienced between 1900 and 1940. If so, innovation will have a role to play here too. Connectivity already allows us to move information and ideas instead of people and goods. Manufacturing on a smaller, more local scale will be enabled by 3D printing and other innovations. Technology such as self-driving vehicles and delivery drones will increase transportation efficiency and lower the cost of distance.
Mitigating Actions
If you have high-net-worth family clients, discuss these steps they can take to successfully adapt to innovation.
1. Build owner commitment and dedication to innovation response. The success that got you where you are won’t necessarily set you up for tomorrow. Consider your “innovation strategy” for the entire family enterprise. Incorporate ways to anticipate change and develop resilience into your family wealth strategy. Ask tough questions about how innovation will not only support future endeavors, but also may threaten them.
2. Guard privacy and protect reputation. Protect your privacy and reputation and broaden your view of modern day risks. As the rise of digital identity impacts the financial services world, indeed all areas of the world, make sure the public and private selves of your family members are aligned, as there may no longer be the liberty of having such a distinction. Personal brand is just as important as corporate brands.
3. Focus on client experience. The client experience bar set by large tech firms, such as Apple and Google, can and must be met in financial services. It’s easy to anticipate that the owners of the best client interfaces will have leverage. However, there’s much more to it than that. Enlightened advisors will constantly seek to find out where customer’s pain points are and solve them. It sounds simple enough, but to do that the leading advisor must really understand where the client is coming from, what their problem is and why they want a solution. Successful, forward-thinking advisors will take nothing for granted. The client experience mandate relates to family office advisors as well as external advisors. In fact, the Family Office Exchange is already seeing a trend toward larger multi-generational families forming client experience task forces to support the increasingly sophisticated demands of family members for cutting edge technology and personalized services.
4. Develop your risk governance system. Building a process you can trust extends to putting a risk governance system in place. In the 2017 FOX Family Office Study, long-term, successful families were those with an established governance board that identified and managed their risks in a comprehensive and integrated manner. Due to technological innovation, risk governance mandates must be strategic and include not just financial risk, but also family risks, security, privacy risks and succession planning risks to name a few. Incomplete or non-existent risk management processes threaten modern families as their view remains siloed, leaving vulnerabilities exposed that threaten trust.
5. Align talent and technology. As innovative technological resources converge with people resources, be sure to preserve the human component within your operating framework and your office. The office executive as risk manager can’t be supplanted by better, faster technological solutions, but should be supplemented by them. As family offices become increasingly professional, they must use the advisors within to navigate relevant data and information. Pay close attention to how talent and technology align. Also keep in mind that with more advancement, you’ll have to hire those for a different skill set. Family enterprises are going to have to manage talent and capital together in a way they’ve never done before. Massive retraining and retooling efforts must be explored, especially for the older demographic cohorts who’ve been trusted advisors and loyal protectors of the family enterprise.
Amy Hart Clyne is Executive Director of the Family Office Exchange (FOX) Knowledge Center.