The massive and rapid economic and social disruption experienced over the past few years, largely fueled by the COVID-19 pandemic, as well as growing differences across generations have had a major impact on family offices. An annual survey by BNY Mellon Wealth Management finds that these rapid changes on nearly every front, from economic turbulence and rising social and political debate to investment innovation, are leading to both challenges and opportunities for those tasked with managing family wealth.
According to Vincent Hayes, global head of family office at BNY Mellon Wealth Management, “This pace of change is naturally leading to challenges, and more importantly to opportunities within global family offices, regarding how to approach ESG and cryptocurrency in their portfolios, develop a unified philanthropic strategy and a comprehensive action plan."
In particular, succession planning is presenting a serious challenge due to the difficulty of reconciling the values of older and younger generations. Nearly three-fourths of the family offices surveyed believe the next generation will be more focused on decentralized finance as well as environmental, social and governance (ESG) and responsible investments and that they’re willing to forgo some profit for the sake of social good. Forty-five percent of respondents also believe that the next generation of family office leadership is generally more difficult to engage because they’re more focused on their own family and/or career.
One doesn’t have to look far for examples of this—a recent New York Times article documents the increasing desire of the children of the most famous Italian fashion houses, such as high-end luxury brands Etro and Missoni, to go their own ways rather than carry on the family business. “I prefer the mass rather than the niche,” Alice Etro told the publication, “Luxury should be for everyone. It doesn’t have to be expensive and out of reach.” This change of mentality among the next gen is just one of many reasons family offices are increasingly at a loss for how to handle the transition of power.
A quarter of family offices also take the view that they’re not equipped to engage the next generation of leaders. Though a majority of family offices agree that succession planning is extremely or very important, many admit that they could use external help in succession planning, citing lack of expertise and difficulty in finding a trusted partner with aligning values as obstacles.
Before we rush to assume that family offices are completely unequipped to handle the next generation of family leaders, many family offices have already jumped on the bandwagon to embrace new potential opportunities. For example, the survey finds, “[f]amily offices can no longer afford any degree of apathy toward cryptocurrencies and the role they are poised to play in the future of investment and finance,” despite concerns about the regulation and volatility of these assets.
More than three out of four family offices currently have at least some interest or involvement in cryptocurrencies, with 23% having limited exposure and 20% actively investing. Many in this group are motivated by a desire to keep up with new investment trends and nearly half cite interest from next-gen family leaders as a motivating factor for the decision.