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How Family Offices Can Adapt to Shifting Client Priorities

Seventy million baby boomers are preparing to pass an estimated $15 trillion in assets to younger cohorts in the next 10 years.

By 2026, the world will have 40% more millionaires, according to a recent report. Currently, family offices manage an estimated $5 trillion in assets. While recent years have seen a proliferation of ultra-high-net-worth individuals flock to family offices to manage their fortunes, the family office sector also has faced a variety of shifting priorities, preferences and practices. The game is changing, but so are the players, since an estimated 18,500 individuals with a net worth of $100 million or more will be transferring most of their assets to a new generation in what is now being called the “Great Generational Wealth Transfer.” As individual wealth rates continue to rise and become more complex, family offices need to prepare to advise and manage potential new families that may have unique structuring requirements. Traditional family offices must modernize, and to a certain extent “institutionalize,” their thinking if they want to both meet the expectations of a new generation of millionaires, and also stay viable against endowments, hedge funds and 7,000 other U.S.-based family offices now competing for UHNW individuals and wealthy families.

New Money Means New Priorities in Wealth Management

The younger cohort of new millionaires and those inheriting wealth are bringing new behaviors and priorities to the family office table. Millennials and Gen Z are inheriting a more virtual world untethered to physical locations, so they tend to move around the world more than their progenitors. The addition of assets across different countries and asset classes calls for an additional level of sophistication, forcing the family office to deal with not only the usual investment decision-making, but also an array of complex international regulatory, tax, compliance and reporting challenges. Millennials are notably more socially and environmentally conscious than their parents and grandparents, with keen interest in ESG-compliant funds and purpose-built, socially responsible investing. Family offices are responding. In 2021, 80% of family offices were interested in sector or thesis-driven funds, and 60% were interested in ethnically diverse and female-led funds. Today’s UHNW families need their family offices to employ more sophisticated, institutional-like governance and investment strategies to bring much needed governance structures whilst ensuring flexibility, which is so renowned with private family wealth. The next-gen also expects greater transparency, pressing traditional family offices to become less opaque with regard to items like their fund structures, acquisition requirements and shareholder mix.

Next-Gen Loves New Tech and Funding Startups

The next-gen cohorts also have more enthusiasm for new technologies and the associated new blockchain-based digital asset products, from cryptocurrencies to NFTs. The blockchain, which is enabling the tokenization of everything—from the U.S. dollar and fine antiques to gold bullion—will pose an array of challenges to family offices. These new distributed ledger products create complicated trust, custody and liability questions. Additionally, the regulatory structures governing blockchain products are very much a fluid work in progress. Forbes reported this year that 20% of family offices are investing in cryptocurrencies, but crypto makes up only 1% of portfolios’ value. However, since cryptocurrency mining has come under harsh scrutiny for its exorbitant environmental impact, younger UHNW cohorts are unlikely to sign off on larger crypto allocations. In the past 12 months, family offices have increased their private equity investments by 63% and made more direct investments than ever before. The younger generation is driving another new trend, as the firepower within family offices is enabling them to rival VCs as they compete to fund startups. Family offices provide certain advantages for entrepreneurs against VC firms since they are more flexible and not beholden to seven- to 10-year exit time lines nor some of the regulatory requirements with which VC funds must comply.

Data Technology to Meet Expectations for Instant, Real-Time Reporting and Tracking

Millennials and Gen Z are digital natives who expect and demand a level of technological “real-time” sophistication in all business dealings. Family offices must be ready to serve up tools and technology that make all transactions and interactions instant, easy and seamless—all with an intuitive user experience. But perhaps more crucially, family offices must offer UHNW individuals real-time, dynamic reporting mechanisms. Despite some resistance to digitization, family offices are abandoning legacy systems with their obsolete or incomprehensible financial and compliance data. Successful family offices can use digital technology to align with expectations by offering intelligent and consolidated reporting across multiple geographies and asset classes, as well as liabilities and cash commitments/management, able to furnish a holistic view of a combined full balance sheet. Software and operational solutions make it possible for family offices to engage in real-time tracking of ESG investment metrics, with advanced tools for due diligence, monitoring and reputation assessment. Only an efficient end-to-end process enabled by technology can allow family offices to provide a precise, real-time view of the family’s intricate global relationships as well as quick access to complete auditable records.

Legacy Processes Are No Longer Sufficient to Meet the Needs of a Changing Financial World

Legacy processes will no longer suffice in managing the unprecedented complexity of today’s evolving global financial system. Nor can the manual processes satisfy rigorous new expectations of the next gen for automation, transparency, multiasset classes, ESG, impact investing and multinationalism. As individual wealth rates continue to rise and the Great Generational Wealth Transfer ensues, family offices need to prepare to advise and manage new investment paradigms that come with unique structuring requirements. We are on the cusp of an unprecedented intergenerational transfer of wealth, as over 70 million baby boomers prepare to pass an estimated $15 trillion in assets to the younger cohorts in the next 10 years, with over half that transfer in the United States. Data solutions are necessities for helping wealthy cohorts make complicated decisions easily, manage investment risk and seize opportunities.


Chip Martin is president of IQ-EQ Trust Company (US).

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