In today’s fast-paced world, wealthy individuals and business families face a myriad of challenges when it comes to managing their businesses, assets, finances, heritage and legacy. With the ever-changing economic, societal, and political landscape, it can be difficult to navigate the complex business and financial worlds.
This is where family offices come into play providing purpose, structure, and long-term value.
The primary goal of a family office is to help wealthy families to protect, grow and potentially transfer their wealth to future generations.
A family office is a professional organization or private office dedicated to managing the affairs and interests of wealthy families. It manages the diverse interests and the complex stakeholder relationships that often follow from being a family in business and/or a family with significant wealth spanning one or more generations.
These services include financial planning, investment management, tax and legal services, estate planning, philanthropic projects, impact advising, and much more.
The first family offices were established back in history to manage the wealth of successful entrepreneurs, and the modern family office concept started to develop in the 19th century. In 1838, the family of financier and art collector J.P. Morgan founded the House of Morgan to manage the family assets.
The Rockefellers founded their own single-family office in 1882, which is still in existence and provides services to other families. It became a multi-family office in 1980.
Family offices have since then become modern, sophisticated outfits serving a range of different objectives and purposes managing private wealth and a variety of family affairs.
A successful family office strategy requires clarity and distinctiveness at the core of operations, defining and aligning on a shared future purpose among family members (often across multiple generations with diverse perspectives and motivations), relentless leadership, a strong focus on operations, detailed execution and a balance of short- and long-term performance to ensure a multi-generation legacy.
In the next 5-10 years, global family firms including several family firms in Asia will have to determine their long-term strategic direction, the overall family business strategy, and manage succession to the next generations very carefully.
However, the needed strategic direction, clarity, and family business governance as a solid path to succession are often not fully in place. Consequently, many family businesses are not fully prepared to face the headwinds of the future.
Generational power shifts can be hard to manage as family members often find it hard to step aside and relinquish control to the next generation. The long-term viability of family businesses requires each generation to have high levels of ambition and motivation to drive family unity.
This is also where a family office comes into play. Family offices can often be the long-term solution to mitigate potential conflicts during that sensitive process as they can serve as a centre of multiple, diverting family interests, help to align family members, manage their ownership and diverse interests in the family firms, and serve as a long-term foundation of multi-generational performance driven by a strong purpose and legacy.
Family offices are in many cases better vehicles to address the growing complexity of structures and family relationships compared to simple wills or holding companies as succession tools.
Successful family offices must have a clear view of what the family, the investments, and activities bring to the world, why it matters to stakeholders, how the family will structure and manage the family office, who in the family will be involved, and how governance will be carried out by the controlling family.
A successful family office and a strong family office strategy is a careful and curated balance between the past, present, and future.
There are approximately 10,000 family offices in the world and 50% of them have been created since 2005 representing thousands of business families. For example, the number of family offices in Singapore quadrupled between 2016 and 2018 according to the Monetary Authority of Singapore.
When searching for “family office” on Google in 2009, it produced 169 million hits. In February 2010, the figure had grown to 282 million, and by June 2019 it produced 9 billion hits according to a report from the Swiss wealth management firm Pictet.
The family offices hold an estimated 7 trillion USD of assets under management (AUM) and have become an increasingly important source of global investments.
The role of the next generation is also changing the future landscape of family offices. In the US alone, a significant portion of wealth will be passed on to the next generation before 2030. US millennials are estimated to be inheriting more than 30 trillion USD over the next 30 years.
The same trend is seen in Asia where the next generation and succession are strategic issues with significant wealth being passed on from the first- and second-generation family business owners.
The wealth of women is also changing dramatically which will impact family office strategies across multiple aspects. Approximately one-third of the global wealth (72 trillion USD) is held by women, and women are expected to inherit 70% of the assets passed down over the coming generations.
Furthermore, family offices have begun to be actively involved in impact investing (investments that aim to benefit society or the environment while generating a financial return) which is often driven by the next generations of business families who are stepping up to take a lead in this emerging space. The global impact investment is significant and estimated to grow in the coming years.
Family offices are well aligned and suited for impact investing as they have a long-term view and approach to managing assets, have fewer constraints, and have a larger degree of flexibility in selecting their investments.
Family offices can be set up in different ways depending on the specific needs of the family. Some families opt for a single-family office (SFO), which is a dedicated organization that serves only one family. Other families choose to join a multi-family office (MFO), which is a firm that provides wealth management services to multiple families.
MFOs can be more cost-effective for smaller families, while SFOs offer more personalized services.
The virtual family office (VFO) is another option that may be less expensive than a fully staffed family office framework, depending on the complexity and specific needs of its owners (business families and other capital holders).
A VFO is comprised of a diverse team of management and investment professionals who are not physically located in the same office. Instead, the team collaborate across functions and multiple locations to deliver a comprehensive family office experience based on well-defined governance, structures, and processes.
Regardless of the type of family office, the role of a family office is to help business families achieve their purpose, aspirations, long-term financial goals and preserve their wealth over time.
Family offices act as trusted advisors, helping families make informed decisions about their investments, taxes, estate planning, and philanthropy. They also provide access to a range of investment opportunities, including private equity, real estate, and hedge funds, that are typically not available to individual investors.
One of the key benefits of a family office is the ability to provide personalized services that are tailored to the unique needs of each family. Family offices work closely with families to understand their financial goals and develop a customized plan that takes into account their risk tolerance, time horizon, and other factors. This level of customization ensures that families can achieve their financial objectives while minimizing their risks.
Another benefit of family offices is their focus on preserving wealth over the long term. Family offices take a holistic approach to wealth management, which means they look beyond short-term gains and focus on creating a sustainable, long-term strategy that can benefit future generations. This includes developing a comprehensive estate plan that ensures the smooth transfer of wealth to heirs and charitable organizations.
Finally, family offices can provide a range of non-financial services that can be invaluable to wealthy families.
For example, they can help families navigate complex family dynamics and develop strategies for succession planning. They can also provide support for philanthropic initiatives, helping families identify charitable causes that align with their values and providing guidance on how to make meaningful contributions.
The best type of leader and leadership of a family office depends on the specific needs, goals, and values of the family. However, some key qualities that are typically important for family office leaders include:
Strong communication skills: Family office leaders must be able to communicate effectively with family members, employees, and external stakeholders. They must be able to articulate the family’s vision, goals, and values clearly and inspire others to support them.
Strategic thinking: Family office leaders must be able to think strategically and develop a long-term vision for the family’s wealth and legacy. They must be able to identify opportunities and risks and develop plans to address them.
Financial acumen: Family office leaders must have a deep understanding of financial markets, investment strategies, and risk management. They must be able to manage the family’s wealth effectively and make sound investment decisions.
Governance and management skills: Family office leaders must have strong governance and management skills. They must be able to establish effective decision-making processes, manage conflicts, and ensure the family’s interests are protected.
Emotional intelligence: Family office leaders must have strong emotional intelligence and be able to navigate complex family dynamics. They must be able to balance the needs and desires of different family members and maintain positive relationships with them.
Integrity: Family office leaders must have strong ethical principles and act with integrity in all their dealings. They must be able to build trust with family members, employees, and external stakeholders.
Ultimately, the best type of leader and leadership of a family office is one that aligns with the family’s values, goals, and long-term vision. Family office leaders must be able to balance the family’s financial interests with its non-financial goals, such as preserving its legacy and giving back to the community. They must also be able to adapt and evolve as the family’s circumstances change.
Legacy is important for a business family behind a family office for several reasons:
Continuity: Legacy ensures the continuity of the family’s values, culture, and business practices. It helps preserve the family’s identity, which can be passed on to future generations.
Reputation: Legacy is also important for the family’s reputation. A strong legacy can help enhance the family’s reputation and build trust among stakeholders, including employees, clients, and partners.
Succession: Legacy plays a critical role in the succession planning of a family office. It helps ensure a smooth transition of leadership and management from one generation to another while preserving the family’s business interests.
Governance: Legacy also helps establish a framework for governance and decision-making within the family office. It provides a set of guiding principles that can help the family make informed decisions and stay focused on its long-term goals.
Philanthropy: Legacy can also serve as a foundation for philanthropic activities. It can inspire the family to give back to the community and create a positive impact beyond their business interests.
Overall, legacy is an important aspect of a family office as it helps the family stay connected to its past, present, and future. It provides a sense of purpose and direction and can help the family navigate through challenges and opportunities that arise over time.
Running and leading a family office successfully over the long term can present a variety of challenges. Some of the key challenges are:
Balancing family dynamics: Family dynamics can be complex and emotionally charged, which can make it difficult to separate personal relationships from business decisions. Balancing the needs and desires of different family members can be a significant challenge for family office leaders.
Managing wealth and risk: Family offices are responsible for managing significant amounts of wealth and mitigating risks associated with investments. Managing wealth effectively requires a deep understanding of financial markets and a strong risk management framework.
Succession planning: Succession planning is critical to ensuring the long-term sustainability of a family office. It involves identifying and preparing the next generation of family leaders, while also ensuring continuity in the family’s values, culture, and business practices.
Governance and decision-making: Family offices must establish a governance framework that provides clarity on decision-making, roles, and responsibilities. This can be challenging as family members may have different priorities and perspectives.
Attracting and retaining talent: Family offices often require a diverse range of expertise, including finance, legal, and operational skills. Attracting and retaining top talent can be a challenge, particularly in a competitive labour market.
Managing family conflicts: Conflict is inevitable in any family, but it can be particularly challenging in a family office setting. Family office leaders must have the skills to manage conflict effectively and maintain positive relationships among family members.
Successfully navigating these challenges requires strong leadership, effective communication, and a commitment to the family’s values, legacy, harmony, and long-term goals. It also requires a willingness to adapt and evolve as business and societal circumstances change over time.
In conclusion, family offices play an essential role in helping wealthy business families navigate the complex world of long-term stewardship, legacy, succession, ownership, and wealth management. They provide a range of services that are tailored to the unique needs of each family, including investment management, tax and legal services, estate planning, philanthropic advising, and more.
By working with a family office, business families can achieve their financial goals and preserve their wealth over the long term, while also receiving invaluable non-financial support. Whether through a single-family office or a multi-family office, family offices offer a unique and personalized approach to stewardship and wealth management that can help families build a lasting legacy for future generations.
About the author: Martin Roll – Family Business & Family Office Advisor
New book (2023): Family Business Strategy – Leading Future Paths With Impact
New book (2023): Family Office Strategy – Creating a Multi-Generation Legacy