Insight

Top 3 drivers behind the evolution of family offices

Fruit ripening

The world has changed significantly over the past couple of decades, influencing the ways in which affluent families manage their wealth. In particular, we’re seeing a marked increase and evolution in the creation and professionalisation of family offices. Such was the focus of the recent event co-hosted by IQ-EQ and family office recruitment consultancy Agreus.

Together, IQ-EQ and Agreus welcomed more than 60 family office professionals to the Philip Mould Gallery in London for an evening of ‘content, conversation and champagne’.

I had the pleasure of introducing the event before handing over to Agreus co-founder Paul Westall, who gave a holistic overview of the family office landscape in a post-pandemic world, including investment trends, compensation, and ambitions for the year ahead.

Paul was followed by our very own Group Head of Private Wealth, Steve Sokic, who discussed the evolution of family offices in the context of the ‘great global wealth transfer’, which will see over $15.4 trillion of family wealth pass between generations by 2030. He then examined the relationship between family offices and trustees, highlighting three different options for trusteeship.

Rounding off the event was Philip Mould himself, who explored art as an asset class and offered his top tips for art collecting success as well as potential pitfalls to avoid.

So what are the key drivers behind the evolution of family offices?

It is a widely discussed fact that family offices are both increasing in number and sophistication. They are adopting wealth structuring and governance practices more traditionally typical of professional asset managers and financial institutions. Why? Here are three key reasons:

1. The world is more complex

Not only is the world becoming increasingly complicated in terms of industry regulation, the globalisation of families and their assets brings them into contact with higher levels of regulation and more legal/tax regimes. This in turns gives rise to new asset ownership challenges, necessitating a more professional approach. As family members increasingly live and invest across borders, their wealth must be structured in a way that mitigates the increased risks that come with this cross-border exposure.

2. Wider interests, varied attitudes

We’re seeing a shift in asset allocations as the next generation of investors come to the fore. They tend to be interested in different types of asset; for example, there’s less interest in bricks and mortar and a much greater emphasis on digital assets and new technologies. Millennials and Gen Z are also far more concerned by the social and environmental impact of investments so are accelerating the rise of impact investing and ESG standards.

The interest in technology also extends to the harnessing of tech platforms to achieve detailed and consistent reporting across multiple jurisdictions and asset classes, thus improving transparency for governance purposes as well as investment decision-making.

What’s more, preferences are changing in relation to how asset allocations are made. We are seeing a distinct move towards direct and co-investing, with family offices increasingly investing alongside private equity houses. This echoes a point made by Paul Westall during his event presentation: he noted that 67% of family offices have made direct investments since the pandemic began.

3. A shift in industry supply and demand

Many so-called ‘universal’ wealth providers – private banks, investment banks and wealth managers – are now perceived by ultra-high-net-worth (UHNW) clients to be too product and sales focused. Professionalised single- and multi-family offices have emerged from these ashes, with the financial firepower to focus on sourcing ‘best in breed’ providers for each supporting service area.

The role of the trustee

While family offices are becoming more sophisticated, their strategies still usually involve a core ‘umbrella’ vehicle to bring everything together – and that vehicle is almost always a trust. Trustees like IQ-EQ are similarly evolving in line with enhanced regulatory requirements, technological advancements and the growing demands of UHNW families and their family offices.

Check back soon for Steve Sokic’s upcoming article where he will share the key insights from his event presentation: an examination of the relationship between family offices and trustees, and how the two can work together most effectively.