Transformation Amidst Disruption What’s Next for Family Offices

Transformation Amidst Disruption: What’s Next for Family Offices

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Just like every other sector in today’s world, technological advancement and other revolutionary trends are beginning to have a huge impact on family offices. Single family offices are gradually expanding their horizon to effectively manage the growing wealth of their families, and to keep up with the changing times. These trends are mostly due to the rise of numerous tech entrepreneurs, family business exits, and new investment opportunities, which these family offices are dealing with. And for these reasons, family offices have to readjust and reshape their operational structure to suit modern day requirements.

The rapid growth of the economy, especially in Asia, market disruptions, and changes in the political landscape, are other factors driving the change of strategies and mode of operation for most family offices. These include, technological advancements, environmental and societal changes, alongside changing political landscape that are driving the world through a new episode of globalization termed Globalization 4.0.

The rapid growth of the economy, especially in Asia, market disruptions, and changes in the political landscape, are driving the change of strategies and mode of operation for most family offices.

There has been an amazing growth in global economies of even counterpart countries- a long list, of which the fast-growing south-south trade is most dominant, with up to half of the global trade flow. Areas with the most prominent improvements are technology and automation, in relation to localized manufacturing of goods. To adjust to this, family offices and global organizations are seeking ways to strengthen their decision-making and governance structure.

Modernising Family Offices to Become Recession-Proof

With the increased market volatility and tension around global trades, many across the world have lost their billionaire status. This worrisome development notwithstanding, family offices are still growing. Older businesses are now cashing out, while the new and recent entrepreneurs who built their business on tech, are publicizing their company, and also seeking new investments. Family offices are the best way for these new entrepreneurs to reach their goal of wealth preservation.

Yet, the business approach of these emerging investors differs from the vintage business approach of older entrepreneurs. Newbies adopt a millennial mindset where access is more valued than ownership. As such, they place little focus on the traditional binary choice of single or multi-family offices, and instead, resort to the use of new and hybrid structures based on cloud space.

Even with the low rate of success currently prevelant in online family offices, modular, which allows the family to select services that are regularly on demand, are improving. This has also culminated in the existence of private multi-family offices that allow different families to combine funds in investing in different promising ventures.  These organizations then share the available resources, and this has made them more efficient in the digital market and has led to an increased growth, and change in the outlook of family offices.

Newbies adopt a millennial mindset where access is more valued than ownership. As such, they place little focus on the traditional binary choice of single or multi-family offices.

Add to that, the rise of major technological advancements has brought challenges and new opportunities. It is easy now to have quicker and higher productivity, and fast-growing revenue in digitallized industries, than what was obtainable in the analogue days. Sadly, however, some of the industries around have not achieved more than 40% digitization. As such, many are not primed enough to handle the massive level of change invading their industry. One major factor that will drive this change is AI.

The development of AI technology is aimed at changing the way people access and apply data in their everyday life and business. The ultimate result is that humans will spend less time on task; they will also be able to focus on other important things and enjoy faster achievement of success of their innovative ideas.

A recent study by UBS Campden Wealth Global Family Office shows that most family offices are getting set for an inevitable recession. This has caused them to seek ways to lessen the risk, increase savings, and grab good investment opportunities.

Aside from modernisation and adoption of the latest digital technologies, investment strategy alignment is another thing most are focusing on. According to the study, the areas of focus for these family offices include private equity funds and investments and real estate. With all these inherent changes, there must inevitably be a shift in the flow of deals for the financial institution as regards to wealth management.

Perfecting the Delicate Process of Succession

Every aspect of the family office is essential, but one of the most delicate aspects is succession. Family offices need to manage succession professionally. There is, therefore, a need to pay attention to the process of executing plans for the succession. Those in charge of succession management need to know that succession doesn’t necessarily equate to ownership.

According to the same UBS Campden report, the average age for succession is 45+ years. Experts have also elaborated that succession comes with the transition of either the board or management team. This often does not necessarily affect ownership of the business. Treating the succession plan as a delicate process helps grow, educate and prepare the heir/s for smooth transitioning, helping them embrace what lies ahead and prime themselves for success.

For a family business to stand the test of time, it is important to identify the members who’ll play essential roles in the future. This calls for role identification and training of the younger generation, to prepare them to assume future leadership roles in the business.  CEOs of family offices often have  a good understanding and education on finance management. Still, the modern ones always face the problem of “Who Will Lead Next” and then seek ways to educate the likely successor and the organizational stakeholders.

Treating the succession plan as a delicate process helps grow, educate and prepare the heirs for smooth transitioning, helping them embrace what lies ahead and prime themselves for success.

Several programs have been developed to prepare heirs for their roles in the future of the business. While many only see the next generation owners as kids, the truth is that in most cases, wives, and even husbands, of the owners are the next generation owners of the business.. The meaning for both the organization and the successor is one broad subject that businesses must not be sentimental about. They must plan and efficiently deliver this task to assure a smoother transition from one person to another.

Ultimately, the factors that need to be considered should not just be limited to financial, as non-monetary factors have now also become a significant consideration. Back in the day, the main things that family offices regarded as risks were financial factors. In recent times, however, non-financial risks could affect the survival of businesses. As such, family offices must consider them when making investment decisions. This recent trend becomes even more important considering the fact that non-financial risks can be included when calculating a complete Risk-Adjusted Return.

The World Bank has developed strategies for handling climate risk due to its effect. Reputational risk is another point worthy of consideration; succession risk is another non-financial risk on the table. More than half of family offices have developed a succession plan, and only one out of three has been successful. This makes succession risk a key priority that must never be taken for granted.

>> To read more about this story and other exclusive features about private banking, download the latest issue of Global Private Banker Magazine HERE.

 

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