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Despite being perceived as a new phenomenon, Family Offices have been there since many centuries, coming in various shapes-sizes obviously, but sustaining a very common goal of preserving wealth and perpetuating value across generations. It’s certain that Notebooks played a crucial role in the history of several Family Offices, either being their official bookkeeping system or the global credit analytic tool.
Transiting such a legacy across generations is proved to be one of the common challenges across most Family Offices today, in the past and it will certainly be in the future.
Thomas Mann, wrote in 1901 a very famous novel called Buddenbrooks, that chronicles the decline of a wealthy north German merchant family over the course of four generations. It’s considered the fictional classical arch of the first generation making the money, one-two generations later spending the money, and the third or fourth generation losing the money. In fact, it’s often supposed that most wealth-holding families don’t last more than three generations.
I clearly don’t believe this is the case, nor do I believe this outcome is inevitable. The picture we see—of European family offices at least—is one with many excellent and resilient organisations that have managed family wealth through several generations. But this doesn’t happen without a level of sophistication and expertise. Perhaps the Buddenbrooks family wouldn’t have fared so poorly if they had adapted to their changing times and therefore become more resilient? Or sought a bit of professional support?
Notebooks are important, not for everything, but for important things.
Within the next decade, one-third of family offices globally will see the next generation taking control, hence the timing is crucial for Family Offices (including the family and other stakeholders) to reassess how suitable and digitally efficient their enterprise architecture is and how willing are they to adapt.
Family businesses need to adopt new priorities to secure their legacy.
In the PwC report “Family offices are taking stock after COVID-19 -Trends & opportunities,” some notable key areas were identified where there have been major shifts, including governance, transparency, cybersecurity, investments, next generation (NextGen)/succession and philanthropy, and more. This shows that a reshaped landscape and mindset has emerged.
“Family businesses need to adopt new priorities to secure their legacy.”
Governance
For those family offices operating globally, there can be added complexities such as where to reside, the number of jurisdictions involved, management of local employment and tax laws, among others; …as “Professionalisation” is an emerging trend with wealthy families and their family offices, so is the need for more robust internal controls that can be positively correlated with size, and therefore complexity of a family office.
Family office governance and NextGen—a wider gambit of asks
Around the globe, the need to educate the NextGen is becoming increasingly important for family offices. Questions defining how control will pass, to whom, and how the NextGen will make decisions (unanimous, majority, super majority—and on what terms) has been reprioritised on the agenda for many family offices.
Transparency (including tax oversight)
Governments around the world are demanding more transparency from large organisations.
Many tax authorities around the world are formalising review programs for high-net-worth individuals, which naturally extends to their family offices. Without adequate structure, good governance and regular oversight, material tax risks can emerge.
Succession & planning
Our age currently characterised by uncertainty and complexity has brought more focus to the importance of estate and succession planning. This is directly linked to the topic of business continuity and is an area that family offices should develop, including family statutes.
“Many tax authorities around the world are formalising review programs for high-net-worth individuals, which naturally extends to their family offices. Without adequate structure, good governance and regular oversight, material tax risks can emerge.”
Cybersecurity
As explained in the European Family Office Report 2022, this is the time for family offices to build their defences, noting that: “A sizeable 40% of European family offices do not have a cybersecurity plan in place although 24% claim to be in the process of acquiring one. What makes the complacency around cyber-attacks concerning is that almost 40% of European offices have experienced at least one attack in the last twelve months, and 16% have experienced repeated (three or more) attacks.”
Globalisation: greater investment opportunities and complexity
Strategic asset allocation has become a priority for most of the family offices that PwC works with, and it’s a cornerstone for long-term wealth preservation. We are seeing an increasing globalisation of investments, and growth in the sophistication and diversification of investment strategies. There is a corresponding trend where additional capital is being allocated to unlisted, private equity-type investments, often cross border.
Philanthropy
Increasing social awareness and desire to have a positive societal impact through more active giving is a strong trend. This shift resonates with investment strategies, where total impact (purely societal or ESG) is increasingly married with financial returns to varying degrees. However, there is less reliance on attendance at fundraising events and more focus, especially from the NextGen, on active involvement with charities the family supports.
By serving Family Offices for many years, we have learned that they are in essence unique, forged by the family values and various management styles. But even though they are unique, there is always room to make things better. Family offices can certainly operate better and more resiliently if the right priority is given to the important things.
The times they are a-changin! Artificial Intelligence, the acceleration of technological advances, diversity amongst the generations are some serious catalysts for change. How are businesses supposed to deal with this and how can Family Offices adapt and become stronger in the face of all this? Tomorrow is a very different picture. Now is the time to get ready and act.
About the Notebooks, they will always remain the best-unreplaceable fellow to make Families’ memories vivid across the generations. Notebooks are important, not for everything, but for important things.
