Family Offices and HNWIs, the Fastest Growing Segment of Wealth Management

We were delighted to see an excellent thought leadership article by the CEO of our client 1fs:Wealth, Bobby Console-Verma featured in the most recent edition of the Global Family Office Community Journal.

The article is available to read here – Thought Leadership Article

1fs:Wealth is a UK Wealthtech that provides a ground-breaking digital Family Office and Wealth Management platform that integrates and improves the accuracy and risk assessment of complex portfolios in new ways. The company engaged Catalina Consulting to deliver its initial fundraise and to develop its sales and marketing strategy.

The family office is becoming more common as more ultra high net worth individuals take their wealth into their own hands.

Perhaps the most important part of the wealth management industry that most retail investors remain unaware of is the world of family offices. While they might not carry the prestige of the more established private banks, many wield immense clout on account of the huge value of the assets they administer. For instance, George Soros’ family office manages a reported $25 bn worth of assets.

But what is a family office and why have they become significantly more commonplace across the world over the last ten years?

The first thing to consider when examining the rise of the family office is what they are and how they operate. As the name suggests, a family office is a private advisory firm set up by an ultra-high-net-worth (UHNW) individual to manage their investment portfolios and generally cater to their financial and legal needs on a day-to-day basis

Given the obvious benefits for an ultra-wealthy individual in having their own private professional services firm, it’s perhaps surprising that they have only proliferated in recent years. Of course, setting up a family office is not cheap and while there is no set amount of wealth needed to create a family office, it is generally estimated that family offices command at least £30m in investable assets given the operating costs involved.

According to EY, the number of family offices in operation globally has risen from just 1,000 in 2008 to around 10,000 today. The first and probably most fundamental reason for this increase is that the last decade has seen an explosion in the number of UHNWs globally. At the top of the market, the number of billionaires has grown sharply and according to an Economist report, approximately $9 trn worldwide is held privately by UHNWs. While not all of this sits in family offices per say, individuals in possession of this sort of wealth might justifiably feel as though they require a dedicated team to manage their financial affairs.

Wider trends in the wealth management industry have also fuelled a degree of disenchantment with private banks. By setting up a family office, UHNWs can secure more oversight and grant their staff the license to aggressively pursue higher returns. For another, an increase in “liquidity events”, most notably initial public offerings (IPOs), has given an unprecedented number of heirs and founders access to huge pools of cash.

However, perhaps the biggest driver of new family offices comes from Asia, where it is seen as fashionable for the newly wealthy to employ highly skilled advisors to manage their fortunes. According to the 2018 UBS Global Family Offices Report, around 75% of the 5,300 family offices are in North America or Europe but this figure is rapidly falling as Chinese UHNWs in particular are now more likely to set up a new family office.

In large part, the rise of the family office reflects both the preference of many investors to have a greater say in what happens with their money.

Ultimately, by setting up a family office, UHNW investors can have their fortunes managed by a handpicked group of financial and legal professionals who, by definition, have to act in accordance with their employers’ wishes. This logic also extends to impact investing.

The rise in popularity of investing in order to further specific social or environmental goals has certainly played a role in incentivising more UHNWs to bring their financial operations in-house as investors look to boost their legacy as well as their bottom line.

However, the most significant advantage of having a family office is that it can facilitate a smooth transition of private wealth between the generations. Passing vast amounts of wealth from one family member to another can create conflicts but having a full-time team in place to enact the individual’s wishes can help to overcome any transitional challenges (tax, probate, legal etc.) that might arise.

The importance of succession planning to individuals with a family office cannot be overstated; the 2018 UBS Global Family Offices Report found intergenerational wealth management to be by far the most important consideration for individuals with a family office–87% of those surveyed rating it as “very important” or “important”.

In essence, family offices are just as much about the “family” as they are about the “office” and this is evident in the fact that many of the larger family offices offer more personal “concierge” services. Indeed, everything from booking holidays to divorce arrangements can be handled by a well-resourced family office. Above all, the rise of the family office reflects the preference of many UHNWs for a bespoke service that is imbued with personal care as well as financial expertise.

Due to the increased privacy and control they allow, family offices are becoming common among the ranks of the ultra-wealthy. Consequently, it’s essential that both wealth managers and entrepreneurs start adjusting to reflect the increasingly important role that family offices are set to play going forward.

Reference; Alpa Bhakta,  Chief Executive Officer, Butterfield Mortgages

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