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Next Gen Family Offices: Three Directions They’re Headed

Topaz Editorial Team
Next Gen Family Offices

Families can face risks of rupture during turbulent times. Family offices, however, appear to have stayed resilient even through this tough period. It appears that in 2020 most family office portfolios have met, or exceeded, objectives. 

But, is a bigger type of challenge on the horizon? The transfer of wealth to the next generation will put trillions of dollars in the hands of millennials in the coming decades. These younger members of family offices are just as involved in managing family wealth as the current beneficial owners and understand the importance of wealth preservation. However, more than two thirds of family offices report that the different generations have different interests. While first generation activities focused chiefly on strategic asset allocation and real estate, the second and third generations are shifting towards philanthropic initiatives and tactical asset allocation. And age is not the only factor. The female members of families are taking a more active role, managing an increasing amount of wealth and thus becoming key players with their own specific interests, such as creating resources that help other women start successful businesses. These differences will impact how the future of family offices operate and how money is invested, used and shared.

Here are three directions these new faces of the wealthy generation are guiding the industry:

Sustainable Investments

Millenials are more socially conscious and want to have a greater impact on the world, and this will reform the means and products that HNWIs invest in. 

One of the first steps to sustainable investments is following environmental, social and corporate governance (ESG). These three central factors analyze the investment’s impact, along with the risk it will pose. ESG investing requires a lot of time devoted to it, so it needs to be an active element of a portfolio to be successful.  

Sustainable investing interest among millennials is now at 95%, which has grown 10% in just a few years. Equal shares of men and women, 63%, expect to make more of an impact on the world with their wealth than prior generations. This growing interest in sustainable investing has created a positive feedback loop which will trigger adoption. Specifically, the majority of this segment is interested in plastic reduction and climate change. 

As investors begin making Earth-conscious decisions they will need transparent reporting to understand how they are facilitating change with their money. The wealth management industry’s ability to define, measure and track non-financial impact will be crucial to the evolution of sustainable investing and its rapid growth.

Hyper-Personalization of Family Office Tools

The slow pace at which family offices typically run will not be acceptable for a generation that has the world at their fingertips 24/7. The next generation will need technology driven hyper-personal tools to fulfil their family’s financial goals. 

The children of UHNW parents will require a 360-degree view of their wealth and interests. This will include personalized portfolio construction, tailored advice, and bespoke risk profiles. With the ability to scour the internet for current trends and predict the impact of global events, millenials are more likely to adopt technology advances that claim to minimize avoidable risk. 

In fact, 30% of the children of HNWIs leave their parents’ manager due to lack of technology adoption and a perception of age-related generational differences. Rather than solely fostering relationships with managers, like the first generation, this new wave of investors will also focus on data analytics and machine learning to assess and plan future investments. 

This adoption will begin with automated reporting and aligns with the transparency millennials crave in particular regarding asset allocation and sector exposure.

Investing in Technology Led Solutions

This wealth shift will prompt portfolio adoption of riskier, less traditional assets, specifically startups. There is a strong recognition of the magnitude that technology will have on their investments, and the need to make calculated decisions on which innovations to invest in. 

Family Offices, however, do not work like venture capital firms; investments are usually private, and come with promises of integrity and communication. Their private capital is preserved across generations making it a long term commitment, so they will typically invest in opportunities they believe will grow over the years.  

The continuous disruption of technology is a perfect opportunity for the new generation of HNWIs to ultimately preserve their wealth and benefit the planet, which aligns with their investment goals. 



The so-called Great Wealth Transfer will bring with it a shift in investment priorities and technology adoption. Family offices, and the range of partners and service providers which supports them, need to continue to adapt and innovate to keep pace.

Sources:

RBC Wealth Management

Financial Times

UBS

Banking Exchange