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Getting Family Offices Ready for the Great Wealth Transfer

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Over the next decade, an unprecedented amount of personal wealth will change hands, as 70 million baby boomers prepare to pass an estimated $15 trillion in assets to the next generation. Ultra-high-net worth individuals will be responsible for a sizeable proportion of that wealth, which has continued to grow at a staggering rate – 27.5% during the pandemic alone, according to UBS data. Once a space dominated by private bankers, family offices have emerged as one of the most effective and popular new choices for UHNW individuals to steward, manage and safeguard their exponentially growing wealth for future generations and sensibly pass it to their heirs.

Adding to the challenge of that wealth transfer: half of family offices in North America “are not prepared” for succession, according to the 2021 RBC /Campden North America Family Office Report. For family offices to be ready to meet their moment, they’ll need to master an array of new complexities, from tax structures that change with each new administration to the increasingly globalized and environmental, social and governance (ESG)-minded Millennial generation who will receive the wealth. Like any steward, family offices themselves can’t do it all; they have to determine what they do in-house and what they outsource to third party professional partners. The time for relying solely on trusted friends, legacy systems and manual processes has passed, and family offices who don’t enlist fully capable professionals and technological solutions to track, analyze and assess risk across asset classes and geographies will be hard pressed to stay aligned to their stewardship obligations and related UHNW family expectations.

Cross-Border Complexity

Adding diverse geographical assets calls for an additional level of sophistication, since the Next Gen cohort tends to relocate to foreign countries more often, forcing the family office to deal with not only the usual investment decision-making but also an array of complex international tax and regulatory challenges. The right governance and technology can help family offices simplify the compliance workflow and save time by staying tuned to the client’s specific tax and regulatory requirements.  They should also be considering fiduciary services technology. Looking at fiduciary services, the “technology” is jurisdictional, and depends on the statutory advantages that one state offers versus another, or that one country offers versus another. The globalization of family offices also means they’ll need standardized and centralized technology to provide fast and efficient reporting to be able to support families as they move, invest and live in different parts of the world and prepare for their wealth transfer. The actual technology in the market is still in its relative infancy, at least in regard to the type and level of demand. Many out of the box tech tools out there tend to have a narrow focus on liquid assets like cash and public securities in a dashboard setting. That’s all well and good, but given increased appetite and investment in alternative assets by family offices (like real estate, private equity, venture capital and luxury assets), what’s generally lacking is the multi-asset class functionality as well as related bookkeeping and accounting capabilities. 

Real-time Monitoring and Reporting

Today, UHNW individuals expect a data-driven approach to stay on top of risks and opportunities. Only an efficient end-to-end process enabled by technology can allow family offices to provide a real-time view of the family’s intricate global relationships as well as quick access to complete auditable records. In this era of speed of information and transparency, especially amongst Next Gens, family offices need the ability to generate a holistic snapshot on a simple, tailored dashboard consolidating info from investments spanning multiple asset classes and worldwide locations, multiple fund and asset managers, banks, custodians, and brokers. Technology can remove the analysis barrier between liquid financial assets with highly standardized data and non-financial alternative assets with highly disparate data.

It’s essential for the family offices to move from a world of data that’s currently centered around remote reporting, to a dynamic reporting style that would offer an immediate and complete understanding of an investment environment, so they can make complicated decisions more easily, manage investment risk and seize opportunities.

Readying Next Gen for Succession

An estimated 18,500 individuals with a net worth of $100 million or more will be transferring most of the assets in what’s often referred to as the “Great Wealth Transfer.” Families planning to move wealth to the next generation must grapple with a variety of emotional decisions and family dynamics, so the last things they need from the family offices are obsolete or incomprehensible financial and compliance data. Family offices play a critical role in the ushering the younger generation into the fold and ensuring any estate or succession plan is executed properly. Family offices with the best technology at their fingertips can offer the uninitiated the clearest real-time data, intelligent and consolidated reporting, across multiple geographies and asset classes, and a holistic view of their families’ combined full balance sheet.

Next Gen Priorities

Millennials and Gen Z are famously more socially conscious than their parents and grandparents, with keen interest in ESG-compliant funds and socially responsible and impact investing. With a rapidly evolving ESG landscape coupled with an increasingly stringent set of requirements from regulators, navigating the ESG environment has become something of a minefield for asset managers and investors. Globally, 53% family offices have intensified due diligence processes when looking to invest as they seek to avoid greenwashing, measure impact and define their approach. Family offices need to be capable of due diligence, monitoring, reputation assessment and real-time tracking of ESG investment metrics. Family offices must also stay current with new technologies that could impact future financial systems. A 2021 study indicated 31% of family offices invest in cryptocurrency. Cryptocurrency and other blockchain products create complicated trust and liability questions, but robust technological solutions can help handle the additional complications in tracking, analysis and reporting.

With the growth, a staggering 9% in 2021 alone, of UHNW individuals, the growth of family offices has also likewise exploded, with some estimating that there are upwards of 7,000 family offices in the United States alone. To stay competitive as the Great Wealth Transfer approaches, family offices can’t afford to make decisions flying blind. To provide a smooth transition ahead of the greatest intergenerational transfer of wealth in history, robust tech for tracking, risk management and reporting will help meet the rising expectations for the stewardship, management, preservation and investment across multiple generations and family segments.  Whilst the supply side of such governance and tech demand remains in its infancy, some providers like IQ-EQ have anticipated this need some time ago and are well on the way of deploying such tools.  

Darrell King is Director of Private Wealth for the Americas at IQ-EQ