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Dealing with unanticipated risks as well as the acceleration towards home working in some sectors has prompted family offices to take stock of legacy infrastructures, improve connectivity and moreover ask some fundamental questions. These include:

  • Should family office goals and priorities be different after the pandemic?
  • Are the people that wealthy families employ to run their affairs really focusing on the right things?
  • More specifically, what should family offices be doing themselves, and what should they be seeking to outsource and why?

Many individuals have spent the past few months focusing on tasks that often get overlooked in normal times – everything from drafting wills, to understanding exactly what assets are owned where. Rather than focusing on a particular asset manager or a particular asset class, they could take a step back and consider everything as a whole. The pandemic also demonstrated to some that rather than being two distinct strands, private and business assets are ultimately correlated.

Many have been very active during the crisis – we have certainly seen lots of interest in direct investing, club deals with other family offices and more scrutiny around the costs of asset management. If you manage assets for ultra-high-net-worth individuals or family offices, now is a good time for them to consider:

  • Is the existing structure being used fit for purpose?        
  • Where ultimately do we want the family to be based? 
  • What do we want our legacy to be? Do our investments reflect our goals?

Our experience during this period has been that families and family offices are open to considering these questions and having frank conversations about their real goals and aims.

A reshaped mindset…

Globalisation – greater investment opportunities and complexity
Strategic asset allocation has become a priority for family offices as a cornerstone for wealth preservation. We are seeing increasing globalisation of investments, and growth in sophistication and diversification. Additionally, family offices are raising allocations to private equity, which adds tax complexity, as well as the need for more specific due diligence skills.

Philanthropy
Increasing social awareness and the desire to have an overall positive societal impact through more active giving is a strong trend. This shift resonates with investment strategies, where total impact is increasingly married with financial returns, albeit to varying degrees. However, there is less reliance on attendance at fundraising events and more focus, especially from the next generation, on active involvement with charities the family supports.

The family offices that adapt and thrive will be those that decide to embrace complexity and incorporate key aspects into a robust business model and into their “business-as-usual” operations.

Lisa Cornwell Webb, Private Clients - UK, PwC Switzerland

Governance
For family offices operating globally (which is most of them!), there will always be added complexities to running the family, such as where to reside, the number of jurisdictions involved and management of local employment and tax laws. These issues have been accentuated by Covid-19 restricting travel.

Many large family offices have very sophisticated governance structures; however, many medium to smaller-sized family offices are also beginning to appreciate the benefits of best practice governance. What this translates to is the professionalisation of the family office as an emerging trend within wealthy families and their family offices. In this regard, the need for more robust internal controls can be positively correlated with the size, and therefore complexity, of a family office.

Transparency (including tax oversight)
Governments around the world are demanding more transparency from large organisations, including many single-family offices that have to comply with increasing ultimate beneficial owner regulations. Many tax authorities around the world are formalising review programmes for high-net-worth individuals, which naturally extend to their family offices. Without an adequate structure, good governance and regular oversight, material tax risks can emerge.

Succession and planning
Covid-19 has emphasised the importance of estate and succession planning. In several countries, there are specific rules for the succession of the operating business that could be up for review.

Are calmer waters ahead?
It’s clear that the rate of socio-political and technological change will continue at pace; however, it will not impact all family office functions equally. There will be winners and losers, but the family offices that adapt and thrive will be those that decide to embrace complexity and incorporate key aspects into a robust business model and into their “business-as-usual” operations. This should foster competitive advantage and a strong foundation from which to approach the “new normal”.

Contact us
> Please contact your relationship manager at Julius Baer if you want to take advantage of our services.