Family offices: the next generation, Changing times, changing values
Updated: Nov 26, 2021
Family offices are at the fulcrum of what is billed as the largest generational wealth transfer of all time, with as much as $68trn forecast to be transferred over the next 25 years. Already the growing weight of millennials and Generation Z within wealthy families is prompting changes in their values, technological tools and investment ethos.
The way wealthy families organise their affairs and invest their assets is set for a momentous shift as influence shifts from the entrepreneurial generations that built up business fortunes in the decades after World War II to younger family members, especially millennials (those born roughly between 1980 and 1996) and Generation Z (between 1997 and 2012). Already they are introducing new means of communication, social priorities and investment goals to their families, and the influence of the younger generations is set to be consolidated over the next quarter-century amid what is expected to be the greatest generational transfer of wealth in human history, involving as much as $68 trillion. This may not always be an easy process, given the significant psychological and cultural differences between older family members who came of age in the more convention-bound decades of the 20th century, and younger ones accustomed to the informality, and especially the digital-centricity, of the 21st.
Family offices arguably have been slower than many other types of financial organisation to embrace new types of structure, governance and communication. The new generations whose voices are being increasingly heard within them are accustomed to digital tools and processes, and embrace openness and transparency, and are less comfortable with traditions, hierarchy, deference and seniority. These traits will shape how family offices need to adapt in the future as older generations step back and the younger cohorts start to shape organisations through technological solutions and values of social responsibility. Already there is evidence that younger members are driving an embrace of sustainable investment, both within family office structures and outside. They may be less interested in the source of the family’s wealth and in keeping long-term control of it than in directing the assets under their control of influence toward achieving a positive impact on the world and society.
The influence of younger investors, both within family structures and outside, can be seen already in the surge of inflows into sustainable investment – a significant extension of the established role of philanthropy within wealthy families. Because of the volume of the assets at their disposal, family offices have become influential participants in impact investing oriented toward achieving specific aims, especially in terms of social impact, curbing climate change or other environmental goals. Multi-family office organisations will increasingly be asked to balance their traditional objectives of protecting, managing and increasing wealth with ensuring that investments are aligned with the values of family members. They will also need to make greater efforts than were needed in the past to obtain buy-in from a wider range of family members for their strategies and ambitions, in some cases at relatively granular level. That will tie in with adopting the younger generations’ digital communication tools.
Flexibility and agility
Despite their lack of a head start, family offices should be well placed to make these changes because their relatively small size and clear lines of communication and decision-making give them the ability to respond and adapt more quickly than bigger institutional investors with complex stakeholder structures and ponderous governance processes. As they shift their investment focus away from purely profitability considerations toward sustainability and direct impact, they are in a position to capitalise on the broader transition within the investment industry toward environmental, social impact and governance considerations and goals. Increasingly bolstered by regulatory requirements such as the EU’s Sustainable Finance Disclosure Regulation and its green taxonomy, this promises to deliver a vastly increased volume of information on the impact of economic activities on society and the environment to guide family offices toward the moral purpose and tangible achievement that motivate their younger members.