Building your wealth
Emerging Forms of the Family Office
The family office landscape is undergoing a monumental shift as a new population of ultra-high-net-worth individuals (UHNWIs) rises and wealthy families seek more agile ways of not only managing but also preserving their vast wealth and assets.
Traditional forms of the family office
Traditionally wealthy families have turned to either single- or multi-family offices to assist them with their asset and wealth management functions. Multi-family offices tend to focus primarily on the financial aspects of business, dealing with investments and asset management. They are generally run by large organizations that employ a variety of specialist consultants in these areas.
Single-family offices are generally established by wealthy families who desire more control over their finances, businesses and various aspects of their lives. These organizations are set up to manage a far more extensive range of services.
Both single- and multi-family offices require a certain level of wealth to be considered viable and cost-efficient. The most frequently quoted figure in this regard is $100 million in liquid assets. The reality, however, is that single-family offices are often established on total net worth, including various hard assets like real estate and businesses. This means the liquid asset value is well below the generally quoted value. While the diverse nature of single-family offices usually negates any definitive investable asset value as a criterion for establishing such an organization, cost-efficiency must still always be considered.
While both forms continue to operate in the family office space, their structures are being challenged as shifts in the greater business environment unfold and how investors approach business opportunities is evolving. As investors increasingly favor direct deals, multi-family offices are expanding their offerings to include a variety of non-financial services to survive.
Likewise, single-family offices are also undergoing shifts in their approaches to doing business, with many scaling down their operations to increase agility so that they can meet rapidly evolving demands. Recently there has also been a lot of discussion around whether opening their doors up to more families could be a sign of success for a single family office.
New forms of the family office
Despite traditional models’ best efforts to adapt to the changing landscape, the next generation of UHNWIs, many of whom are millennials and value access over ownership, often have an entirely different approach to their predecessors.
In many instances, the traditional binary of either a single or multi-family office doesn’t offer the type of solutions that these individuals require. In others, the value of their wealth, while substantial, may not be considerable enough to make either of these options viable.
Traditionally, multi-family offices have not been interested in these individuals with net worths of between $1 and $50 million. In private banking, individuals in this net worth bracket are often regarded as “small” clients and unintentionally made to feel under-appreciated or even inconsequential.
These facts have given rise to entirely new structures and hybrids in the family office space.
Increasingly private multi-family offices are forming. These new forms of the family office enable groups of families to pool their resources and leverage co-investment opportunities. These structures may have dedicated, shared, or even ad hoc resources available and rely on a sharing economy facilitated by the extraordinary efficiency of the digital market.
In response to this emerging form of the family office, modular offerings that enable families to select the services they require on-demand are garnering growing interest. These companies offer a unique combination of services to position themselves—from tailored software solutions to individual services that are customized according to the next-generation family office’s needs. These may include the digital transformation of the family office, family dynamics consulting, succession planning, next-generation engagement strategy and more.
Others focus on offering financial services, with a fresh twist and value-adds. One example is Kanopé, a Paris-based multi-family office entirely focused on investments with impact related targets.
Umana is another multi-family office launched by two San Francisco based venture capitalists. Umana caters to the newly wealthy with net worth’s ranging from $1 million to $100 million. Services encompass everything from private banking to socially-minded investing and savvy branding—with personal brands valued as part of their client’s net worth.
Other types of service companies and consultancies are also springing up to assist the new generation of family offices. While virtual family offices haven’t flourished quite yet, they are becoming more sophisticated. In the future a virtual family office could add more value by taking a more impartial approach and offering solutions that ensure reliable reporting and data management services.
The family office space is shifting rapidly. With it comes the changing face of the family office and new definitions of what this means. For the newly wealthy and the next generation of UHNWIs, the available options are more diverse, flexible and exciting than ever before.
When these individuals partner with companies and consultancies that can offer professional expertise in the required areas, develop solutions and customize services on demand, this provides a unique cost-efficiency not facilitated by the traditional models. What’s more, is that it also allows the generation of family offices to focus on the future strategically and better aligning their investments to their greater purpose.
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The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.