Posted on May 31, 2019
Generational change. Global mobility. Technological transformation. These are just a few of the key changes impacting family offices and fundamentally threatening their operating structures and practices, writes Farnoush Farsiar for EU Today.
Increasingly, family offices are catering to the younger, more tech-savvy and mobile generation. The financial crisis and democratisation of trading via online tools have made all clients, irrespective of age, more interested in their own investments, meaning they want to have more knowledge and more involvement, and have lost the traditional appetite for discretionary portfolio mandates managed at arm’s length.
These changes, which come at a time of unparalleled political and economic instability, herald the end of the traditional fee-based family office model. Offices which try to maintain their previous methods will find they are abandoned by the very individuals they were established to advise. Instead, they must adapt and adopt a more entrepreneurial approach to investment management, in order to create a true value proposition for UHNWIs.
Family offices vary hugely in their size and scope, however irrespective of this they should prioritise agility as well as streamlining their service, rather than trying to be experts in everything. A smaller team of advisors who can quickly implement new technologies and bring on board external specialists when necessary will ultimately provide a more valuable service to clients. As these changes necessitate the blurring of the line between private banking and family office, successful firms will be those that maintain the loyalty and level of trust of a family office whilst remaining ahead of the curve with sourcing deals and adopting technology.
Success will be born of an ability to capitalise on more traditional, network and reputation-based approaches to deal sourcing, whilst also using online methods to identify deals and opportunities. Online deal sourcing platforms are just one of the tools which wealth managers and agile private offices can easily install as opposed to large cumbersome banks, who are mired in large-firm bureaucracy. These platforms allow dealmakers to access and evaluate a large number of deals at one time – a substantial saving of time and resources.
Other online services which are changing the way family offices interact with their clients include dashboard services, such as Wealthica, which automatically consolidate investments from a range of sources, bringing clients into daily contact with their investments – a far cry from the days when wealth managers provided only intermittent updates on the progress of their clients’ money.
Of course, these tools are just that – the means by which wealth managers can improve the efficiency and speed with which they operate. The strategy which underpins their investments is ultimately the most important factor. Again, the edge will come from bringing together the traditional and the new – continuing to scout out deals in real estate etc, whilst also exploring investments in previously unexplored fields, such as food security or climate science. Impact investing has undoubtedly ‘arrived’ in the family office world – the UBS Global Family Office Report 2018 found that one third of family offices are now active in impact investing, and most expect to become more involved in the near-future. While there are undoubtedly problems in this field, including difficulty in measuring impact and carrying out due diligence, the next generation of HNWIs and UHNWIs will expect family offices to be able to identify and secure these kinds of investments. My own firm, Plato Capital, is a boutique investment bank which draws on the experience of its founders, in family offices, large banks and the tech industry, to provide investment advice with a focus on the entrepreneurial. Our personal local knowledge and network enables our clients to successfully manage risk and make optimal returns on their capital.
By blending the old and the new, adapting to the demands of the younger generation and being prepared to take risks with their own structures and techniques, wealth managers of all kinds can remain relevant and thrive in turbulent times.
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