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Family offices are evolving rapidly, transitioning from traditional family-run operations to entities increasingly managed by professional talent. This shift is driven by the growing complexity of managing substantial wealth and the need for specialized skills. A Deloitte report surveying 354 single-family offices globally highlights these trends and offers valuable insights into the current landscape and future directions of family offices. By understanding these dynamics, family offices can better navigate challenges and seize opportunities for growth and sustainability.
Embracing Professional Talent: The Shift from Family to Non-Family Members
Traditionally, family offices have relied on family members to oversee operations. However, recent trends indicate a growing preference for hiring non-family professionals. According to the Deloitte report, family offices are increasingly recognizing the value of external talent to support their growth and diversification. This shift is driven by the need for specialized skills, particularly in finance, investments, tax planning, and legal services. As family offices manage larger and more complex portfolios, they require a workforce with a high level of expertise.
Despite only 35% of family offices currently being headed by non-family professionals, this figure is expected to rise to 49% as existing leaders step down. This transition underscores the importance of attracting and retaining professional talent. Family offices face stiff competition from larger financial institutions for young finance professionals. These institutions offer significant financial rewards and career progression opportunities that family offices may find challenging to match.
To counter this, family offices are emphasizing their unique cultures and opportunities for meaningful work. Many family offices invest in non-profits and activities with societal impact, appealing to younger workers who value purposeful endeavors. The smaller team size also offers broader responsibilities and leadership exposure, making family offices an attractive option for those seeking a diverse and impactful career.
Key Trends Shaping the Family Office Landscape
Several trends are influencing the family office sector, driving the need for professionalization and strategic growth. As reflected by the Deloitte report, there are three major ones to consider. Let’s break them down.
1. Growth Amid Uncertainty and Sustainable Investing
Despite global uncertainties, 70% of family offices expect an increase in assets under management (AUM) and family wealth. This optimism is fueling a focus on risk management, with family offices prioritizing investment risk strategies to navigate market volatility. Private equity has emerged as the preferred asset class, with many family offices shifting their investments from public to private equity. This trend is supported by data showing that private equity investments have provided higher returns compared to public equities over the past decade. Additionally, 63% of family offices use third parties for support on illiquid assets like private equity, highlighting the importance of external expertise in managing these investments.
Further, sustainable investing is gaining traction. Family offices worldwide are increasingly recognizing the importance of incorporating environmental, social, and governance (ESG) factors into their investment strategies. This trend is driven by both regulatory pressures and the values of younger family members. Younger family members often prioritize ESG factors and are more likely to advocate for investments that align with their values.
2. Increasing Outsourcing
Outsourcing is becoming a vital strategy for family offices seeking to scale up operations and gain specialized expertise. More than one-third of family offices plan to rely more on third-party service providers this year, and 71% of family office professionals believe it improves service levels.
This approach allows family offices to focus on core activities while leveraging external expertise for tasks such as managing illiquid assets like private equity and supporting personal financial management for family members. Additionally, outsourcing can help family offices manage costs and improve operational efficiency, providing access to specialized skills without the need to hire full-time staff.
3. Preparing for Generational Succession
With four in 10 family offices undergoing generational succession within the next decade, there is a pressing need to address talent issues. However, nearly one in three respondents lack confidence in the next generation's readiness for succession. As family offices anticipate the future of the business, training, and mentoring programs are essential to prepare the next generation for leadership roles.
Building a culture of education and communication within the family is crucial for a smooth transition and preservation of the family legacy. Regular family meetings to discuss investment strategies, philanthropy, and succession planning can help align financial goals and foster unity. Establishing clear roles and responsibilities, along with conflict resolution mechanisms, can also support a harmonious transition.
To ensure a successful transition, family offices should also focus on establishing a well-defined governance framework, outlining decision-making processes, communication protocols, and conflict-resolution mechanisms. Seeking guidance from experienced professionals, such as financial advisors, lawyers, and wealth managers, can further enhance the effectiveness of the governance framework and ensure compliance with regulations.
Conclusion
The modern family office must balance tradition with innovation. Prioritizing professionalization, leveraging outsourcing, and preparing the next generation are essential steps to navigate this complex environment. Through thoughtful planning and a commitment to continuous improvement, family offices can effectively manage the wealth and legacy of high-net-worth families for generations to come.
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