The Five Building Blocks Of The Future Family Office

In a day and age where change seems to be the word du jour, it’s easy to become overwhelmed and forget that this state of flux isn’t a new concept. Roughly 2500 years ago, the Greek Philosopher Heraclitus pointed out that “The only constant in life is change.” So if the constant change is something that has been around for so long, why is it that now it might feel a bit overwhelming?

Philosophically this could, in part, be because we live much faster lives these days, and through our constant-on social media consumption might have less time to disconnect. At the same time, we get bombarded with irrelevant social media and news we don’t need to know.

Whether we look at these constant changes or whether this change takes place on a personal, business, organizational, or even societal level, this affects all of us, and everyone must be prepared.

Three Drivers Of Change In The Ultra-Wealth Segment

Concerning the private wealth segment, three critical drivers of change are currently playing out and changing the family office landscape.

There Is A New Wealth Owner

Yes, we are talking about the “Next Generation” of owners, and today this could mean anything from Gen Z’s to spouses outliving their other halves, between the ages of 20 to 60. But there are also entirely new wealth sources that bring new types of owners into play. One significant new source of wealth is in the form of liquidity events from the increasing number of entrepreneurs exiting the companies they started.

All founders will eventually leave their company, and it’s just a matter of when and when this happens. As many startups today also raise money from family offices, it stands to reason their founders might be interested in following a similar journey with the liquidity they might unlock.

Beyond entrepreneurs, there are also entirely new types of wealth, crypto natives or bitcoin billionaires are just one example, and with more shifts in the financial systems, we can only imagine what other types of wealth would still emerge.

A Shift In Personal And Societal Values

On a personal level, owners increasingly look for value beyond financial returns from their investments. Whether we’re talking about more concerns around environmental impacts or on a social level considering factors such as diversity, equity, and inclusion or the broader impacts on people, this personal drive to do better is evident all around us. A clear manifestation is the increased discussion of sustainability amongst many financial players (even though much of this is lip service). What comes next?

On a societal level, there is also an increased demand for transparency and accountability from the world at large. Wealth owners must ensure that they are prepared for these new demands and that their investment portfolios reflect their intentions — or there’s always the risk you might get canceled.

There Are New Ways Of Investing

The investment landscape is no stranger to change since being codified in the 1700s BCE, where Mesopotamians could pledge land as collateral in exchange for a project. Over centuries investors had placed value in everything from spices and steel to stocks since the 1600s when the Dutch East India Company created the Amsterdam Stock Exchange.

One thing’s for sure, investments are not all happening on the stock exchange with listed companies, and during bear markets, bonds and physical assets might see increased attention.

Today there is increasingly a significant focus on alternatives and direct investments along with new asset classes and vehicles that weren’t available before. SPACS were all the rage three years ago, and crypto, digital assets, and blockchain technologies have boomed in popularity for the last couple of years.

The 5 Building Blocks

So based on these shifts, and with research compiled from various reports, conferences, and interviews over the last couple of years, the following five building blocks have been identified and outlined as forward-facing factors that can enable future family offices. Each of these could justify an entire article on its own, but here’s the synopsis.

1. An Organization That Enables Resilience

A resilient organization can weather change, and organizations need to be agile to prepare for uncertainty. Agility is, in short, readiness by design. With a strategy in place that integrates a level of readiness while also considering non-financial risks, family offices can be more prepared for future changes.

Beyond the nature of the organization, there is also the make-up. Family offices need to mirror their clients and meet them where they are. If the family office is only made up of older generation management (“Ok boomer,” ring a bell?), or only males where the clients are perhaps younger female family members - there is an inherent mismatch.

2. Digital Excellence

Digital is a hygiene factor. Gone are the days when there’s a discussion on whether Robo-advisors will replace wealth managers or whether private banks can get away with not providing direct feeds to accounts for aggregation. The next generation of wealth owners will expect digital tools that are safe and secure. Most Gen Zs would rather DM their bank via Instagram than receive a phone call.

Just because you ditched your conference service and you can hop onto a Zoom call does not mean you transitioned to a digitally excellent company. There’s a lot more work to be done, some of this relates to actual tech solutions, but a lot also refers to a mindset, culture, and how family offices manage internal processes.

3. Transparency & Communication

Some might say that privacy is a luxury that wealthy individuals can still buy. Most people, however, are starting to realize that privacy might be dead, especially with the rapid developments in quantum computing and our always-on lives.

Gone are the days of secrecy and family offices operating under the radar. Whether it’s the next Panama papers or the mass adoption of blockchain that will document all transactions - it’s becoming easier to access information about anyone and everything.

But this focus on transparency is not all doom and gloom. With it comes the opportunity to tell stories worth sharing, whether with the family office owners or the world at large. In the words of psychologist and economist Daniel Kahneman, “No one ever made a decision because of a number. They need a story.”

4. Network & Community

Members of Generation Z understand the power of connection and live their lives by it. They are not only digital natives, but they’re network natives, and this plays out in new ways.

There have been many discussions about building a network for co-investing opportunities within the family office space. These deals will most likely keep happening, but what are the other benefits here, and how could the Gen Z approach change how this happened until now?

Knowledge sharing is another reason why networking is so important. But according to the “Weak Tie Theory,” we can only tap into old knowledge from existing networks - people with whom we share experiences. The theory suggests that new knowledge needs to come from others outside your immediate network. This thinking, supported by new family office technologies and the Gen Z mindset, might soon create new ways to expand networks securely and share data with this network that can be mutually beneficial.

5. Transformative Impact

By envisaging what they want to achieve beyond financial returns, investors can have an exponentially transformative impact on the world. This transformative vision, or “purpose, is what the next generation wants to see.

This last building block doesn’t stand in isolation, as it enables the need for transparency, provides stories to be shared, and relies heavily on the rise in new ways to invest, helping investors to be the change they want to see in the world.

How Does This All Fit Together?

How might a family office look that has incorporated these five building blocks in its design? Working from the inside out at the core, we have an agile, resilient organization leveraging enabling technology to be digitally excellent. Moving outward, this organization is open and transparent, with a strong network and community within which it communicates, shares, and operates.

And for the world, there’s a possibility that this family office and its investments can have a transformative impact on the planet. And to end with a last bit of inspiration on change, “When you are finished changing, you are finished.” - Benjamin Franklin