At times when financial markets face unsteady periods, the importance of family offices (FOs) increases. Looking for ways to protect their wealth and the turbulence associated with global inflation, wealthy families turn to professional advice to get through these difficult times.
High-net-worth families can contact the FOs for other reasons as well. For example, someone receives a large inheritance and does not know how to properly manage the assets to at least preserve them. Still, in some families, there is simply no member willing to take responsibility for managing all financial affairs. There are many reasons why clients turn to the family office. But for each of them, specialists from FOs select the best solutions that can protect their assets and open up new prospects for growth.
Family Office Development Under the Influence of New Technologies
In their current format, family offices appeared in the United States at the end of the 19th century due to the emergence of a large number of entrepreneurs and industrialists. Their main function was to assist in the effective management of wealth and organizing various events, including participation in philanthropic activities, fundraising for charity, etc. Over many decades, the functions of the family office have changed, which confirms the value of its mission. However, under the influence of the digital revolution and other factors, the range of services provided by financial institutions began to expand. The high net worth family office with solid experience Certuity Company – https://certuity.com/family-office/ notes significant changes in client requests. Let’s compare the traditional functions of the family office and the new additions that are increasingly being offered to clients.
| Traditional Functions of a Family Office | New in Family Office Tasks |
| Family governanceInvestment strategiesRisk managementTax and estate planningPhilanthropyOrganization of various eventsPreparing the younger generation to manage family affairs | Globalization of investmentsAlternative InvestmentsInvestments in crypto and other digital assetsUsing AI and ML for more comprehensive analysis and investment forecastingSupporting a positive image of the family in the media Cybersecurity |
In addition, as Josipa Majic Predin notes https://www.forbes.com/sites/josipamajic/2024/01/11/the-rise-and-rise-of-the-family-office-an-analysis/?sh=13b59f2e12ed , the functions of the family office are changing under the influence of demographic shifts. As millennials and Generation Z get older, the investment landscape is changing based on their priorities. Many rich families put sustainability, social impact, technology development, etc. at the forefront rather than making a profit.
Changing Dynamics and New Challenges for Family Offices
Globalization of Investments
Family offices as an institution experienced a renaissance in the 1980s and began to spread throughout the world at the beginning of the 21st century. These processes go hand in hand with changes in economics and finance under the influence of globalization. If earlier, investments in remote regions were rather an exception, today, many high-net-worth families want to participate in investment projects in various countries. Some of them are driven by the desire to support the development of other regions, others want to develop new markets, and others are looking for new investment solutions against the background of overheating of the domestic economy.
Globalization of investments opens up great opportunities and poses new challenges for family offices. This demands immersion in the international tax complexity, the political situation of other countries, and much more. Family offices successfully cope with this task and offer their clients a new perspective on the possible and impossible in the field of investment.
Alternative Investments
There is also a growing demand for alternative investments, which are offered by family offices as additional ways to invest capital. They are characterized by less liquidity but higher profitability and also allow wealthy families to realize their investment ideas. For example, this could be investments in start-ups, technology, infrastructure, art, etc. Certuity Company is an expert in the field of alternative investments. The company offers its clients a broad opportunity set for different asset classes. But it is always ready to expand this list if high-net-worth families have any special wishes.
Responsible Investing
Commitment to responsible investing has become another significant trend in changing the activities of family offices. This is largely due to a generational shift in rich families. While heads of households in the 20th century prioritized increasing the wealth of their families, the new generation of affluent people is increasingly thinking about environmental issues, social impact, etc. This poses new challenges for family offices. Clients often ask them to offer highly profitable projects and projects that take into account environmental, social, and governance (ESG) factors.
The Bottom Line
The list of services provided by family offices for high-net-worth families changes as society evolves. Many functions remain unaltered, such as family governance, investment portfolio management, tax and estate planning, risk management, philanthropy, etc. But they are filled with new content depending on the generational demands of wealthy families and the current public agenda. In addition, new technologies significantly impact the work of family offices. They expand the capabilities of FOs by providing new technological tools and create new risks. Therefore, new specialists appear on the staff of family offices. For example, these are cybersecurity professionals who protect the security of customer data from possible cyber attacks.
The future of family offices looks exciting. Perhaps by the end of the century, they will differ from today’s FOs as much as modern family offices differ from similar companies of the late 19th century.
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