Advisors are making a comeback
Whether a family office supports the concept of seeking guidance from external parties or not, the fact is that ultra-wealthy families require professional and expert support more than ever before. The family office landscape has become far more complex in recent times, especially in the regulatory, tax and wealth management space. The business and economic environment is also evolving rapidly, requiring specialised support and sophisticated risk management processes. Below are some key reasons why advisors are, once again, becoming an attractive option to many family offices:
1. Succession and wealth transfer: As first-generation leaders begin to hand over the reins to the next generation, many family offices realise that they are not fully prepared for all the implications and risks that emerge in the process. Issues with governance, family dynamics, business strategy and wealth transition tend to highlight the need for expert support.
2. Investment strategy: One of the reasons for family offices parting ways with advisors is the very reason for them finding their way back to each other. Ironically, the new family office investment agenda—redirecting significant amounts of wealth into purpose-driven, direct investments—has also exposed some knowledge and competence gaps, with many family offices turning to specialised partners who have the necessary know-how and insights.
3. Family office costs are rising: Given the intent of family offices to become more autonomous and independent, structures are becoming more complex and multi-layered with overhead costs escalating significantly. As indicated above, a higher degree of in-house specialisation is also required to support the unique investment strategies of the modern family office, adding further to the staffing cost. Advisors who can step in when required or assist with restructuring and streamlining the family office can save the family office a lot of money.
4. Tax compliance and regulatory changes: The complexity associated with tax compliance and navigating new regulatory requirements has increased significantly in recent years. Family offices now also operate in a far more litigious environment than ever before. Expert advisors still have a very important role to play in these areas, helping the family office to redirect their attention to core priorities like family strategy.
5. New emerging risks: The digital age has revolutionized the way we live and do business and has been the key driver of new wealth generation over the past decade. However, technological advancement has come with new threats like rampant cybercrime and increasing reputational risk. Innovation is behind the accelerating pace of change but is also a disruptive force that can turn riches into rags. Many family offices are therefore turning to specialist advisors to assist with technology planning and cyber security.