Ultra-high net worth individuals (UHNWIs) often find themselves overwhelmed when it comes to setting up their own family office. Setting up a structure to handle investable assets of about $100 million or higher, with operational costs from anywhere between $1 – 2 million, is no small feat. However, digital family offices can provide a good alternative and an easy entry point.
What is a digital family office?
Digital family offices, as the name suggests, are like online versions of traditional family offices. They offer financial and administrative support to UHNWIs and their families. The main difference, however, is that digital family offices use technology to connect to clients and offer their services.
There are several benefits to using a digital family office. Since they are digital, they’re fully remote and have lower overhead costs, resulting in lower operational expenses. Below are some of the key services they offer UHNWIs:
Access to private markets
One of the ways family offices preserve wealth so effectively is their ability to access private market opportunities. These markets can be notoriously hard to get into, but family offices can access venture capital deals and direct investments via their network and invest in real estate assets for long-term cash flow potential. In fact, a recent report showed that their asset allocation to private equity, credit and real estate is proportional to their public equities portfolio, constituting almost a third (28%) of their assets.
For UHNWIs, whose main aim is to preserve and grow multigenerational wealth, digital family offices present a compelling option. For instance, Arta offers access to private equity, private credit, venture capital and real estate investments to qualified investors in the United States. Similarly, Kristal provides access to private market investments to individuals in Singapore, Hong Kong, India, and UAE.
Advice from experts
Another advantage that family offices have is that they have a team to manage all the wealth needs of a family. They can give advice on personal finance, investing, taxes, managing estates and various other matters. To do all this properly, they may employ or outsource CIOs, CFPs, accountants, bookkeepers and other experts to make sure that all family members are taken care of.
Based on their lifestyle and stage in life, UHNWIs may not necessarily need an army of professionals. In such cases, digital platforms like Compound, Asena and Savvy specialise in connecting clients to various financial experts from different fields. For instance, UHNWIs nearing retirement can get guidance on how to set up an estate plan or establish a foundation. And young entrepreneurs still scaling their startups can get in-house tax advisors or track their digital net worth, including stock options, crypto, and real estate.
Education and governance
Finally, it is important to note that education and governance are key factors in securing the long-term prosperity of a family’s wealth and legacy. Unlike other financial institutions, family offices operate based on a set of family values and principles. These values are handed down from generation to generation through education and are incorporated into the family office’s governance structure. UHNWIs aiming to create a lasting family legacy should prioritise education and governance to preserve their wealth for future generations, where companies like Total Family Management (TFM) can be a governance partner, providing ongoing professional coaching sessions and software for capturing family legacies.
To sum it up
Having all the wealth managed under one roof with the help of trusted advisors who have served the family for generations in a traditional family office setting may be the ultimate goal. However, various options are available today for UHNWIs considering setting up a family office. Digital family offices are one such option that offers remote accessibility and lower operational expenses. They also provide access to exclusive private market opportunities, personalised financial advice, and education on governance, making an ideal alternative for UHNWIs wanting to lay the foundation for a future move to a family office.