Preparing Family Offices for the Great Wealth Transfer

Over the next decade, an unprecedented amount of personal wealth will change hands, as 70 million baby boomers prepare to pass around $15 trillion in assets to the next generation. The very wealthy will be responsible for a significant share of this wealth, which has continued to grow at a staggering rate – 27.5% during the pandemic alone, according to UBS data. Once a space dominated by private bankers, family offices have become one of the most efficient and popular new choices for UHNW people must steward, manage and protect their exponentially growing heritage for future generations and pass it on reasonably to their heirs.

Adding to the challenge of this wealth transfer: half of family offices in North America “are not prepared” for succession, according to the 2021 RBC/Campden North America Family Office report. For family offices to be ready for their moment, they will need to master an array of new complexities, from tax structures that change with each new administration to the increasingly globalized and environmentally conscious millennial generation, and governance (ESG) who will receive the wealth. Like any steward, family offices themselves cannot do everything; they need to determine what they do in-house and what they outsource to third-party professional partners. Gone are the days of relying solely on trusted friends, legacy systems and manual processes, and family offices that do not rely on fully competent professionals and technology solutions to track, analyze and assess risk across all asset classes and geographies will struggle to stay aligned. their stewardship obligations and the expectations of the UHNW family.

Cross-border complexity

Adding diverse geographic assets requires an extra level of sophistication, as the Next Gen cohort tends to relocate overseas more often, forcing the family office to deal with not only the usual investment decision making , but also a range of complex tax and international issues. regulatory challenges. The right governance and technology can help family offices streamline the compliance workflow and save time by staying tuned to specific client tax and regulatory requirements. They should also consider trust service technology. With respect to fiduciary services, the “technology” is jurisdictional and depends on the statutory advantages that one state offers over another, or that one country offers over another. The globalization of family offices also means that they will need standardized and centralized technology to provide fast and efficient reporting so that they can support families as they move, invest and live in different parts of the world and prepare for their wealth transfer. The current technology in the market is still in its infancy, at least in terms of the type and level of demand. Many out-of-the-box technology tools tend to focus narrowly on liquid assets such as cash and government securities in a dashboard. That’s all well and good, but given the increased appetite and investment in alternative assets by family offices (like real estate, private equity, venture capital and luxury assets), what’s missing typically, it’s multi-asset class functionality and related bookkeeping and accounting. capacities.

Real-time monitoring and reporting

Today, UHNWs expect a data-driven approach to staying on top of risks and opportunities. Only an efficient, technology-enabled, end-to-end process can enable family offices to provide a real-time view of complex global family relationships as well as quick access to comprehensive auditable records. In this age of information speed and transparency, especially among Next Gens, family offices need the ability to generate a holistic snapshot on a simple, personalized dashboard consolidating investment information spanning multiple asset classes. assets and locations worldwide, multiple fund and asset managers, banks, custodians and brokers. The technology can remove the analytical barrier between liquid financial assets with highly standardized data and non-financial alternative assets with widely disparate data.

It is essential for family offices to move from a data-centric world currently centered on remote reporting to a dynamic style of reporting that would provide an immediate and comprehensive understanding of an investment environment, so they can take complicated decisions more easily, manage investment risk and seize opportunities.

Preparing the next generation for succession

An estimated 18,500 people with a net worth of $100 million or more will transfer most of the assets in what is often referred to as the “great wealth transfer.” Families considering transferring their wealth to the next generation face a variety of emotional decisions and family dynamics, so the last things they need from family offices are outdated financial and compliance data. or incomprehensible. Family offices play a vital role in bringing the younger generation into the fold and ensuring the successful execution of any estate or estate plan. Family offices with the best technology at their fingertips can offer the uninitiated the clearest real-time data, smart, consolidated reports, across multiple geographies and asset classes, and a holistic view of the full combined balance sheet of their families.

Next Generation Priorities

Millennials and Generation Z are notoriously more socially responsible than their parents and grandparents, with a keen interest in ESG-compliant funds and socially responsible and impact investing. With a rapidly changing ESG landscape coupled with an increasingly stringent set of requirements from regulators, navigating the ESG environment has become something of a minefield for asset managers and investors. Globally, 53% of family offices have intensified due diligence processes when seeking to invest, as they seek to avoid greenwashing, measure impact and define their approach. Family offices must be capable of due diligence, monitoring, reputation assessment and real-time tracking of ESG investment metrics. Family offices also need to keep abreast of new technologies that could impact future financial systems. A 2021 study indicated that 31% of family offices invest in cryptocurrency. Cryptocurrency and other blockchain products create complex issues of trust and accountability, but robust technology solutions can help manage additional tracking, analytics, and reporting complications.

With the growth of 9% in 2021 alone in UHNW people, the growth of family offices has also exploded, with some estimating that there are more than 7,000 family offices in the United States alone. To stay competitive as the Great Wealth Shift approaches, family offices cannot afford to make blind decisions. To ensure a smooth transition ahead of the largest intergenerational transfer of wealth in history, robust tracking, risk management and reporting technology will help meet rising expectations for stewardship, management, preservation and investment over several generations and family segments. While the supply of this governance and technology demand is still in its infancy, some vendors like IQ-EQ anticipated this need some time ago and are well on their way to deploying such tools.

Darrell King is Director of Private Wealth for the Americas at IQ-EQ

About Yvonne Lozier

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