We are grateful to Alpa Bhakta, CEO of Butterfield Mortgages (pictured above), for taking the time to explain to us more about this fast-growing wealth management sector.
Over the last ten years, the world of wealth management has undergone a number of significant changes due to the emergence of new markets and technologies. Perhaps the most significant new trend is the rise of family offices as an alternative to private banks and other traditional wealth managers.
But what exactly is a family office, and what’s changed in order to make establishing one attractive for ultra-high-net-worth individuals (UHNWIs)?
The rise of the family office
A family office is a private advisory firm set up by an UHNW to manage their business interests and investment portfolios on a day-to-day basis. Aside from asset management, family offices typically act as full-service financial advisors.
While the amount of wealth vested in a family office varies wildly, they are usually required to manage a fund with a net worth in excess of £30 million due to the high overheads involved.
According to professional services firm EY, there are around 10,000 family offices operating globally today, compared with just 1,000 in 2008. Furthermore, the average size of these family offices, in terms of assets under management (AUM), has grown considerably. Indeed, the family offices of the likes of James Dyson and Jim Ratcliffe have enough capital to rival some of the world’s most prestigious private banks and consequently, family offices are beginning to occupy a more central role within the financial ecosystem.
What advantages do family offices offer UHNWs?
The rise in popularity of family offices reflects the desire for many UHNWs to have a greater degree of autonomy and discretion when it comes to their financial affairs. Not only does a family office provide the investor with more oversight, it also allows them to hand select their own dedicated team of financial and legal professionals.
Still, the primary function of many family offices is to orchestrate a wealthy individual’s succession plan. This is a particularly pressing concern for UHNWs who are keen to avoid internal family conflict. In essence, having an office of full-time advisors on hand to manage transitional challenges can be a worthwhile expense for many. The 2018 UBS Global Family Offices Report found intergenerational wealth management to be by far the most important consideration for individuals with a family office with 87% of those surveyed rating it as “very important” or “important”.
Beyond succession planning, the appeal of family offices has been driven by a range of other factors as well. Impact investing for one, has led many investors to take a keener interest in exactly which vehicles their money is invested.
How to approach working with family offices?
However, for any entrepreneur or investor looking to work with UHNWs, the proliferation of family offices presents a unique challenge. Namely, how to secure investment finance from secretive private entities who rarely publish details of forthcoming deals or even take meetings with individuals with whom they do not have a pre-established relationship.
Patience is a virtue when it comes to working with family offices; relationships need to develop organically over time. However, it’s likely that with more UHNWs opting to set up a family office, the industry will begin to broaden its outlook when it comes to finding exciting and bespoke investment opportunities.
One potential way that individuals can attract the attention of family offices is via an industry association like the Family Office Council. While the council does not release detailed figures the body reportedly represents more than 100 family offices with a combined $100 billion worth of AUM. Associations like the Family Office Council are the closest thing to a focal point in what is a loosely defined industry. Consequently, attending conferences run by these associations certainly represents one of the more likely avenues for initial introductions.
In the UK, the last decade has seen a significant rise in the number of UHNWs and this trend is expected to continue worldwide; Bloomberg predicts the number to reach 263,500 by 2025. However, with most of this growth coming from emerging markets, expect the next generation of family offices to be set up by wealthy individuals from a wide array of financial and cultural backgrounds. Consequently, while family offices might continue to become more commonplace, expect the sector to become more diverse as ultimately family offices are merely reflections of the families they serve.