The relevancy question

A good single family office is a reflection of the family it serves. When created, it is a custom fit solution whose structure, service offering and communication meet the needs of the family. But when the family, as a client, evolves, how does the family office adapt to the new needs, demands or preferences of its clientele? How does a single family office, designed for one generation, stay relevant when it’s serving the subsequent generations?

To answer these questions, I spoke with representatives from 16 multi-generational single family offices to discuss how client expectations and demands have shifted throughout generations and how the family office has shifted its service model in response.  We also spoke about how the perceived value of the family office has changed between generations and what the family office has done to remain integral to future generations.

Evolved Requirements –

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Amongst almost all of the family offices I spoke with, the service model was initially investment- oriented.  While not single purpose entities, the family office was driven by investments first, with other services such as financial advising, wealth management, tax and accounting, estate planning, and administrative services ancillary. When considering who created this first iteration of the single family office, it  makes sense that the wealth creator focused on continuing to create and grow additional wealth.

In the succeeding generations, the expectation of services provided has grown. Newer generations are more focused on wealth management, rather than investing. Where the initial generation may have been deferential on investment activity, later waves of family clients demand to be more involved in all the processes.

Structural change
In addition to subsequent generation’s involvement, communication expectations have shifted; as the clients become more involved in each service, they require higher details and more frequent contact to feel informed. As one family office representative stated, “The days of reviewing numbers ’the old-school way’ are over. The younger generations are demanding more graphs, visuals and higher level analysis and analytics.”

As a result, single family offices that were created to be investment partners for the family have needed dramatic shifts in structure. The growth in generations usually means growth in volume of clients, and the correlating increase in staff reflects the change in perceived value. Family offices have added staffing in financial planning and advising roles, and in some instances, externalizing the bulk of investment work to outside service providers.

More and different communications
Beyond the structural updates, the biggest change in service offerings has been communication. In reporting to new clients, family offices have focused on more visual communications, such as charts and graphs. The frequency  and detail of communication has increased as well. Family office independence has dwindled, as clients demand complete transparency and to be involved in nearly every decision.

Further, client communication has become a two-way street. Family offices have come to expect communication at all hours of the day, and have adjusted schedules around the family needs. Additional communication avenues are being utilized. Gone are the days of the quarterly review. Now, text messages, emails, phone calls and web portals are used non-stop.

What’s on the Horizon?
As family offices continue to evolve, the need for more boutique solutions will increase.  As one family office executive said, “In the age of instant communication where younger generations are increasingly involved in family office decisions, the ability to answer any question at a moment’s notice will be a crucial part of the family office service model going forward.”  Increased development of technology platforms will be vital, and the advice provided through those platforms is going to become more and more personal. When contrasted with the original, investment-focused family offices, the new service model is going to be more personal and intimate, and include consultation on technology and personal cyber security, individual careers and specific goals.

A family office that is successful at continuing to provide value to new generations will need to be strong in areas where they previously did not focus. This will include building relationships with clients, being transparent communicators, and being tech savvy. In addition to an overall family plan, each client will have an individual plan, focused on their personal goals, including careers, business endeavors, philanthropy, and direct investing. This process will need to be planned and start early, and educating not just the new generations but previous generation on what that family office succession planning will look like will be vital. The demands on the family office will be greater than ever before, and as a result, intelligent staffing design, as well as efficient use of external help, could be the biggest differentiator among those single family offices that meet the evolving needs of clients and those that don’t.

A Whole New World – Where’s the Risk?
With the dynamic world of family offices and the ever-changing needs of family office clients, successful family offices will be broadening their service offering, offering a more individualized approach, and increasing communication and technology. Change is never easy, and to make sure a family office is appropriately insured for growing pains, expert advice is needed. Seth Spreadbury serves as the National Family Office Practice Leader for Marsh & McLennan Agency, consulting hundreds of single- and multi-family offices on risk. 

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