The Role Of Family Offices In the World Of Wealth Management And Preservation

Effective management and preservation enable the family to provide financial security for themselves and subsequent generations, delivering the foundation to evolve and grow in the respective economic environment, while facilitating the ability to establishing a meaningful and rewarding family legacy.

Evolution

To analyse the role of the family office in this regard, let’s take a closer look at family offices and some of their key functions.

‘Family office’ is a term that dates back to the late 19^th century, but the concept of the family office has altered greatly over time. Defining a family office can be a complicated matter, as each is individual in its own right, with a unique set of goals, values and expectations. As a general description, a family office can take multiple forms, and is commonly a structure or company designed to facilitate a cohesive approach to professional and personal services for individuals and single high-net worth families, while also offering personal services such as managing household staff and making travel arrangements. Typically, this will involve managing their investments, properties and structures.

Since their establishment in the late 19^th century, we have witnessed a great evolution in this sector, with the modern version of the family office delivering a coordinated package of services – from planning, which can take into account tax, legal and risk management strategies, to assisting with trusteeship, closely held business management, and estate planning. 

As part of this evolution, family offices have been required to adapt to:

• An ever-changing economic environment; whether that’s inflation, fear of recession or geopolitical uncertainty.
• The social environment, which has materially evolved with the emergence of sustainability, ESG, impact and the ever-present philanthropic and charitable activities.
• The financial environment, which enables family offices to save, invest, manage risks, and conduct transactions efficiently.

Over the years, we have seen growth in sophistication and professionalisation as the family office branches out to support the ever-changing needs of the next generation and a shift in attitude towards asset allocation.

In recent years, ESG, sustainability, impact investing, and philanthropy play an increasing role. Interestingly, the UBS Global Family Wealth Report 2023 picked up on this shift, stating that “at a time when inflection points spanning policy rates, inflation and economic growth appear likely, family offices are planning the biggest modifications in strategic asset allocation for several years”.

Key Functions

Although each family office is unique in its own sense, with a different set of goals, values and expectations, collectively they share a common aspiration around effective wealth management, wealth preservation and philanthropy, and play an important role in the global economy.

Family offices typically oversee their own investment portfolios. They develop investment strategies, allocate assets, and select investment vehicles to maximise returns while managing risk. This can include managing a diversified portfolio of stocks, bonds, real estate, and alternative investments.

Some of the key functions of the family office are:

• Risk management: Risk is a key area for family offices and effective management is essential to assist families with identifying and mitigating financial risks. Having effective policies and procedures allows assessment of various risk factors, such as market risk, liquidity risk, and credit risk, and implement management strategies to protect the family's wealth.

• Tax planning and optimisation: One of the core functions of family offices, working alongside their professional advisers, is tax planning. They work to minimise liabilities through strategies such as tax-efficient investment structures, estate planning, and philanthropic giving.

• Succession planning: Family offices assist in structuring and implementing succession plans to ensure the seamless transfer of wealth from one generation to the next. This includes strategies like setting up trusts, creating wills, and managing the distribution of assets.

• Wealth preservation: Beyond financial matters, family offices also address non-financial aspects of wealth preservation. This can include education and governance for family members, philanthropic initiatives and managing family values and legacy.

• Family governance: Family offices help create and maintain family governance structures to facilitate effective decision-making, conflict resolution, and communication among family members. This can be essential in preserving wealth across generations.

• Lifestyle services: Many family offices provide concierge services to address the family’s lifestyle needs, which may include managing private jets, coordinating travel plans, and overseeing household staff.

• Philanthropy and charitable giving: Family offices can help families establish and manage charitable foundations, donor-advised funds, and other philanthropic initiatives, allowing them to make a positive impact on society while optimising the tax benefits of their charitable activities.

• Privacy and security: To ensure the privacy and security of the family's financial and personal information, family offices are often involved in implementing cybersecurity measures, legal protections and strategies to maintain discretion.

• Reporting and communication: Family offices provide regular financial reporting and updates to the family members or officers, helping them stay informed about their financial positions and strategies. We have seen an increase in the availability of specialist software and platforms, and also the use of AI to support clear communication, which is essential for building trust and maintaining a strong family relationship.

When considering the above or a blend of the above, one of the key advantages of having a family office is the ability to provide personalised and tailored solutions to meet the individual needs of their family.

Personalised Approach

By taking a holistic approach to wealth management, family offices can develop comprehensive strategies that align with the goals and values of their family. This personalised approach allows for a deep understanding of the family's financial situation, risk tolerance, and long-term objectives, enabling the family office to make informed decisions.

This approach is often achieved through the family’s access to a network of trusted professionals, including lawyers, accountants and investment advisers, who can provide specialised expertise and guidance.  

Their network allows family offices to navigate complex financial and legal landscapes, ensuring that the family receives the highest level of service and support to inform their decision-making.

Jersey, for example, has been recognised as a jurisdiction that can deliver this valuable network of experienced professionals with an established track record built over generations, demonstrating its ability to support family office strategies.

In addition to their core wealth management services, family offices also play a vital role in wealth preservation by facilitating intergenerational wealth transfers. By working closely with families and their heirs, family offices help to educate and prepare the next generation for the responsibilities and challenges of managing wealth, such as providing financial education, mentoring and guidance, to ensure a smooth transition of wealth from one generation to the next.

Governance

In recent years, we have seen a greater focus on governance, both family and corporate, which helps to unblur the lines and define roles and responsibilities of key members and executives. It also enables the family to set out clear criteria for future succession while also defining what success looks like and how it is measured.

This governance framework needs to be flexible to enable a nimble approach to business, and include the capabilities to adapt in an evolving political and social environment.

Although we see a greater focus in this area, many have yet to incorporate a governance framework to the family office and it’s something which is key to effective succession planning.

When considering, for example, the impact of the COVID-19 pandemic, which severely challenged the risk and crisis management of many, while amplifying the strengths and the weaknesses of the boards and management within family offices, it highlighted the importance of effective governance to enable business continuity in an unprecedented environment.

Multifaceted Role

Family offices play a multifaceted role in the world of wealth management and wealth preservation. They provide a holistic approach to managing not only financial assets, but also the broader aspects of family wealth, helping to ensure its long-term sustainability, continuity, and a lasting legacy across generations.

Jersey, a stable and trusted jurisdiction, continues to have increasing involvement in the family office market; its expert workforce has a deep understanding of the wealth management industry and cross border issues.

Robert Moore
Director - UK