Balancing family office returns and family unity

• Italian family officer emphasises finance over next-gen involvement due to potential complications and reduced returns
• UK family officer balances founder’s reluctance with family’s desire for succession planning
• Family offices should broaden their focus, including family governance, for long-term success and unity

The CEO of an Italian single-family office (SFO) and the CEO of a British SFO, who is behind a diversified family group, were both entrusted with the weighty task of securing their family principals’ legacies. The former thinks that the early involvement of the next generation could complicate matters and harm returns, while the latter acknowledges the importance of engaging the younger generation for values and unity.

Italian family officer focuses on finance, excludes next-gen

The Italian family officer, who has 15 years of experience, prioritises financial focus over next-generation engagement. He highlighted his company’s successful track record in diverse investments, and the international profile of its family office principal. He described the family office’s efficient structure as being not too large to consolidate all services in-house, but not too small to outsource everything. He surrounds the family office with the best advisors and practitioners.

When asked about family legacy, governance, and succession planning, the family officer revealed that he deliberately excluded the next generation in his client’s family office. He elaborated that his principal’s children held very different interests, and that it is best not to involve them. It is an ideal scenario for him, for the family office and the family principal.

The family officer explained that introducing the children into discussions would only lead to complications and lower returns, drawing from examples of family offices with minimal returns due to next-gen involvement. He pointed out that he knew a few large family offices where annual returns were only around 4% due to the involvement of the next generation. According to The North America Family Office Report 2022 from Royal Bank of Canada, North American family-office investments recording 15% average portfolio returns, compared with 13% in Europe and 10% in Asia-Pacific.

The family officer said: “No, we don’t want any of that because finances are very complex. It’s best to leave them to the professionals. Otherwise, the kids would soon start asking me questions and expressing their opinions on everything.”

He aims to avoid low returns, and not fall into the predicament of not being able to hand over anything substantial to the third generation. He advised his principal against engaging their children and to simply provide them reports to update them.

UK family officer addresses succession amid founder’s reluctance

The other family officer looks after a British principal’s SFO. Succession and next-generation involvement are topics of growing discussion within the family office, but the principal currently places no priority on planning for these matters. Although his wife and children are eager to explore their future role, the family office CEO is keen to balance the family’s desires and the founder’s reluctance. Despite conducting extensive research and seeking advice from various experts on succession planning, the family officer feels frustrated by the lack of progress. The founder’s anxiety, meanwhile, was focused solely on business and investments.

Nevertheless, the family is in good hands because under the guidance of the family officer, they are able to discuss all-important family matters, including successions. The family officer is deeply concerned about longevity, focusing beyond his own tenure, returns, and successes. He understands that if the family is kept united, they will be successful in all their activities.

Broden focus for long-term success

The latest UBS Global Family Office Report highlights that “while (single) family offices aim to support generational transfer of wealth, most have yet to develop a succession plan for family members. What’s more, many fall short of best practices in managing risks beyond investing and having a governance framework.”

The family office C-suite executives are well-trained in the finances and legalities of operating a family office. However, they may have difficulties in their roles relating to interpersonal family dynamics.

The two family officer cases here offer different approaches to achieving and maintaining a family office’s success and longevity. The first family officer, while focused on financial and operational aspects, may have missed opportunities for open dialogue about succession and next-generation involvement. The family officer prioritised securing his position and excelling in investments and operations over long-term perspectives. He resisted different perspectives and was overly self-assured of his professionalism. The officer may have advised against involving the younger generation due to concerns about results, or kept the family at arm’s length to avoid work.

To ensure long-term success, family officers should expand their horizons beyond investments and operations to include family governance, addressing misunderstandings, and relying on professional methods.  As family officers begin to further tap into the services that their principals and their families require from them, it is critical that they assess and evaluate each other’s stories and any added contextual nuances. Any wrong conclusions can lead to misguided decisions, potentially affecting the longevity of the family office and the families they serve.

Zita Nikoletta Verbényi is the founder and legacy aesthete at The Legacy Atelier™, and she also sits on Wealth & Society’s Global Advisory Board.