Family office reports fail to address key concerns

• A general view of global family office reporting scene
• A closer look on important non-investment facets
• Intersecting pillars observed in the family report findings

The heterogeneity of family offices is well-known, and the content of family office reports in terms of depth, especially around investments, and reach has evolved over the years.

A general view of global family office reporting scene

The title and referencing in these reports offer a generalised portrayal of family offices that may be misleading when it comes to the striking differences between the various main types of family offices, as e.g., just to mention a few, the Global Family Office Report of Goldman Sachs refers to the institutional, commercial, multifamily offices, whilst the UBS or Citi reports focus on single family offices, according to their main clienteles, respectively.

More importantly, the focus predominantly remains on wealth and investment management, and less on family governance, successions, family legacy, and the next generation, despite findings increasingly portraying these as key family office concerns, challenges, and even priorities, especially the ones drawn from single and private multifamily offices.

This article aims to introduce a brief top-level analysis covering the entirely missing or not substantially or adequately addressed non-investment needs and requirements of family offices, with a focus on family governance, successions, family legacy, and next generation-related topics in global family office reports of Goldman Sachs, UBS, and Citi. 

A. The importance of family office reports

Family offices hold inherent competitive advantages, represent vast fortunes, and are agile in deploying their family capital, and beyond. Besides Sovereign Wealth Funds (SWFs) and religious institutions, family offices are top asset-holders globally and rank high regarding their capacity of both influence and impact. They represent major concentrated portfolios, collective sources of impact, social, cultural, geopolitical, and further intertwined influence factors. Consequently, they have been shaping and driving diverse sectors globally through their investments, collaborations, and other involvements in these for centuries. Hence, learning and understanding from family office reports what family office principals and their C-suite executives experience, see, drive, and expect about key trends, including investment trends, as well as strategies in all areas of their family office endeavours is of major interest for many within the industry, and much beyond. According to Mordor Intelligence, the family office market is at $124.28 billion in 2023 and is expected to reach $209.91 billion in 2028, and the number of family offices is growing each year globally.

B. Depicting family office worlds: Introducing the Goldman Sachs, UBS, and Citi family office reports 2023

This analysis draws insights from three in-house global reports that reflect findings from survey results, incorporating the thoughts  and expertise from the three firms’ teams of thought leaders.  These insights are drawn from their work with their respective clients and key advisors.

The Goldman Sachs report presents the perspectives drawn between 17 January  and 13 February 2023, from 166 distinct family office decision- makers. It combined their collective observations from working with family offices and family-controlled enterprises around the world, with a focus on commercial multifamily offices and family offices that most closely resemble institutions. More than 70% of their respondents have a net worth of at least $1 billion, and more than 90% have in-house investment management capabilities.

In contrast, the UBS report showcases insights drawn between 19 January and 5 March 2023, from 230 family offices, with an average net worth of $2.2 billion for participating families and, on average, their family offices managing $0.9 billion.

The Citi Global Family Office Report, conducted between 7 June and 9 August, surveyed family office clients globally using a 40-question survey, and drawing on responses from 268 participants. Half of respondents had more than $500 million in assets under management (AUM) and the other half had less.

C. Non-investment family office topics covered in global reports overview

The Citi report features topics such as family office primary focus, concerns and challenges. It also addresses family office services provided, professionalisation of the family office beyond investing, professionalisation of families, internationalisation of families, family office cost management, cybersecurity management, philanthropic focus, and the drivers of greater philanthropic impact. Citi adds contextual details to their findings by displaying the number of survey respondents’ along with their regional distribution, AUM, and which generation controls the wealth behind the family office with added regional breakdowns, and employee numbers.

The UBS report covers topics beyond investments, including geopolitics, family office main purpose, professionalisation, cyber security, as well as costs, and staffing. The UBS survey captured data on the number of survey respondents and their regional distribution, total net wealth of the founding family behind the family office, and how factors such as operating businesses, managed private wealth, and the number of staff members in the family office impact costs.

The Goldman Sachs report features mostly investment-related insights besides findings on operating businesses and whether next-generation of family members influence their investments. However, their contextual insights are more extensive than the ones in the other two reports and provide further understanding into the featured family office profiles. Beyond the number of surveyed family offices along with their regional background, they also added the family office net worth, structure for investment management service, size of investment and operational teams, whether the next generation members have an influence over the family office investment strategy, as well as which generation describes best the founding member or beneficial owner of the family office, and when the family office was incorporated.

Interestingly, the concept of legacy does not hold yet a marked presence in these reports. The Citi report solely uses the word legacy regarding family office legacy systems. The Goldman Sachs report mentions legacy when it comes to maintaining and preserving family legacy from one generation to the next, however it does not specify what this means and how legacy is defined. The UBS report does not mention the word legacy at all.

A closer look on important non-investment facets

A. Revealing gaps between top family office concerns, expectations, and current focus points

The Citi report insights suggest that (single) family office top concerns abound and transcend financial issues. These include preparing the next generation to be responsible wealth owners (60%) and ensuring shared goals and vision for the family (52%). It also highlights that worries have intensified since 2022, where preparing the next generation and developing a shared vision were cited as priorities by 51% and 24% of families, respectively.

Their findings also underline that professionalisation of the family office industry is progressing unevenly, and that insufficient leadership around succession planning is widespread. Family offices’ primary focus has shifted towards wealth management (74%) and investment management (55%) at the expense of fostering family unity and continuity (21%), as it often does in challenging times. In 2022, by contrast, respondents’ top priority was family unity and continuity (34%). This tendency is much less pronounced for third-generation families, who have weathered more storms and realise that they need to continue addressing critical issues even if others might appear more urgent for now. They prioritise fostering family unity and continuity twice as much as the average (41% vs 21%).

Regional characteristics included that family offices in Europe, the Middle East, and Africa were less focused on fostering family unity and continuity (13% vs the global average of 21%). Philanthropy was more than 10 times likelier to be a focus of North American (32%) than Latin American entities (3%). Ensuring shared goals was particularly likely to be a concern for families in Latin America (69% vs. 52% average elsewhere.) Managing leadership transitions was seen as twice as high in Europe, the Middle East and Africa (40% vs 20% average elsewhere). Strengthening family governance was weighted more heavily in Latin America (31%), where families tend to be larger. Families with larger family offices put somewhat more weight on managing leadership transitions, ensuring shared goals and vision, and preparing the next generation. Respondents’ primary focus was broadly similar across larger and smaller family offices. Smaller entities were slightly likelier to report an emphasis on fostering family unity and continuity, possibly due to less access to outside resources.

The UBS report suggests that there’s a mismatch between family offices’ top stated purpose of wealth transfer and the processes, governance, and risk management in place to ensure it. These gaps are especially true for smaller family offices, with assets of $100 million to $250 million. Just 42% of family offices have a wealth succession plan for family members, with only the same percentage having a governance framework. Smaller family offices with assets of $100 million to $250 million are especially likely to fall short of best practice in this way. But even in large family offices with assets exceeding $1 billion, only 43% have a wealth succession plan and 66%, a governance framework. Family offices lack processes around governance and risk management beyond investing, suggesting that they are overlooking other types of risks, including reputational risks. What’s more, only a third (33%) have a family office strategy, and only a quarter (26%) a succession plan for the family office to ensure continuity of staff and services. Under the regional spotlight for the USA, a listed top concern is family office processes, with 63% having a wealth succession plan for the family members in place. For smaller (single) family offices, with assets ranging from $100 million to $250 million, only 42% have a wealth succession plan for family members, and the same percentage have a governance framework.

Goldman Sach’s report showcases that most (75% globally) family offices support families with operating businesses and, of that cohort, 44% have a role in running their operating businesses. Directionally, it appears that families in their second and third generations are more likely to separate their family office and business activities. This report doesn’t hold specific datasets about family governance or successions, focusing primarily on the operational and investment aspects.

Intersecting pillars observed in the family report findings

A. Highlighting overall trends and shifts in family office non-investment strategies

Report insights suggest that family office top concerns transcend financial matters, including family governance, preparing the next generation to be responsible wealth owners and ensuring shared goals and vision for the family. Family offices focus on wealth and investment management, and less on family unity and continuity. Findings show that there is a clear gap between goals and reality, as well as between the family offices’ top stat­ed purpose and the measures taken outside investing to help fulfil that purpose. While most say that they consider supporting the generational transfer of wealth as their main purpose, the survey reveals how few have the necessary processes, governance, or risk management in place.

Family offices clearly expect more than wealth management from their family offices. Executives should not therefore deprioritise family unity and continuity for too long. Professionalisation beyond investing showed mixed results, with the most concerning issues being the insufficient leadership succession planning for families and family offices alike, and the lack of educational programmes for the next generation.

B. Insights into the family office non-investment landscape and sentiment

As one of the UBS survey respondents mentioned: “It’s hard to talk about values, and especially so for the finance professionals who are used to dealing with less emotional topics.” Indeed, one of the non-explicitly expressed findings of these reports is the fact that most family office professionals hold financial and corporate business backgrounds and therefore their aim is to institutionalise the family office to make it more akin to what they are used to control. However, an investment-related and corporate way of thinking, as well as risk mitigation mechanism, cannot be applied to family dynamics or to helping a family in articulating values and purpose, and guiding family members on their governance journeys, including successions.

Given the importance of family offices' roles in managing, preserving, and transferring wealth and financial assets, one can't adequately cover these without acquiring some level of proficiency in understanding investment and asset portfolio allocation and management concepts. However, these areas have been covered extensively by industry professionals as well as in reports for decades. Family office primary concerns, focus points, and challenges increasingly emphasise the explicit need to address family governance, successions, and next-generation topics. This will enhance the success of the family, their family business (group), and other activities, ensuring their longevity and overall legacy.

Zita Nikoletta Verbényi, founder and legacy aesthete at The Legacy Atelier™.