4 key family office trends to watch this fall

November 1, 2023 6:40 PM

The ranks of family offices — wealth management firms serving all the financial needs of an ultrahigh net worth family (or multiple families) — have grown rapidly in recent years, as have their needs.

"Right now, everybody's talking 'family office.' You hear it from every major bank, but people weren't doing that 20 years ago," Brien Biondi, the CEO of Campden Wealth, North America and the Institute for Private Investors, said in an interview. Campden is a "community of families" formed around three decades ago and provides networking and research serving family offices.

To differentiate on the market for serving family offices — which typically a family can form if it amasses at least $100 million of investable assets — requires keeping up with not only the age-old problems that plague UHNW clients, such as wealth transfer, family interpersonal dynamics and succession planning, but also the latest trends.

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Below, industry experts shared with Financial Planning four trends they are seeing in the family office world now, and what they mean for financial advisors.

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Sudden wealth syndrome

The super rich might seem invulnerable, but many family offices suffer what Aaron Bates, the head of ultrahigh net worth and growth strategies at Bernstein Private Wealth Management, calls "sudden wealth syndrome" — when new money lacks generational expertise in handling their elite status and feels overwhelmed.

"Over the last decade, we've had a boom in family offices, driven predominantly by a boom in M&A transactions … which resulted in a lot of first-time family offices," Bates said. When a family sells their business, he added, they are left with a sizable pile of money or investable assets. This becomes the basis for a family office, which in effect replaces the family's former business. "And that is a traumatic experience. We don't want to understate that," he said of business owners' decisions to sell.

The market turmoil of 2022 led many family offices to doubt their former approach to handling investments and operations of their business alone, and seek help either from other peer family offices or from partner firms, Bates said. "You have a rising interest rate environment, a lot more volatility in the equity markets, and candidly last year in the bond markets, which I think have driven a lot of first-time family offices to think more around, 'Oh my gosh, everything I did in the last 10 years since I sold my business, is suddenly not working.'"

This creates opportunities for wealth managers to step in and help new-money families with educational materials and governance structure, for example. "There's a desire to really be more educated and make very intentional decisions, not alone, in tandem with others, that will help lead to better outcomes."

Fine art

Other in-demand services that are trending include support for purchasing, storing, appraising and lending fine art, according to Chelsea Smith, the senior national director of family office services at Bernstein Private Wealth, pointing to the asset class's popularity as an alternative investment that is perceived as "uncorrelated to the markets."

"The art world is very opaque to the average person," said Judy Spalthoff, the head of the family office solutions group at UBS, in an interview. "'How do I make a great choice? How do I know that that piece of art on the wall has a value? And then, what is that value? Is it a million dollars or is it $10 million or $10?'" she said.

UBS recently hired an art specialist to whom advisors can refer family office clients who may be new to the art world, Spalthoff said. The specialist will take a client to an art fair and educate them on how to understand valuing art and the differences between galleries, among other topics, she said.

Tech, cybersecurity and compliance needs

"In all of our conversations, all types of family offices, everybody is struggling with building an efficient and sustainable middle office," Daniel DiBlasio, the head of Morgan Stanley Family Office, said in an interview, adding that the wirehouse had begun its young family office unit around five years ago and learned from a listening tour of family offices that they often needed highly customized tech solutions for their sophisticated financial needs.

"Family offices tend to be more heavily invested as a percentage, and obviously in terms of absolute dollars, in illiquid investments, and the challenges of all of that. And those challenges spread across multiple entities, multiple generations — it gets pretty complicated," he said.

Jay Goetschius, the managing director and head of Florida at multifamily office Pitcairn, added that many firms needed help keeping up with tech and cybersecurity as well as compliance. "From a compliance regulatory standpoint, there is an increased interest and focus on the government asking family offices to be more transparent than they ever have been," he said.

"And with that, in general, there's more resources that need to go toward staying in compliance. Determining whether or not you have registered funds, whether you're running a proprietary fund or not, or whether you're relying on what we call open architecture."

Families banding together

Biondi said he noticed family offices, as they attempt to become "more sophisticated" enterprises run like institutions, stop outsourcing their investment needs. "The families don't want to pay fees. So they're trying to go out, and find the right talent, bring them in so they can do their own transactions."

To further save on costs, Biondi sees more families coming together in small groups of around six or seven families to invest together. This is especially true for less ultrarich families.

"They don't need everyone to have their own accountant, with seven families. So you see a lot more families working together to reduce cost, and hire that talent," Biondi said.

"So you can go out and hire that person for $500,000 from J.P. Morgan and now he's working just for you — but he's working for you and six other families."