Family offices face inter-generational challenges
Research into single-family offices by the Wharton Global Family Alliance has confirmed that levels of bureaucracy increase dramatically once wealth moves from its creators to succeeding generations.
The alliance is supported by academic institutions led by Wharton School of the University of Pennsylvania and Spain’s University of Navarra.
It surveyed 138 family offices across the world and conducted 40 face-to-face interviews to reach its conclusions.
In most cases, beneficiaries are majority owners of businesses, viewing their family office as an investment operation, combined with accounting, tax and estate planning. Softer issues, such as concierge services and philanthropy are well down the list of priorities.
Of Wharton’s sample, 29% of first-generation family offices have created a management committee, compared with 54% of those serving later generations. About 13% have an audit committee against 28% and 52% possess an investment committee compared with 70% for later generations.
According to the research: “In 33% of first-generation family offices, the head spends more than 80% of his or her time on investment activities. Only 9% of the heads of later generation offices spend 80% or more of their time on investment activities.”
First-generation investors are also more assertive. About 11% of family office heads say their function is aggressively to grow their wealth compared with 4% for later generations. Growth is the target for 36% against 26%.
Balanced management is pursued by 41% compared with 46% and wealth preservation by 10% against 13%, confirming that strategies become significantly more conservative after entrepreneurial founders hand the baton to their children.
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