Investment and wealth managers accustomed to pushing products will need to develop empathy for wealthy families to penetrate this increasingly lucrative customer base.
The question of transferring assets and responsibilities to the next generation is a perennial problem for wealthy families, highlighted by business families like the Murdochs and TV shows like Succession.
For US asset management firm Northern Trust, working with families to arrange a smooth transition is one of the company’s key responsibilities, and managing investments efficiently is just one part of its broader mission. That’s what I think.
During a visit to the bank’s European headquarters in Canary Wharf, London, Dave W. Fox Jr., president of Northern Trust’s global family office business, spoke about the challenges faced by many wealthy individuals. Ta.
The main problem, he says, comes when families “don’t prepare ahead of time” for the transfer of power. “I recently chaired a panel discussion in the US about Family Office 2.0 and how to effectively implement that generational transition in practice,” he recalls. “One of the things that came up was the idea of the family office as an organization run by the father or grandfather. It was opaque, no one could see inside it, and when things fell apart, I can’t give an opinion on that.”
Carrying on a family legacy can be a burden, he suggests, with many families unable to bear the weight. “Some people rise to the occasion,” he says. “Some people just want to go on vacation and drive a nice car.”
A typical answer to this challenge from young families concerned about whether their business or investment interests will survive into the third or fourth generation is to establish a “satellite” office. “They’re allowing the center to continue doing taxes, accounting, and maybe some co-investments,” Fox says. “But they also say, ‘My philanthropy and all the sensitive emotions that I want to do every day. You’re not doing that. I don’t want my people to do that. I do it because they understand my needs and concerns.’
clamp run
This causes problems in the extended family and worries that the entire clan will fall apart. He talks about one of the clients for whom Northern Trust manages “tremendous wealth, billions of dollars.” There, after the death of the family patriarch, one of the leaders of the next generation wanted the family to devote themselves exclusively to philanthropy, but their sibling rivals were “doing much more” as entrepreneurs. With the spirit and investment in business and the like, several new branches were established by young family members, apart from the existing core business.
“I’ve seen it happen in really large families for a long time,” he says. “They’re falling apart, especially the really, really wealthy.”
Instead of waiting until the family founder dies, he says, plans need to be made in advance to take over power at the top of the organization. However, making succession decisions independently can prove more difficult than expected for family leaders. “Their favorite child may actually be the child least suited to run the family business,” he says. “But they like being together because they’re interesting. So I don’t think the head of the family is always the best person to decide who the successor will be.”
Famous TV dramas about sibling rivalries have some basis in reality, but they don’t necessarily reflect the inner workings of extended families. “Obviously, the Murdoch-style stories are much more interesting, where Murdoch is making fun of kids and stuff,” Fox said. “But most of our families plan well in advance.”
Despite the fragmentation of most corporate groups, a common mission statement is prominently posted at the headquarters, along with photos of key family members, to help foster cohesiveness. But he’s also eyeing new technology to help increase his family’s legacy.
attractive idea
Northern is also working on StoryFile technology developed by the USC Shore Foundation. This allows today’s youth to dialogue with previous generations, including Holocaust survivors.
“As this technology advances further, future generations will be able to actually sit down with the original creators and ask, ‘Why did you get into this business?'” For you. What was the turning point? Why are you so passionate about charity work? ”
Young family members can get their questions answered directly from the founders. “I think this will revolutionize the way family offices communicate their mission statements to their children. Some families are already fascinated by the idea,” Fox says.
John Schumann, partner and head of wealth transfer at US firm Corient, said the move to “softer” issues of family governance is relatively recent for the largest wealth managers.
“Large investment managers have traditionally focused on investments, but they are now recognizing their clients’ needs and demands for proper counseling in succession planning,” Schumann says. We believe it is a mistake for asset managers to start with the drivers of portfolio management. “You have to start with the client’s goals and objectives. Everything comes from what the client says,” he says. “A portfolio is simply another strategy to further a client’s objectives.”
He believes this is a transformation occurring across the wealth management sector. “The investment industry is waking up to the idea that just having an investment strategy that is not connected to the client’s overall objectives is not going to be valued by the client, and is actually a product that should be purchased,” Schuman said. I’m thinking.
With an estimated $70 trillion in wealth transfers to the next generation, “it makes good business sense to discuss succession planning with the next generation to ensure continued control of these assets,” he said. added.
high profit margin
However, rival thinking remains a core focus for major wealth management firms, with succession planning and next-generation transfers creating new marketing opportunities for many firms, and managing funds for high returns. This suggests that
“Wealth management firms have always had a strong focus on investment management because advice on how to invest is at the core of the industry,” said the former head of private wealth solutions at HSBC, now head of the Wealthspire Advisors family.・Heather Flanagan, Director of Office Services, said: In New York. “In recent years, there has been a focus on addressing and managing comprehensive advice and services for individuals and families across all aspects of life, as the perception of investment management has become commoditized.”
Developing strong family-centered advisory capabilities is a way for companies to articulate their “unique value” and target the customer segments they believe they can most effectively serve, she said. I say. While servicing family offices will become a strategic priority for private banks and investment managers, Mr. Flanagan urges these parties to develop multiple products rather than continue to push products, which is most people’s instinct. It encourages them to learn how to cope with generational family thinking. Manufacturer.
“A lot of our industry is about encouraging people to sell products,” she admits. “However, if a company really evaluates these additional services and determines that they are essential to the company’s financial services offering, then investments are made and these service departments and experts within the service department will be evaluated appropriately.”
Fund managers are increasingly targeting family offices. “What we’re seeing in family offices is that they carry on the personality of the founder,” said Charlie Jewkes, head of global wealth firm sales at asset management firm Aviva Investors. “So you have to really resonate with that identity to provide them with an investment strategy.”
He cites the example of a large family office client in continental Europe. “Everything they do is about sustainable investing, that’s what they do and what they clearly want,” he says. These large family offices always have teams of fund selectors who closely monitor their products. They are not easily satisfied, especially when it comes to ESG funds.
“They are acutely aware of greenwashing,” Jewkes said. “We took a closer look at the brands they invested in and found that they chose really high quality things. Every family office is different, but they believe in what they do with the space. I want faith and respect.”
