A Comprehensive Guide to Navigating the Complexities of Modern Family Offices

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Amidst a backdrop of increasing global uncertainty, family offices are steering through multifaceted challenges. Underlying these external trends are the internal complexities of the family office, including aligning different identities and stakeholder needs, managing intergenerational wealth transfers and putting in place a structure of wealth stewardship that can last across generations.

 

To guide us through this evolving terrain, we had a chat with Martin Roll, a former Senior Advisor to McKinsey & Company, INSEAD Distinguished Fellow and a Global Family Office & Family Business Expert. On top of being a faculty member at The Wealth Management Institute (WMI), Martin holds a wealth of experience in advising Fortune 500 companies, family-owned businesses, and family offices.

 

You advise many family offices around the world. What are some of the key trends you see from your global perspective?

The global family office space is very dynamic, and in recent years, they have both broadened their scope and their focus.

 

Some of the key trends that I see are the following:

 

 

What roles can family offices play for business families? Is it primarily a wealth management vehicle?

A family office is a professional organisation or private office dedicated to managing the affairs and interests of business families including wealthy families and high-net-worth individuals.

 

It manages the diverse interests and the complex stakeholder relationships that often follow from being a family in business and/or a family with significant wealth spanning one or more generations.

 

Therefore, wealth management is important and is an integrated part of family offices.

 

However, in my experience, family offices play a very important long-term stewardship role.

 

Generational power shifts can be hard to manage as family members often find it hard to step aside and relinquish control to the next generation. The long-term viability of family businesses requires each generation to have high levels of ambition and motivation to drive family unity.

 

This is where a family office comes into play. Family offices can often be the long-term solution to mitigate potential conflicts during that sensitive process as they can serve as a centre of multiple, diverting family interests.

 

They can help to align family members, manage their ownership and diverse interests in the family firms, and serve as a long-term foundation of multi-generational performance driven by a strong purpose and legacy.

 

Family offices are in many cases better vehicles to address the growing complexity of structures and family relationships compared to simple wills or holding companies as succession tools.

 

In essence, a successful family office must have a clear view of what the family, the investments, and activities bring to the world, why it matters to stakeholders, how the family will structure and manage the family office, who in the family will be involved, and how governance will be carried out by the controlling family.

 

A successful family office is based on three pillars. A strong family office strategy is a careful and curated balance between the past, present, and future.

 

You have mentored more than 650 individual next-generation family members globally. How does next-generation interact with family offices and what roles do they play?

The next generation’s role is changing the future landscape of family offices. Around the world, a significant part of the wealth is expected to be passed on to the next generation before 2030.

 

Next-generation leaders from business families are always thinking about how and when to get involved with the family business. They can either work in the business, take on a governance role on the board and/or become responsible long-term owners. Another role would be to get involved with the family office and the stewardship that it provides.

 

Next-generation leaders are generally very interested in investing, impact and societal matters.

 

Family offices are therefore playing an increasingly important role in the venture capital space, providing startups and scale-up companies with valuable capital, expertise, and strategic guidance. They provide significant contributions to global entrepreneurship and the emergence of innovation ecosystems.

 

Furthermore, family offices have begun to be actively involved in impact investing (investments that aim to benefit society or the environment while generating a financial return), often driven by the next generations of business families stepping up to take a lead in this emerging space.

 

The global impact investment is significant and estimated to grow in the coming years. Family offices are well aligned and suited for investing as they have a long-term view and approach to managing assets, have fewer constraints, and have a larger degree of flexibility in selecting their investments.

 

I believe that the next-generation leaders will be changemakers across the global family office landscape and help reshape their roles as long-term stewardship vehicles.

 

How does owner identity and investor identity impact a family office’s strategy and approach?

Identity is an important concept that influences the long-term success of family offices. In summary, owner identity pertains to the unique characteristics and values of those who hold ownership stakes, while investor identity focuses on the preferences and objectives of those who allocate capital for investment purposes.

 

 

Owner identity and investor identity are distinct concepts that refer to the characteristics, preferences, and values of the individuals or entities who own and invest in assets, businesses, or financial instruments.

 

Both identities are important to handle carefully, as they influence the legacy of the capital holders (most often business families), strategic decisions, governance, financial management, asset allocation strategies, risk management approaches, and overall investment philosophies.

 

These identities play a significant role in shaping how these individuals or entities approach their financial decisions and investment strategies.

 

The family’s values, goals, and risk tolerance influence the investment philosophy of the family office. For example, if the family is risk-averse, the family office may adopt a conservative investment strategy, focusing on wealth preservation.

 

In contrast, if the family is more entrepreneurial, they may opt for a more aggressive investment approach, targeting higher returns and assuming more risk.

 

The complexity grows when the individual investors or family members within the family office may have different investment objectives. Some may prioritize capital preservation, while others may seek growth and aggressive returns. Balancing these varying objectives requires a customized long-term investment strategy that is balanced with that of the overall business family purpose and values.

 

Owners may have preferences for specific asset classes or industries due to their background or personal interests. For instance, a family with a history in real estate development may have a bias towards real estate investments.

 

The family’s governance structure and decision-making processes can vary widely. Some families may have a patriarch or matriarch making most decisions, while others may involve multiple family members in decision-making. The family office must adapt its approach to align with the family’s governance preferences.

 

Finally, the family’s attitude towards risk and their risk tolerance will influence the risk management practices employed by the family office, including portfolio diversification and risk mitigation strategies.

 

In summary, owner identity and investor identity are central to a family office’s strategy and approach. Customisation and flexibility are key as family offices strive to meet the unique financial and personal objectives of the owners and investors while preserving and growing their wealth.

 

Therefore, effective communication and collaboration between all stakeholders are crucial for success in managing a family’s legacy, purpose, and wealth across multiple generations.

 

This can be a balancing act for business family members and family office professionals.

 

 

What are some potential areas and trigger points of conflicts and what are the key issues in each conflict​? How FO professionals and advisors can deal with these issues?

Conflicts can arise in family offices due to a variety of factors, often stemming from the complexities of managing family wealth, business interests, and personal business family dynamics.

 

Here are some potential areas and trigger points of conflicts in family offices, along with key issues and strategies to address them:

 

In conclusion, family office professionals and advisors play a crucial role in preventing and resolving conflicts within family offices. They can facilitate discussions, provide neutral guidance, and help implement best practices.

 

Mediation by external experts may also be beneficial when conflicts become particularly challenging to address internally.

 

The key to long-term family office success is to promote transparency, establish clear policies and procedures, and prioritise the long-term harmony and sustainability of the family office with a dedicated management focus on the business family’s unity, legacy, and wealth.

Without citing whom, can you give real-life examples of this?

I have seen many types of conflicts and tensions in family offices and business families. Family business is “business with a heart” and emotions are often at play so diligence and patience are needed to ensure harmony, fairness, and unity across multiple generations.

 

Here are three recent examples from my global client base:

Case Study 1

 

Case Study 2

Case Study 3

 

What advice would you give to someone new to navigating FOs from around the world?

Regardless of the type of family office, remember that the role of a family office is to help business families achieve their purpose, aspirations, long-term financial goals and preserve their wealth over time.

 

Family offices act as trusted advisors, helping families make informed decisions about their investments, taxes, estate planning, and philanthropy. They also provide access to a range of investment opportunities, including private equity, real estate, and hedge funds, that are typically not available to individual investors.

 

One of the key benefits of a family office is the ability to provide personalised services that are tailored to the unique needs of each family. This requires anyone involved with family offices to be observant and diligent about how these matters are handled.

 

Family offices work closely with families to understand their financial goals and develop a customised plan that considers their risk tolerance, time horizon, and other factors.

 

This level of customisation ensures that families can achieve their financial objectives while minimising their risks.

 

Family offices take a holistic approach to wealth management, which means they look beyond short-term gains and focus on creating a sustainable, long-term strategy that can benefit future generations. This includes developing a comprehensive estate plan that ensures the smooth transfer of wealth to heirs and charitable organisations.

 

The long-term view is unique, and something that family office professionals should be very careful about. Working for a family office and with business families can be very meaningful and provide a deep sense of purpose.

 

Learn more about WMI’s Certified Family Office Practitioner

 


About Martin Roll

Martin Roll is a faculty at The Wealth Management Institute (WMI) teaching courses for family offices and developing leaders and talents from global family businesses, family offices and the growing family office ecosystem in Asia.

 

Martin Roll, a distinguished Global Family Office & Family Business Expert, brings decades of expertise as a senior advisor and facilitator to Fortune 500 companies, Asian firms, family-owned businesses, and family offices. With a focus on strategy, transformation, leadership, and family business issues, he has played pivotal roles in guiding numerous major Asian and global corporations towards their international prominence.

 

Renowned as the author of the bestselling book “Asian Brand Strategy,” he holds notable academic positions at INSEAD, Harvard, and CEIBS, shaping future leaders in family business and family office domains. Martin Roll has mentored over 650 Next Generations from diverse global business families and he directs a thriving INSEAD Next Gen Mentoring Program engaging 100+ participants annually. As a prolific writer, he anticipates the release of forthcoming management books on Family Office Strategy and Family Business Strategy in 20224. An accomplished keynote speaker, conference moderator, and executive workshop facilitator, Martin Roll’s impactful mentorship extends to scale-up/unicorn founders and leaders worldwide, actively contributing to the VC/PE landscape. Residing in Asia for over two decades, he serves clients across continents, and holding an MBA from INSEAD.

 

www.martinroll.com

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