Why more families are managing their wealth like a business

In the evolving landscape of wealth management, family offices are increasingly adopting a business-like approach to ensure the longevity and growth of family wealth. This shift reflects a broader trend where high-net-worth families are structuring their wealth management strategies akin to corporate governance models, emphasizing structure, transparency, and professional oversight.

The Rise of Family Offices

Over the past decade, the number of family offices globally has surged by approximately 31%, with South Africa experiencing a significant boom in this elite sector. As more families accumulate substantial wealth, particularly among first-generation wealth creators, there is a growing need for sophisticated management strategies that go beyond traditional wealth management services. Family offices provide a comprehensive solution, integrating investment management, estate planning, and legacy preservation under one roof.

Structuring Wealth Like a Business

Family offices are essentially large-scale family enterprises that require robust governance frameworks. These structures often include the establishment of a family constitution, the creation of various committees for different aspects of the family's wealth and interests, and the appointment of CEOs or directors to oversee daily operations. This business-like structure is crucial for managing the complexity that arises when dealing with multigenerational family wealth.

For multigenerational family offices, the focus is often on preserving and growing wealth across generations. This involves strategic planning to ensure the wealth remains intact and continues to benefit future generations. For first-generation wealth creators, the challenge lies in transitioning from traditional wealth management to the more comprehensive and structured family office model.

The Role of Family Offices in Conflict Resolution

One critical aspect of family offices is their role in maintaining family harmony and resolving conflicts. Destructive family conflicts can significantly erode wealth over time. Family offices often implement formal mechanisms for conflict resolution, ensuring that disagreements do not escalate into issues that could threaten the family's financial stability. This role is pivotal in preserving the family's legacy and ensuring that wealth is not only maintained but also used to foster positive family dynamics.

Single vs. Multifamily Offices

Family offices can be categorized into two main types: single-family offices, which serve one family's interests, and multifamily offices, which manage the wealth of multiple families. Multifamily offices offer the advantage of shared services and resources, making it a cost-effective option for families who may not have the scale required to justify a single-family office.

Multifamily offices can provide access to specialized services, including fiduciary, wealth management, and governance expertise, which might be challenging for individual families to maintain in-house. This setup allows families to benefit from professional management while retaining control over their wealth.

Implications for Wealth Management

The business-like approach of family offices has significant implications for the broader wealth management industry. As more families adopt this model, there is an increasing demand for professionals who can provide strategic advice and management services tailored to the unique needs of family offices. This trend is driving innovation in the industry, with financial institutions developing specialized products and services to meet the needs of these sophisticated clients.

Practical Takeaways for Family Office Professionals

- Embrace Governance: Establish clear governance structures, including family constitutions and committees, to manage complexity and ensure smooth operations.

- Focus on Conflict Resolution: Develop formal mechanisms for resolving conflicts to preserve family harmony and protect wealth.

- Consider Multifamily Models: Evaluate the benefits of multifamily offices for access to specialized services and cost efficiencies.

- Plan for the Long Term: Adopt a strategic approach to wealth management that focuses on sustainability and growth across generations.

As family offices continue to evolve, their role in wealth management becomes increasingly sophisticated, requiring a blend of traditional financial acumen and innovative strategic thinking. By managing wealth like a business, family offices are not only safeguarding wealth but also enhancing it for future generations.