Family offices straddle a line between the trappings of pre-millennium wealth management and the demands of an increasingly future-oriented market. Staying ahead of industry trends, like the ones covered in this article, will help wealth managers of single- or multi-family enterprises better serve the goals, interests, and aspirations of their clients in the coming year.
Trend 1: Allocating for a Greener Tomorrow
When the United Nations’ Intergovernmental Panel on Climate Change released their 2017 climate change report indicating we had reached a potentially catastrophic 1.5 degree C increase above pre-industrial levels, the markets took note. In response, family offices and high-net worth (HNW) investors are actively seeking out “greener” investing pastures. As reported by Financial Advisor Magazine, a recent Campden Wealth survey indicated that 70% of investors believe the move toward net-zero carbon emissions is “‘the greatest commercial opportunity of our age.'” Additionally, nearly 25% of investors reported that they intend to actively avoid investing in companies that contribute to climate change. This sudden, exponential growth in the environmental, social and governance (ESG) sector has tempted some private companies to “greenwash” their assets to make them more attractive. In response, the SEC formed the Climate and ESG Task Force within its Division of Enforcement in March of 2021, with the goal of identifying misconduct in this sector.
Trend 2: A Shifting Liquidity Landscape
Often, financial professionals tend to think of liquidity events in terms of the three D’s: death, divorce, and distress. However, a Beneficient survey exploring the attitudes and behaviors of high-net-worth investors in alternative assets showed that this long-held assumption may no longer be valid. Instead, the majority of respondents invest in and seek liquidity for alternative assets in order to pursue new investing opportunities. This trend is underscored by respondents’ preference for preferred equity or common equity over cash when seeking liquidity.
Trend 3: Increased Focus on Cybersecurity
Always a leading concern in the financial industry, family offices are particularly vulnerable to cyber threats. As cyber-terrorists develop more sophisticated schemes, family offices are generally less equipped to deal with them than their corporate equivalents because of a general lack of expertise and organizational infrastructure. Traditional threats like ransomware and phishing are joined by more sophisticated scams, like “spear-fishing,” which uses sophisticated email hacking and mimics the voice and tone of someone the victim trusts in order to gain personal and financial information. To operate at the highest level of security, family offices will need to embrace aggressive cybersecurity measures to avoid catastrophic data compromises and ransomware situations.
Trend 4: Closing the Advisor-Investor Knowledge Gap
A successful relationship between CIOs, investment bank analysts and associates, and the families they serve depends on open, consistent communication and aligned knowledge of the markets. Unfortunately, those two critical elements are often lacking in the family office dynamic, according to a 2021 study from the Investments and Wealth Institute. In findings related to the pandemic financial crisis, most financial professionals assumed their clients understood market history well enough to respond to the crisis appropriately on their own. However, the survey showed that investors overwhelmingly took no steps to respond to the crisis, demonstrating a clear disconnect. Those who serve family offices can help close this understanding gap by constantly educating themselves and their clients on the suitability of the market to the clients’ needs.
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At Ben, we have crafted a suite of reliable, ongoing liquidity solutions for investors in alternative assets. Our process seeks to give investors access to hard-earned investment capital, with liquidity provided from our own balance sheet. Contact us today to schedule a consultation with our expert team.