Charles Darwin wrote that the strongest and most intelligent members of a species are not the ones that survive. Instead, the strongest and most intelligent ones are those “most responsive to change.” His observation is worth considering as family offices enter the new year.
Pressures and demands on family offices will continue to grow in 2022, driven by a wide range of external and internal forces and factors. Among those forces for change are:
- The continued rapid advancements of technology
- Increasing operational and data complexity
- Globalization of wealth
- Diversification into new investment types
- Rising personnel costs
- Ever-evolving expectations and demands of family members
- The ongoing trend towards Work From Home (WFH)
As a result, the family office industry is on the cusp of significant changes. Offices that do not respond—those that cling to past business practices, inefficient manual work processes, and old technology solutions like spreadsheets and siloed point solutions—will increasingly be viewed as behind the times and underserving their clients.
Family Office Trends for 2022
Preparing your family office for 2022 requires understanding current trends for family offices. Set your office up for success by looking ahead.
Let’s take a look at what will be some of the biggest trends of 2022.
Increasing Expectations from Stakeholders
The expectations of family members and office personnel will continue to grow in 2022: Family members will expect modern technology and the increased efficiency and personalization that comes with it. Family offices need to improve responsiveness and deliver accurate, real-time data and insights to keep pace.
The family office, by and large, has not kept pace with the technology gains achieved in other industries and everyday life. Despite the high levels of wealth being managed within family offices, it remains difficult for family members to get prompt access to the latest data about their net worth and other essential information. However, the general population already has easy access to similar information. Using mobile financial services apps has become de rigueur for many people.
Young adults who grew up with online banking have different expectations for access and convenience. In ultra-high net worth families, where second and third generations are becoming more influential, the demand will grow for a comprehensive, near real-time view of all assets, liabilities, and other information. These family members, who grew up using technology to simplify their lives and improve access and services, will demand technology advancement like mobile apps that provide anywhere/anytime availability of information and services such as mobile bill pay approval.
Many industries have faced labor shortages recently, and unfortunately, the financial services sector is not exempt from this pressure. The fact that family offices must meet growing expectations is also reflected in personnel recruitment.
The UBS 2021 Global Family Office report found that 39 percent of offices are experiencing upward pressure on salaries. Those pressures will grow in 2022 as a talent shortage worsens in financial services in general and family offices specifically.
Further complicating staffing issues is the continued popularity of Work From Home (WFH) policies. The ability to access data and software from anywhere in the world is even more important when office personnel are working from various locations instead of in a centralized office. Communication and teambuilding are additional challenges managers face when their teams work remotely.
This staffing challenge will further accelerate the need for modern technology systems that improve office efficiency and dramatically reduce mundane and tedious tasks that will no longer be tolerated by highly qualified personnel.
There will be increased reporting and documentation requirements for regulated multi-family offices (MFO). These requirements could also spill over to single-family offices (SFO) in some jurisdictions, especially if their assets under management are large enough. Compliance steps, such as detailed digitized documentation and audit trails, will be a growing focus, making operating costs rise for many SFOs in line with the costs of operating a regulated business.
Core to these requirements is the need for timely, comprehensive data to facilitate service, analysis, and planning and meet regulatory requirements. Detailed data will be needed to classify transactions and holdings by asset, situs, event, cost centers, social initiatives, and other factors. As families’ investments and wealth expand and spread across the globe in 2022, multi-jurisdictional data and reporting will increasingly come into play, placing further strains on offices’ resources.
Integrated systems that make reporting and analytics simpler, more accurate, and timely will become even more critical by eliminating the need for manual processes, multiple data entries, and spreadsheets to consolidate information from disparate systems.
Security, Security, and More Security
A Boston Private survey titled, Surveying the Risk and Threat Landscape to Family Offices, found that Family offices are not immune to cyberattacks: 26% of family offices have experienced a cyberattack, and 17% of offices experienced an attack within the last year. For both MFOs and SFOs, the threat of security breaches will continue to grow, along with the need for enhanced, best-in-class cyber security, business continuity, disaster recovery, and fraud protection standards.
There will also be an increasing demand for better safeguards around the privacy of information, including secure access on a need-to-know-only basis. Servers in a closet with substandard security or paper documents in file cabinets simply do not provide sufficient protection. This will be one of the biggest challenges for family offices in 2022 because to get security right, most offices will need to re-engineer themselves.
The Boston Private survey also revealed that family offices understand the importance of cybersecurity and will look for ways to mitigate the risk as 57% of family offices say cyber risk is one of their biggest business risks.
Mobility, Artificial Intelligence (AI), and Machine Learning (ML)
In 2022, improving access to information and insights developed using AI and ML tools and delivered via mobile devices will be seen as an essential best practice. Family offices will be called upon to provide more forward-looking insights and advice rather than merely reporting historical information. Mobile access to information, especially for family members, will be seen as the new standard.
To meet these requirements, family offices will need to leverage AI/ML and mobile technologies to improve information access and data analytics for better decision-making. Automating mundane business processes through AI and ML will also help with the staffing challenges highlighted above.
Family Office Management
More and more, outsourcing lower-value tasks to allow office personnel to focus on core strengths will be seen as another best practice. This delegation of work will include tapping into resources that can leverage AI and ML to automate business processes and provide detailed process metrics to raise the management of an office to a new level.
Focus on Environmental and Social Impact
Just as corporations have increased their commitment to sustainability and their environmental impact in recent years, families and individual investors will be interested in their total impact and socially responsible investments (SRI) in 2022. Families will continue to take their contributions and effects on society and the environment seriously. Younger generations in an office will also want more transparent reporting focused on these responsibilities, including Net Impact Reports that measure the sum of positive and negative impacts of their investments and philanthropy.
In the corporate world, Environmental, Social, and Corporate Governance (ESG) reporting shows a company’s impact on sustainability and enables the company to be transparent about the risks and opportunities of its actions. This will also become a baseline requirement for the modern family office. Many family members will want such reporting, not just for the entire office but on an individual level.
The factors listed here will make 2022 a year where many UHNW families will reconsider the value of the family office that serves them. There is a confluence of new technology and new challenges, which means alternatives will be seen as more viable.
The modern family office needs to provide holistic, comprehensive services to its family members to stay relevant and valuable. This new vision of the family office means office personnel will shoulder increased responsibilities, but technology is now advanced enough to support the office with evolving government regulations and routine processing tasks. With the proper infrastructure, the family office can be a cost-effective model where control remains with the family and its key advisors, where there is complete transparency and access to daily information, where task delegation is configurable, and where the highest level of privacy, security, business continuity, and disaster recovery are embedded.
The Family Office Exchange, in its 2021 report, highlighted what they called the evolution of the family office. This evolution requires the reimagining of the family office. This process has already begun, driven by all the factors discussed above.
In 2022, this evolution will accelerate. The financial markets facilitated the huge growth in family offices starting in 2010. Now we are entering a period of increasing challenges, requiring the realization of the family offices of the future.