The role of Family Offices in wealth management and economic growth

Globally, we have witnessed the dramatic growth in the use of a Family Office (FO) approach for managing private wealth and wealth transfer of family enterprises.

In the recent STEP SA seminar, Associate Professor Chris Graves (University of Adelaide) and Brad Simmons (Mutual Trust) provided valuable insights into the FO approach and the strategic relationship between family enterprises and their professional advisers.

“Family Office is the functional team that supports families with intergenerational wealth. That support can extend to family advisory, family governance and decision-making processes, education of family members, intergenerational wealth transfers, asset protection, philanthropy, financial administration, tax compliance and investment management. A family office is not necessarily a legal entity, physical location or organisational structure, although it will often take on many of these traits as a family’s wealth grows.” – Mututal Trust

Purpose of wealth

Over the past decades, the dialogue between advisers and families shifted from merely acquiring increased wealth to including a focus on a holistic approach to wealth and a deeper understanding of family dynamics. High net worth families are encouraged to set a purpose for wealth and open the channels of communication between generations and family members.

Family Offices are now characterised by their professionalised practice and the implementation of a multi-disciplinary approach to wealth by establishing what matters most to families. This results in a focus on building a holistic family-based relationship model with gender balance in both client and adviser.

The five pillars of wealth:

1. Community Impact

The family’s ability to use its wealth to perpetuate entrepreneurial spirit by sustaining its operating business and supporting other entrepreneurs through the provision of both capital and talent.

2. Financial Prosperity

Growing financial capital to provide for the needs of the current and future generations of the family.

3. Entrepreneurship

Giving the family’s time, treasure, talent and ties to make a positive impact on society through creating jobs, supporting philanthropic causes, serving in the community, and paying taxes.

4. Family Unity & Harmony

Strengthening family relationships, values and trust, building communication, problem-solving and the ability to undertake roles and responsibilities using each person’s strengths while valuing their differences.

5. Learning, Engagement & Fulfilment

Enabling individual family members to pursue their personal aspirations through education, providing opportunities and following their passions so they can lead productive and fulfilled lives.

The role of Family Offices

Providing advice and services for high net worth families under a comprehensive wealth management plan is far beyond the capacity of any one professional adviser. It requires a well-coordinated, collaborative effort by a team of professionals from the legal, insurance, investment, estate, business and tax disciplines to provide the scale of planning, advice and resources needed. Most Family Offices combine asset management, cash management, risk management, financial planning, lifestyle management and other services to provide each family with the essential elements for addressing the pivotal issues it faces as it navigates the complex world of wealth management.

Family Offices not only play a vital role in activating family wealth but also have significant contributions to the local economy. A recent report by Associate Professor Chris Graves and Dr. Francesco (University of Adelaide Business School) has shown that Family Enterprises drive impact in key areas of entrepreneurial legacy, financial wealth, community impact and tax revenue, specifically providing:

  • 55% private-sector employment, and 48% private-sector wages paid
  • $515 – $695 billion invested outside of operating businesses
  • $1 billion in philanthropic contributions
  • $3.6 – $5 billion in taxes paid by family enterprises
  • 7% of the financial support to commercialisation of research and development and restructuring of existing businesses

The importance of people

With family enterprises, the potential for conflict is greater, and if not governed and managed well, it can be prone to failure.

Global research shows that 7 out of 10 wealth transfers fail within three generations. The majority (95%) of family wealth transfers’ failures are caused by non-financial issues, 60% of which are breakdowns in family communication and trust, followed by failing to prepare wealth inheritors (25%) and failing to define the purpose of wealth (12%).

It’s important for family enterprises and their advisers to recognise that conflict is inevitable.

Families are all about people, and the objectives of Family Offices are to meet their needs essentially.

As concerns about intergenerational wealth preservation and succession planning within family businesses continue to rise, wealthy families are increasingly evaluating the benefits of setting up a Family Office.

Since the complexity of managing the family’s wealth grows, particularly in emerging markets, there is no doubt that Family Offices will play an even bigger role in helping families avoid future conflicts and ensuring there is a better alignment of interest between financial advisers and the family.

Reference: STEP SA, The University of Adelaide Business, Mutual Trust

Talk to our KMT adviser for more information about Family Office services.

About our adviser: Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 30 years. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your business succession planning for your family business.

The article is provided for general information purposes only and is not intended as professional advice. Readers should not act on the information contained therein without professional advice from a suitably qualified accountant or financial adviser.