UBS.  Family offices cheat their own generational wealth transfers

Family offices say their primary goal is to transfer wealth to family members, but most are not well equipped to do so, according to the latest annual UBS Family Office Report.

The main objective of most of the 230 family offices surveyed by UBS is to support the transfer of wealth from one generation to the next (63 percent) and to provide income to family members (55 percent). Family offices were also created to diversify their investments away from the business that made the family wealthy in the first place (41 percent) and to help reinvest capital generated by the family business (33 percent).

However, family offices need structures to achieve these goals, and many do not have them. Only 31 percent of family offices said they exist to “manage administrative tasks.”

They are family offices working more closely with investment banks and asset managersand are praised for being sophisticated investors. But they need to pay more attention to everything outside the investment portfolio—succession plans, cybersecurity and costs—or risk failure.

“There is a gap between the core objectives of family offices and the measures taken outside of investment to realize that objective,” the UBS report said. “The survey shows how few have the necessary processes, governance or risk management in place.”

Only 42 percent of family offices have a family wealth succession plan, and a similar percentage have a governance framework.

Greater wealth does not necessarily mean better preparation for intergenerational wealth transfers. Smaller family offices with $100 million to $250 million in assets are particularly likely to fall short when it comes to best practices, UBS said. But even among large family offices managing more than $1 billion in assets, only 43 percent have a wealth succession plan and 66 percent have a governance framework.

Improving management can have a significant, positive impact on the family. Cyber ​​security, UBS noted in its report, is an example where family offices need to improve. More than a third (37 percent) of family offices reported being the target of at least one cyber attack, but only 44 percent have cybersecurity controls in place, and only 15 percent of those with controls said they were very advanced.

“Increasingly, we’re seeing family offices devoting more resources to cybersecurity defenses, including in some cases hiring a virtual ‘chief information security officer’ (CISO) to augment their in-house technology team or outsource to an IT provider,” said Chris Gleeson. Vice President and member of the family office team at Goldman Sachs Private Wealth Management.

A virtual CISO can provide independent and objective insight into family offices’ technology and infrastructure protocols and augment their staff in the event of a breach, Gleason said.

Charles Othon, head of global family and Americas institutional wealth at UBS, says better cybersecurity is one of several things that should be on more families’ to-do lists, even if it contributes to the rising costs of running a family. office

Family offices expect costs to rise moderately in the coming years. Staff is the largest net expense for a family office, accounting for 69 percent of costs (excluding asset management, banking and other fees they pay).

Competition for talent is driven in part by family offices anticipating increased costs. In the UBS report, the chief investment officer of the family office in Asia said: “Costs are going up because there are 700 new family offices in Singapore, and if they all hire two or three people, that’s a big part. talent pool in a small country. I’ve heard of people getting 20-30 percent of their previous salary and a guaranteed bonus for signing.”

Of the family offices surveyed by UBS, 41 percent had four to 10 employees, 18 percent had 11 to 20 employees, and 18 percent had 21 to 50 employees. Only 4 percent of respondents had more than 50 employees.

“Family-majority offices are no match for commercial operations or sales in terms of infrastructure and talent. They never were,” said Chris Mace, a family office and business management partner at Armanino, an accounting and consulting firm that works with two of the world’s 10 largest family offices and more than a dozen of the 100 largest. .

“That way they progress more. But many times it happens that the talent grew up on the same street as the founder of the family office, and that person became your CFO. It’s always great news when a family office acquires talent in a major acquisition or even a major retail store,” Mays added.



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