Staying relevant to millennials and having a plan in place for intergenerational transfers of wealth have long been highlighted as two issues facing family offices.
In a panel discussion at the Citywire Private Office Retreat held last week, four leading industry figures in the private office world highlighted recruitment practices as one way to address the issue of succession planning.
Emily Woolard, general manager at Hottinger, said the firm is looking to hire more millennials in order to engage the next generation of clients. It makes sense, considering around seven out of 10 family offices expect to undertake a wealth transfer between generations in the next 15 years, according to last year’s UBS Global Family Office report. Despite this, the report pointed out that only a third of family offices have a succession plan in place.
Woolard said Hottinger is focusing on recruiting people from outside the mainstream private banking sector, hiring them at a young age and training them up to be wealth managers.
She said: ‘We have people coming to join us at 21, 22, 23, and you see them at events with clients. They’re on the same level, and you can see a rapport developing; something that senior wealth managers – who have a huge amount of knowledge to impart too – don’t necessarily have, which is that natural connection with the next generation of clients.’
Christian Armbruester (pictured), founder and chief investment officer of Blu Family Office, agreed it is important for family offices to look elsewhere for talent and for people who ‘don’t have 10 years’ private banking experience’. But he added that there is not a formula for the best way to hire staff due to the differences between family offices.
He said: ‘I don’t think there’s a formula, because every family office is different and every generation is different in terms of what you’re doing for the family – investments, family concierge services, administration. So in that regard we also prefer to take people from different backgrounds.’
But while recruiting talent from various backgrounds helps a family office improve a number of services for their clients, Armbruester added that one of the biggest challenges for a family office looking to expand to become a multi-family office is how to ‘stay relevant’. This again, comes down to the personalities the business is able to hire.
He said: ‘How do you get families to come and join you, and I think therein lies the challenge – how do you stay relevant?
‘You have to develop a value, you have to think how to position yourself, and I think that is very difficult.’
Brian O’Connor, managing director at North Capital Management, said that family offices have to take a ‘multi-generational viewpoint’ when looking at recruitment. This matches with UBS’s analysis in its report which called succession planning an ‘existential issue’ for family offices.
O’Connor said: ‘You look at millennials, and can they get an affinity with someone who is grey and in their 60s? It’s a hard engagement to have.
‘We think about our own succession policy, having a multi-generational viewpoint about our business, and then it’s incumbent upon us to look to recruit and hire people who fulfil those values as the families and generations start to fall through.’
For Penny Lovell, CEO of Sanlam Private Office, communication between different generations is also crucial when it comes to succession planning.
She said: ‘One of the challenges is that families still aren’t communicating well within themselves. Sanlam did a big survey on this recently, and we discovered that parents were not disclosing to their children that they are going to be coming into this wealth and it was creating a real communication challenge.
‘So I think that’s something that needs to be resolved within families, they need to become a lot more transparent, not just in terms of educating the next generation, but also getting families to really communicate on this.’
The changing investment landscape was also highlighted by the panellists, with the rising popularity of lower cost exchange-traded funds among the super-rich presenting an issue for how family offices can differentiate their investment approach.
Armbruester said an increasing number of second generation families are gaining investment knowledge, and with that are looking towards ETFs rather than high-fee active funds.
He added: ‘So what do you specialise in as a family office? Is it asset allocation, do you allocate more to alternatives? That’s happening very quickly. You have to adapt to that, no matter who you hire.’
Woolard agreed that there is an increasing ‘fee consciousness’ among families, and added that there is more demand from clients for direct investments.
While there are many challenges facing family offices, the panellists agreed that an area of opportunity is the gradual decline of the private banking world.
O’Connor said the rising administration and bureaucracy private banks face with new regulation, as well as the more discretionary fund manager route they appear to be heading in, presents an opportunity for family offices to attract talent.
He said: ‘That provides an opportunity for us in the boutique environment to take what are fabulous people, talented individuals, from an environment which is full of administration and bureaucracy.’
Meanwhile, Armbruester said that the focus of private banks on clients with more than £50 million in investable assets gives family offices the chance to provide a better service for families of that size.
Citywire Private Office Retreat 2018
‘Future proofing your family office’ was the theme of Citywire’s second Private Office Retreat, held at the charming Pennyhill Park last week. Designed exclusively for our private office audience, we welcomed over 50 delegates from top family offices, private banks and ultra-high net worth wealth managers around the UK. With 10 fantastic fund houses supporting the event, delegates had ample opportunity to grill fund managers about their strategies and where they are spotting investment opportunity.
Alongside this, we welcomed two brilliant keynote speakers to get us thinking outside the box. Well-known economist and writer Liam Halligan gave us a frank overview of the global investment environment and what he identifies as the key sources of potential danger – covering US monetary policy, trade wars and oil prices plus the inner workings of the eurozone. On day two, inventor and digital transformation leader at IBM iX, Lindsay Herbert, dispelled some myths about buzzwords surrounding digital transformation and explored what innovation really means.
Citywire’s Eleanor Mahmoud also hosted an insightful panel session discussing what family offices can do to ensure they are prepared for the next generation of investors, joined by four top voices from the industry.
You can read more about that over the page.
This was a fascinating couple of days, during which we overheard plenty of lively conversation. Please get in touch with Eleanor if you would like to hear more about our Private Office channel at firstname.lastname@example.org.