The rise of wealth politics and the emergence of a next generation that is set to inherit record levels of wealth and is highly focused on purpose-driven investment have led to a new sense of self-awareness amongst wealthy families, and an understanding that family offices can play a key role in reshaping perspectives of wealth and global wealth dynamics. IFCs have all the tools in their toolkit to support this evolving family office dynamic, but they will need to be right at the top of their game and ready to adapt to this new environment if they are to be successful in doing so.
The politics of wealth have already played a part in the US presidential trail this year, as candidates have set out their stalls – both Elizabeth Warren and Bernie Sanders made taxing the wealthy a central part of their campaigns, with the aim of tackling inequality by redistributing wealth to reducing wealth concentration.
It’s been a central theme on the other side of the Atlantic too, as Labour leadership hopefuls in the UK put wealth distribution right at the top of the agenda, with rising taxes for the wealthy a frequently cited tactic.
But is this thinking really that surprising or contentious amongst wealthy families?
The evidence would suggest not. Last year, a group of some of the US’s wealthiest individuals, including billionaires George Soros, Facebook's co-founder Chris Hughes, and Molly Munger, made a call for the introduction of a wealth tax in an open letter.
That letter proposed that a wealth tax could ”help address the climate crisis, improve the economy, improve health outcomes, fairly create opportunity, and strengthen our democratic freedoms” and is actually symptomatic of changing attitudes amongst the wealthy towards their place in a world of evolving societal norms.
In fact, it’s an attitude that is informed, quite rationally, by decades of experience. Recent history tells us that, in the aftermath of economic downturns, governments have always sought to cast blame on wealthy individuals, wealthy families, and the agencies of the wealthy – the wealth advisers, the investment banks, the private client lawyers and the tax advisers – in order to maintain appeal to the electorate at large.
Only really in the past 12 months or so has the world emerged from the global financial crisis – a crisis that is still very much in the minds of individuals and their families. Although it was a crisis that has its roots in widespread unsustainable property debt, blame was attributed to a financial system that was unsustainable, geared towards rewarding the privileged few, and that left the ‘man on the street’ picking up the pieces through the public bailout of banks.
It fuelled resentment against banking institutions and, by association, wealth advisers, speculative investment managers and, ultimately, the wealthy themselves.
The repercussions of this are still being felt today – cuts in public services in the UK as a result of the financial crisis and an era of austerity, for instance, have driven further resentment, a backlash against globalisation, a move towards protectionism and a political agenda that has become increasingly polarised – a split world symbolised by ‘Trump’s wall’; Remain and Leave; globalisation and protectionism; onshore and offshore; rich and poor.
Wealth has become the new battleground, and the wealthy are acutely aware of that, and responding – not in defiance, but in an attempt at nurturing mutual understanding and reconciliation.
‘Stewardship’ has become the watchword as wealthy individuals and their families have begun to look increasingly at strategies that can demonstrate social conscience and that can go some way to restoring trust and promoting constructive dialogue.
It’s a movement that is based on the realisation that families and family offices have the opportunity, if they do things right, to take control of the situation, and to seek to find a resolution to the polarised world that is beneficial to them and positive on a wider level too.
For some years, for instance, philanthropy, ESG, and ethical and impact investing have become increasingly central to the strategies adopted by family offices - the Global Family Office Report, for example, suggests that 39 per cent of family offices are projecting that when the next generation takes control of their families’ wealth, they will increase their allocation to sustainable investing.
Further, the same report indicates that more than half of a family office’s investment portfolio has exposure to alternatives, including private equity and infrastructure investment – asset classes that have potential to bring about positive change, particularly given that family offices are currently reported to be sitting on significant volumes of dry powder, ready to invest.
Succession planning has also taken on a different hue, with family offices increasingly asking fundamental questions of themselves around what legacy means to them. The Global Family Office Report 2019, identified a marked increase in focus on succession planning, with 54 per cent of family offices now having a succession plan in place, up from 43 per cent in 2018, indicating that more in-depth conversations are being had about succession; but the underlying complexity is clear, with real question marks over control, qualifications, ability and intent of the next generation.
Assumptions about inheritance are being challenged, with questions such as whether the current generation wants to pass on its wealth or pursue its own vision, or indeed whether the next generation even wants to assume responsibility for a previous generation’s assets and vision, becoming much more mainstream.
With family offices becoming increasingly institutional in their approach, as the next generation becomes more alive to its responsibility and what it means to be a wealthy citizen, and as a new breed of entrepreneur emerges, the ‘old’ principles that guided the ‘traditional’ family structure are being questioned, putting family offices in a strong position to disrupt the more established institutional investor space and lead the charge towards socially conscious stewardship – not only amongst the private wealth community, but more widely too.
How IFCS Can Adapt
Just as there are some fundamental issues for family offices to consider in light of these trends that go right to the heart of a modern approach to family wealth management, so too are there some key questions for IFCs that work with and support family offices.
How can they support the change of direction in terms of where and how they invest? Do they have the sufficient expertise, vehicles, and service proposition to facilitate conversations around legacy, impact, and stewardship? Can they advise around public image and reputation? Can they provide good platforms for impact evaluation and reporting? Are their regulatory, governance and oversight frameworks absolutely watertight to ensure a family office can walk the walk?
For some IFCs, this might be familiar ground. There’s no doubt however, that these kinds of questions will become increasingly important if IFCs are to continue to enable to give family offices the support they are looking for to survive and thrive.
Some IFCs are experts in alternative investment funds; some have carved out niches in insurance and life products; some are specialists in governance and compliance; some have developed expertise in trust and private client work.
Whilst these remain a fantastic proposition, if IFCs want to continue to prove their worth to the family office market, they are going to have to adapt and find ways to expand their offering or collaborate to remain a vital cog in the family office space.
Traditional models of wealth and succession planning are not enough; stewardship has to be at the core of a family office’s operation – and IFCs need to be alive to that and the subtleties of societal trends, have the right structures and advisers in place to support their needs, and bring their offering together in a much more holistic way that recognises the sensitive and complex dynamic families and society more widely.
There’s no doubt that the wealthy have shown a greater self-awareness in this new era of stewardship and family offices have a real opportunity to take a lead in this area. Their investment potential, influence and capabilities put them in a strong position to demonstrate a genuine social conscience, but they will need high level support from the IFC world to do that.
If IFCs can’t deliver on that, then they will not only put their own relevance at risk, but they will also risk exacerbating the wealth divide. If they can adapt successfully, though, then they can play a key role in breaking down some of the key economic, political, and social barriers of our time.
Geoff Cook is an experienced Chair and non-executive director. He has led significant business enterprises for more than three decades and helped major international groups to grow and prosper. As a Chartered Director, Geoff has deep knowledge of corporate governance, global regulation, and risk management. He has authored numerous articles and papers on cross border investment and the role of International Finance Centres (IFCs) in the global financial system. Geoff is a non-executive director to a select number of Family Office, Private Capital, Banking and Advisory boards. He was appointed Chair of Mourant Regulatory Consulting in 2021 and Chair of Quilter Cheviot International in 2019 to lead and develop the firm's international strategy. Geoff is also a Board member of Apex FS (Jersey) Ltd, a leading fiduciary and is presently Chair of the Society of Trustee and Estate Practitioners (STEP) Global Public Policy Committee. He was formerly the CEO of Jersey Finance and Head of Wealth Management HSBC with extensive international cross border experience across various sectors.