While they may have seemed something of a luxury in the past, reserved for a select few, family offices are now being viewed more as a necessity for ultra-high-net-worth families who would like greater flexibility and control over their wealth management – both now and across future generations.
The growth in the number of family offices worldwide is accelerating and it certainly doesn’t look like the trend will be flattening out any time soon.
"There’s no question the professionalisation and growth of family offices will continue," Hannes Hofmann, Global Head of the Family Office Group at Citi Private Bank, says. "Wealth continues to be generated and we’re living in an increasingly complex regulatory and investing environment.
"The focus has shifted from local investing, one or two generations ago, to global capital allocation for today’s ultra-wealthy. I would expect the number to increase and for them to become increasingly sophisticated as wealth is passed through to the next generation."
Global families need global expertise
Families are no longer localised but instead have real estate, businesses and investment interests – and family members – spread across continents.
"Each family office is unique, but you also have to think about the cultural context where families operate," Hannes explains. "It is not unusual for a family to live across different countries, with different cultures and focus.
"Citi does business in more than 160 countries and jurisdictions, a true advantage when it comes to meeting the needs of family offices. We’re able to provide services locally in the regions we operate with a global lens, providing a smooth and seamless service around the world.
"Every family is unique, and each situation is unique, especially when it comes to succession and wealth planning."
"Importantly, we can also help families tackle the complex and costly challenges of finding resources in each location we serve."
The benefit of a family office is, of course, that it is solely serving the family it operates for, meaning everything is in one place and handled with the appropriate ethos and principles.
But the cost and challenges of setting up a family office cannot be ignored. It is important to do some prep work: from identifying the objectives for its founding and its main services, to deciding where it will be located, how many people it will employ and the infrastructure required for operation.
"Fortunately, a firm like Citi Private Bank is very well placed to help with initial set-up," Hannes affirms. "Citi has decades of experience and we’ve dealt with many family offices before. Our dedicated advisors can help build a foundation that is efficient, effective and offers the services they need."
Hannes also points out that each family office is different, and that a weak set-up can have significant effects on family governance and costs of operation.
Access to global investment opportunities
While the family office was originally designed to simply look after wealth, it is now doing a lot more – from helping maintain and grow portfolios, providing greater understanding and control over where wealth is invested, to taking into consideration the needs and expectations of members of the family who may be geographically spread out and culturally diverse.
When it comes to investments, the Family Office Group works with all types of offices to provide a single gateway to comprehensive services across Citi’s private bank, commercial bank, and investment bank. The spectrum runs from family offices that focus on asset allocation and work with outsourced CIOs, to family offices who invest directly in public markets, assist the family with private deals and concentrated equity positions, and optimise the family’s balance sheet by actively engaging banks on deposits and credit.
With on-the-ground experts in major financial centers, the Family Office Group supports clients in global endeavours. "We are set up to make a firm of more than 230,000 easily accessible to family offices who invest around the world." says Hannes.
Connecting a community of clients
As the number of family offices grows, the scope for peer learning from one another also increases, which can be incredibly beneficial. Citi Private Bank hosts an annual Family Office Leadership Program, among other educational and networking opportunities, enabling family office leaders and practitioners to come together.
"We have brought together more than 600 practitioners since the inception of the program in 2016. It’s a chance to discuss all the topics relevant to them like the economy, investments, sustainability, cybersecurity and family governance," Hannes explains.
"We get incredibly powerful feedback on the opportunity they have to gain additional insight that helps them make better decisions on behalf of the families."
Even though every family has different needs, understanding how other family offices operate helps avoid common mistakes and allows for the replication of best practice.
Citi Private Bank publishes an annual ‘Family Office Survey Report’, which provides insight into the thinking and behaviours of diverse global family offices.
"This year, more than 126 families participated in the survey over a month-long period, across 30 countries. We asked about their outlook for the global economy, investment portfolio actions and where they see potential opportunities and risks ahead," he reveals.
"This year we also enquired about their interests and concerns, including leadership transitions, family unity, continuity and philanthropy, and introduced a benchmarking component."
Citi offered a bespoke benchmark report to those who participated in the survey, enabling them to compare themselves to their peer group globally. The report provides timely insight into potential gaps as well as advantages compared to peers without breaching the confidentiality of individual responses.
Planning a legacy
Building a family legacy is certainly something that requires careful planning to ensure financial wealth is passed on through multiple generations to come.
"The first consideration in legacy planning is to address how to preserve and grow wealth," Hannes says. "The second concern is how to distribute wealth among family members and philanthropic causes. Historically, about 80 per cent of families struggle to achieve the first objective: they create and lose significant wealth within three generations."
Sound investment advice and prudent family governance seeks to maximize the probability of a successful multi-generational legacy. While investment decisions can be outsourced or delegated to family office staff, family governance critically depends on founder or family-level indecisions, since it will form the basis for how the family interacts with each family member for generations to come.
Fairness is a major consideration founders are concerned with, as well as agreeing on decision-making rights for different family members. Citi has dedicated advisors who can help families establish a governance framework based on best practices within the vast network of family offices we work with.
"Every family is unique, and each situation is unique, especially when it comes to succession and wealth planning. This is also where our bespoke service comes into play to ensure the family office is actually holding together the different members of the family throughout generations."
There’s no doubt that the number of family offices is going to increase – and the guidance, support and resources Citi Private Bank has to help those founding and then growing a family office are key to their success.
"I expect more people will want to partner with Citi Private Bank so we can put the power of our global and institutional business to work on their behalf," Hannes concludes.
About Hannes Hofmann
Hannes Hofmann leads Citi Private Bank’s global Family Office Group, bringing the vast network and resources of Citi together with private banking services to address key family office needs.