2015 Private Wealth Outlook

The 2015 Private Wealth Outlook focuses on the ongoing institutionalisation of the family office (FO). Organisations that often grew out of the family business are evolving into very sophisticated wealth and investment managers. It is challenging to study the FO industry because the firms come in such a wide variety of structures, sizes, and shapes, and comprehensive data is not readily available. However, Deloitte has a broad view of the industry and one common theme is that FOs, no matter where they fall on the spectrum of sophistication, are becoming more and more like institutional wealth management firms. FOs are adopting more formal governance structures, realigning their organisational structures, implementing risk management programmes, embedding more rigorous controls, and reevaluating their technology platforms.

Primary internal drivers of the institutionalisation trend can include transitions of control in a family business, succession planning for an aging patriarch or matriarch, the spinout of an FO from an operating company, or simply the desire to institute a more formal governance structure due to an increase in the size or complexity of assets managed. For example, if an FO is expanding into alternative or international investments, it might call for a reset to a more formal and institutionalised governance structure. In addition, when an FO experiences some kind of risk management or fraud problem, its management team may realise adopting more structure and formal policies and procedures is necessary.

External drivers of the institutionalisation trend are wide-ranging and include the continuing acceleration of technological change; shifting operational, legal, reputational, and other risks; various market forces; and learning from the experience of families who have encountered challenges due to lack of processes and controls. The impact of technology includes very positive developments, such as new cloud-based options for portfolio, performance, and tax reporting, and mobile applications for staff and family members. Simply put, there are far more tools available for the FO than there were just a few years ago. These tools make it much easier to formalise policies and procedures. However, these technologies often require substantial investment and can bring increased security and privacy risk. Moreover, for these technologies to be effective, they must be fully integrated with the FO’s overall governance programme. Legal developments – such as the modernisation of trust agreements, sometimes through a trust decanting – are bringing more planning options into the mix. The tax environment, while relatively stable in the US for the short term, continues to shift around the world, with a trend towards transparency. This is especially important as members of wealthy families live an increasingly global life and FOs seek to expand their investments globally.