Feature article from our U.S. partners.
Family offices in a changed world
An exploration of the impact of privilege, pandemic and polarization on family offices
At a recent virtual event cohosted by Fidelity Family Office Services (FFOS) and MetCircle, 75 family office executives and family members from various generations and from across and outside of the U.S. got together to share stories and ideas about how they were coping with the last year (both professionally and personally).
During the event, the participants explored the risks and opportunities created since the start of the pandemic (social unrest, politicized everything). We know it’s extremely tempting (and we’ve heard this from multiple offices we’ve spoken with) to want to get back to “normalcy.” But do we really want to recreate a 2019 family office? Is it even possible? In truth, it’s likely more harmful to the families we serve – and a bit futile.
Why? Families and teams are different than they were, which isn’t singularly good or bad. Families can embrace this moment of change to evolve to a family office that better aligns with the family’s vision of success and better supports their evolved definition of thriving.
To help identify some of these opportunities, and to kick off discovery conversations at the event, we presented the following two questions:
- How have we (ourselves, or families, or family office teams) been changed by the events since early 2020?
- What risks and/or opportunities have those changes created?
Not surprisingly, many participants could immediately identify changes within their respective families, most of which fit into a few of the following categories:
- an increased awareness of place in the world, typically presented as a recognition of privilege
- an increased empathy for others
- a new dedication to seeking simplicity, happiness and self-compassion, and living a more intentional life
- an increased awareness of mortality (which underscores some of the aforementioned changes)
And, in connection with managing a team and running a family office, many executives felt a new adaptability or openness, a readiness to toss out old assumptions and a willingness to embrace a “start from scratch“ mentality.
Overall, the changes discussed were overwhelmingly positive in nature, much more so than I’ve heard in more intimate settings over the past few months. I’m not sure if that is because outlooks improve every day we move further from the darkest pandemic days of winter, or if it is simply a product of our hesitancy to share negative feelings in a group setting.
The positivity, however, was hedged somewhat with a recognition that several new risks to the family have surfaced, including
- conflicting values, world views and priorities among generations
- One family, for example, was in the process of its generational succession, moving from Gen 2 to Gen 3, when the pandemic hit. With no operating business as a central point of cohesion, the family (which was also spread across the country) needed to find ways to communicate in order put a transition plan in place. After working for months internally to build a plan that both generations agreed to, they ended up bringing in a consultant to incorporate an unbiased perspective into their decision-making process. Ultimately, with moderated discussions and coaching, the older generation was willing to transfer the vision for and control of the family office to the next generation.
- greater engagement by more members, which introduced complexity with more opinions
- As an example, one family council leader shared how the pandemic brought the younger generation to the table quickly, as they were eager to express their opinions on the family’s operations considering the country’s political and social unrest. The grandparents were forced to have hard conversations about existing land-use agreements and policies that had been in place long before Gen 5 was even born.
- refusal of the older generation to relinquish control
- We’ve seen countless examples of families not planning properly for the passing of the patriarch, because it’s a difficult conversation to have. A new risk has emerged that some older-generation members will dig in their heels amid the “woke” revolution, adamantly resistant to changing with the world around them.
There were also new risks challenging the vibrancy of the family office and the family office team, including
- degradation of office culture
- collaboration and communication challenges with everyone remote
- fear we haven’t learned, or will have lost an opportunity to reinvent
- the unwelcome return to “the rat race”
- empathetic human changes (for both employees and family members) and a realignment of values and priorities
At one extreme, one office at the event even spoke in depth about how the family is now questioning whether it wants a family office at all.
Opportunities
However, from all these risks, we were able to identify five opportunities for family offices and the families they serve.
Opportunity #1: Embrace friction and “fight the good fight.”
In our conversations with offices and the families they serve, we have seen more authenticity in conversations, opportunity for more frequent interactions and an opportunity to step back and to think about the future. For families, the most talked-about opportunity was to embrace the friction and conflicting values and viewpoints, and to lean into the “good fight,” which is, first and foremost, engagement.
Engagement, even if dicey or uncomfortable, is the opposite of apathy and disengagement. It is needed debate and learning and inclusion that yes, has the possibility of breaking the family apart, or alienating certain members, but more often will lead to needed evolution and a new set of ideals, priorities or beliefs that are more meaningful to the family (and thus more effective in establishing a family of affinity).
And to be clear, it wasn’t all rosy. Many offices were forced to embrace that conflict only because the fight was taken to them. We also heard that many offices aren’t engaging in “the good fight” because they are in denial about its existence. Take a moment to pause and ask yourself, if you’re not seeing this conflict, are you not in a position to see it? Are you doing things to unintentionally shut it down? Perhaps your default mode is “avoid conflict where possible,” when reality requires tackling issues head-on and embracing the good fight.
During our meeting, we heard one story about a family whose rising generation accused the older generation of being outright racists, on the basis of their past business dealings. A heated exchange eventually gave way to a productive discussion, one that culminated in both generations working together to create new policies on decisions such as who they hire as investment managers.
Opportunity #2: Take on a “start from scratch” mentality.
In the survey we distributed at the meeting, we asked the question, are you using this inflection point to understand/change how you operate? Forty per cent said yes. One family spent a lot of time thinking about how they would structure their office differently if they were to create it now. One member of the group explained that their family is building a new office space, and are building it with the intention that it will be a place of convening, to ensure connectivity among family members and executives.
Opportunity #3: Engage and develop the younger generation.
We touched briefly on a scenario in which the rising generation became actively involved in productive conversations with the older generations. We’ve seen more opportunities for the younger generation to engage over the past sixteen months, especially through technology platforms like Zoom, which has made getting the family together easy. Accordingly, everyone has an opportunity to have a voice, which has brought new ideas to the forefront.
In many families we’ve worked with, parents have seen their kids in a different light because of the time they’ve spent together while quarantining. The time together has the older generation thinking, “Hmm, they’re no longer kids; they’re smart, high- functioning adults. Maybe I can start working with them in that way.” This newfound perspective, along with technology platforms, have helped break down some of the hierarchies within the family system and replaced it with peership, which allows the older and younger generations to share ideas and listen to one another without the conversational barriers present in a hierarchal structure.
More communication has also introduced the opportunity to discuss the transition of decision making, as well as the desire to create social and environmental change, topics that often resulted in tension among the family. We have found that the next generation is challenging the status quo:
- What is the point of the family’s wealth?
- What is purpose of being a family?
However, in other instances it took a moment for the younger generation to engage. One office talked about how, especially in the early days of the pandemic, the younger generation of a particular family didn’t seem bothered by the unfolding events, choosing to post Instagram photos of themselves enjoying the beach at a time the family’s operating business had been forced to lay off 95% of its workforce. The engagement finally came once their distribution cheques stopped, forcing recognition of the significance of the global event.
The family office drew the younger generation to the table at a time when they were ready to learn more about the family’s operating business. The operating business’ CEO then was able to field questions first-hand and garner perspectives on the business from the younger generation, while the younger gen gained confidence in the CEO. Ultimately, it brought family closer together.
Opportunity #4: Rethink your family office.
The past sixteen months allowed offices a moment to gather their thoughts about current processes and decisions, big and small, and assess what was working and what could be improved. The pandemic brought about a sense of isolation for many, so offices had to get creative to create communication and education channels that were engaging, dynamic and productive. One office became the core connector for all the generations during the last sixteen months, pushing out a weekly newsletter and hosting a frequent Zoom happy hour to keep the different generations connected.
Another office rallied around the idea that their family office needed to be more than just an RIA. They thought, what’s the point of being a family if the only purpose, vision, goal or affinity is cost-effective wealth management? In effect, they wanted to putting the family back in “family office.” This is related Jay Hughes’ notion that to get beyond the third generation together, families must become “families of affinity,” in which family members are committed to a set of shared values and actively work to achieve them.
Opportunity #5: Realign with your employees.
During our meeting, a family office executive shared her biggest observation from the last year: she noticed that her support team and the rest of the family office employees (CIOs, back-office talent, etc.) had found their voice and a newfound confidence. Emboldened by the knowledge that they could perform their jobs competently from home, they started rethinking the culture of the office and
what constitutes a good work environment. The executive was concerned that as her office made plans to bring employees back together, talented individuals would look for opportunities elsewhere that offered a flexible work schedule and work-from-home options. She also noticed that physical distance and remote work settings broke down some of the office hierarchy, which brought more proactive ideas about how the office should be run. She leaned into the opportunity to improve employee engagement by creating a flexible hybrid work schedule, as well as communication tools that allowed employees to provide feedback to management on a regular basis.
Conclusion
Families and teams are different than they were in the early days of 2020. It would be lunacy to adopt the same pre-pandemic processes and mindset in this new, ever-changing environment. By identifying the changes within family offices and uncovering the opportunities that those changes created, family offices will be better aligned with the family’s vision of success now and in the future.
