North American Family Offices Experience Wealth Increase During Global Pandemic, Succession Planning and Philanthropy Remain a Focus
Security and Cyber Risks Weigh Heavily as Families Plan for the Future, RBC and Campden Wealth Survey Finds
Amidst the global pandemic, nearly nine-in-10 (86%) ultra-high net worth families in North America experienced a rise in wealth between 2020 and 2021, according to a study conducted by RBC in partnership with Campden Wealth. Over half (58%) of their family offices’ assets under management (AUM) also grew over this period, with the average family office’s AUM standing at $USD 1.0 billion and the collective AUM across North America estimated at $179 billion.
With their rich cash reserves and patient capital, family offices focused on growth markets and the tech sector, with 74% investing in healthcare; 64% in biotech; 61% in fintech and nearly half (49%) in artificial intelligence.
While the family office space is growing rapidly and they are bullish about the economy, they do face challenges in a post pandemic world.
Dr. Rebecca Gooch, senior director of research at Campden Wealth, said, “Broadly speaking, family offices are feeling bullish about the economic climate in 2022. It’s a testament to their strength as sophisticated wealth management vehicles that most of the wealth holding families around the world saw their fortunes increase over the year, despite the Covid-19 pandemic.
“With the 2020 recession following a V-shaped curve, family offices, known for being nimble investors with deep pockets and patient capital, were able to capitalize on changing market conditions and benefit from strong gains in both the private and public equities space.”
Governance, Security and Succession Planning
Across the family office landscape, more than one-in-four North American family offices surveyed reported being targeted by a cyber security attack, and more than half have been the subject of a scam. Additionally, 92% of the family offices expect the number of scams and cyberattacks to increase over the coming years, and nearly one-in-three believe that the family office needs to be better prepared to safeguard against a potential attack.
As such, among the top three governance priorities reported by family offices for the next 12 to 24 months, risk management ranks high, as does investment governance, valuation policies and human capital oversight.
According to the study’s results, only 50% of North American families have a succession plan in place. Of these existing succession plans, only 48% are formally written – the other 52% are either informally written, or verbally agreed upon. A notable 33% of families surveyed are perceived to be very/somewhat unprepared for succession. Of the North American families surveyed, 51% believe the biggest challenge to implementing a succession plan is not having a family member qualified enough to oversee the inheritance.
“A succession plan is absolutely critical for families of wealth – whether or not they have a business, said Angie O’ Leary, head of wealth planning at RBC Wealth Management - U.S.. “And the plan needs to go well beyond who will get what when. Families of wealth must establish foundations of trust and communication and adequately prepare the next generation to inherit wealth. Failure to do so can lead families to lose the wealth they have created.”
Dichotomy of Technology
The report also explored opportunities in technology, finding that while North American family offices make use of technology in the form of virtual meetings, cloud-based data storage, and integrated accounting systems, in general, they have been relatively slow to integrate technology into their business operations. While family offices have been avid investors in emerging technologies, few of these families, for example, make use of blockchain technology, robotic process automation, artificial intelligence, or propriety trading systems.
As these technologies can aid family offices with needed tasks such as due diligence, risk management, data entry and data analysis, it may be that in the coming years, family offices begin to recognize their usefulness and start adopting them.
Although the move toward digitization by these family offices has been slow, the survey did suggest that fintech is becoming more popular. Of the North American family offices surveyed, 34% said fintech plays some sort of role in their financial transactions, 6% said fintech is used in a majority of their financial transactions, and 61% said fintech will replace traditional banking services in the future.
Sustainable investing is gaining traction around the world, however North American family offices are trailing their global counterparts when it comes to adoption levels. Forty-two per cent of family offices globally currently invest sustainably (up from 34% in 2019). This includes 57% of the family offices in Asia-Pacific and 45% of those in Europe, compared to 34% in North America.
Additionally, sustainability accounts for a growing portion of family offices’ portfolios, with allocations to this area expecting to rise by a considerable 76% in North America and 61% globally over the coming five years. Here, climate change is the number one theme family offices are currently targeting, with 74% of those in North America and 73% globally allocating here.
Roughly three quarters or 70% of families said they were involved in philanthropic giving, irrespective of whether the family additionally has a foundation, with family offices giving an average amount of $9.3 million in 2021. Over half, 53%, do so with a clear and purposeful strategy for philanthropic donations. Of these donations, causes related to education and health received 93% of the donations.
“At RBC, we understand the complex and unique needs of ultra-high net worth families,” Mark Fell, head of family office and strategic clients at RBC, said. “Collaborating with Campden Wealth on this regional study in North America gives us even greater insight into those needs and enables our talented team of advisors to serve these clients in all aspects of wealth — from investing, borrowing and spending to tax considerations.”
About the 2021 Report
The results noted above can be found within The North America Family Office Report 2021. This report, along with European and Asia-Pacific editions which are being simultaneously released, form part of The Global Family Office Report: Regional Series.
The data for this series was collected between April and July 2021. This data includes a survey that was completed by 385 family offices worldwide, with 179 (46%) being from North America. In-depth interviews were also conducted with 32 senior family office executives/family members, with 15 of these being from North America. Single and private, not commercial, multi-family offices were included in the analysis this year. Within the report, private multi-family offices are defined as entities that serve no more than eight families and whose core family holds at least 50% of the family office’s total AUM.
Please see here to download the full report: http://www.rbcwm.com/family-office-report
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About Campden Wealth
Campden Wealth is a family-owned, global membership organization providing education, connectivity, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises and family offices, and preserving their family legacy.
Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique proprietary data and analysis based on primary sources.
Campden Wealth owns the Campden Club, a private, qualified and invitation-only members club representing multi-generational business owning families, family offices and private investors across 39 countries, and the Institute for Private Investors (IPI), the pre-eminent membership network for private investors in the United States. Campden further enhanced its international reach with the establishment of Campden Family Connect PVT. Ltd., a joint venture with the Patni family in Mumbai in 2015.
Securities offered through RBC Wealth Management. RBC Wealth Management is not affiliated with Campden Wealth.
For more information: www.campdenwealth.com