Family Office: To Keep It In The Family Or Not To Keep It In The Family, That Is The Question

Family Offices are established for several reasons. One is to have complete autonomy over current and future wealth, another is to make an impact both socially and economically and often it is to create a legacy and purpose for generations to come. But does providing for the next generation mean you have to keep it in the family?

The clue may well be in the title for some but for more than 60% of Family Offices which are currently being run by non-Family Chief Executives, it may well be the opposite.

In fact, 92% of Family Office Leaders believe the most successful Family Offices have external hires in key leadership positions.

As part of a recent survey, Family Office Recruitment Consultancy, Agreus, asked Family Office Leaders about succession planning – determining if their leadership position would be filled from inside the family or an outside recruit. Just over half of respondents said they would hire a family member as their next leader (58%) with the remaining 42% opting to look outside of the family.

The concept of Family Offices hiring their next generation leader has become increasingly popular in recent years as biological successors look towards ESG and impact investing. In fact, the Agreus survey revealed that 73% of next-generation leaders care as much about making a social impact as they do financial reward and while not sitting directly within the Family Office, 84% of next-generation leaders are sat on the Board or Investment Committee – a trend that has equally gained pace in recent years.

Looking outside of the family may well be a great way of professionalising a family’s wealth but it also guarantees Family Offices the ability to stay ahead of trends, successfully diversify their portfolios and have access to lucrative deals only the top tier of talent can unlock. Investments aside, hiring external professionals from the benchmarked environments of financial or professional services can also allow Family Offices to become small but sophisticated entities with standards, processes and efficient cultures.

It’s a movement gaining pace across the globe too. In the UK, 61% of Family Office Chief Executives and Managing Directors are non-Family members and this number rises across Europe and Asia at 71% and 80% respectively. Even in America, arguably the most mature marketplace, more than half of CEOs are external hires while in the Middle East, the newest landscape, over a third have been hired to lead the charge.

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Family Offices as a concept can be traced back to 1838, coined by the family of J.P Morgan and popularised by the Rockefellers some four decades on. But while we imagine multiple generations keeping both family names alive, the 6,000 Family Offices that exist across the USA are on average, made of just two generations. This suggests that Family Offices have in fact been hiring their leaders for quite some time or, the enchantment of a Family Office often loses its appeal on the second generation.

While many attribute the compassionate wishes of the next generation as the key reason for the trend, it is the simple ability to truly monopolise any and every market which acts as the key motivation for hiring external professionals. After all, Family Offices have a big appetite and it’s something family alone cannot always appease.

Family Offices are created to both preserve and accumulate a family’s wealth but wealth is simply one factor. Happiness, competency and freedom are three more and hiring your next leader from outside of the family can offer your biological successors fulfilment in their own passage and ensure you have the best possible chance of generating a positive return. It also enables Family Offices to grow, to diversify and to strengthen their values while as a Family, enjoying its success and the mark it is making on the world.

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