Millennials, ESG, and Tech; the keys to unlocking the future family office

By the year 2030, Millennials are anticipated to inherit over $68 trillion from their parents, becoming the richest generation in American history. While the Great Wealth Transfer brings new challenges to family offices, understanding the Millennials’ investment interests and technological preferences can create substantial opportunities. The upcoming generational change in HNWIs will affect the way family offices operate and money is invested, used and shared significantly. 

2020 has been the year of changes and it has forced us to become more comfortable with digital platforms that have enabled us to work from home. This has raised the interest in digitized products more than ever before. Family offices have, in many cases, been slower to adopt the latest tech solutions than other areas of investment. Until recently, that has been okay. 

New generation; new needs

Many of the “mothers and fathers” of UHNW families are still getting used to the digital age, Millennials have never known a world without the internet. With mobile devices and connectivity at their fingertips, they’re seen as the fastest to adapt to digital adoption.

Until now, family offices have gotten by with lower adoption of technology in part because of a client base (family members, and the advisors that guide them) that was comfortable with traditional office management. This has started to change, especially during quarantine when access to offices has been denied. 

Family offices are typically run at a slower pace due in-part to the lack of visibility into funds which has taken away control from investors. By providing digital access to funds, and centralized information on asset allocation, sector exposure, and liquidity between managers and investors, family offices can become more transparent with their clients. Finally, moving from paper reports and face-to-face operations to digital platforms will not only be beneficial for the client, but it will also allow family offices to run more efficiently and create a shared platform that enables internal communications. 

Sustainable interests driving Millennials' investment decisions

Millennials are not only leading digital change but they are reforming the means and the products HNWIs invest in. ESG and impact investing have gained popularity as the growing Millennial population becomes more socially conscious and hopes to have real impact in society. Their dedication to sustainable initiatives is unlike any previous generation and they continue to be the trendsetters in today’s investment strategies. 

ESG investing requires a lot of time, devoted resources and active monitoring to be successful. The investors must be actively engaged in the industry to find the right approach that can be integrated in one’s portfolio. 

Investing in something new also adds a risk. ESG investing typically focuses on disruption, innovation, and changing the way we live our lives which is why it is important to understand the total addressable market, the likelihood of success of the project, and the total capital required for it to succeed. This risk seems to be worth taking to many as more than two-fifths (41%) of HNWIs aged under 40 were drawn to sustainable investments in Capgemini’s World Wealth Report.

An added challenge has also surfaced due to the lack of measurable results in ESG investing. The true social impact is difficult to measure but with the increase in use of Artificial Intelligence, investors now have access to better-quality ESG data that uncovers the capabilities of ESG investing. This is important as family offices build the investment strategies around the next generations’ interests.

Family offices prepare to adapt to new generational shift

Passing down wealth over to the next few generations is not an easy task but if done right, it can be hugely successful for family offices. Digitized tools allow clients to actively invest and manage their money anywhere. They also let family offices act more reactively and provide direct assistance with service offerings such as succession planning and investment strategy at all times. 

ESG investing and technology work in a complimentary fashion. Once one succeeds, the other will follow. Both are needed for satisfying the new generation who will not sit back and let others handle their inheritance, as they shouldn’t. 

The last couple of months have enabled people to get used to socializing and doing business remotely, and our society has been given the chance to immerse itself in digital communications channels and adjust to them. With the rise of video calls and remote offices, people have become much more comfortable making decisions over new channels. 

These opportunities can elevate family offices’ operations to a new level if they are willing to learn and adapt. Generations and technologies used will change, and the ones not adjusting will be left behind.

By Simran Kang and Alice Chen, Founders of FDP & Co. and MyFO