Family offices need to evolve to meet the changing needs of wealthy clients

The number of family offices is set to grow exponentially in the next five years, but they will need to evolve to meet the changing needs of wealthy clients according to Morgan Stanley Wealth Management.

With Deloitte saying that the wealth controlled by family offices is expected to grow 73% to $9.5 trillion by 2030, the importance of this sector of investment and wealth management adapting is clear.

Two key factors are driving what Morgan Stanley sees as necessary changes.

Firstly, the purpose of family offices, beyond the financial aspects of wealthy family needs to include human, intellectual, and social capital and alignment with families’ long-term mission and values.   

Secondly, the families themselves, where dynamics and trends are evolving.

“Family Offices are pivotal in managing wealth and preserving legacies, and as families and environments evolve, so must the industry,” said Liz Dennis, head of Private Wealth Management.

The report identifies six essential pillars that it says family offices will need to embrace to keep up with trends and client demands:

1. Governance:

• Implement structured yet flexible governance to address priorities while accommodating change.
• Establish mechanisms for family members to exit gracefully and review policies regularly, involving younger generations.
• Core documents (e.g., family mission statement, constitution, bylaws, and succession plans) are essential for clear governance.

2. Staffing:

• Build an institutional-quality team with clear delineation of in-house versus outsourced roles.
• Plan for staff succession to address key-person risks and ensure stability across generations.

3. Investment Solutions:

• Stay abreast of market trends, including alternative investments and technologies like AI.
• Regularly update the Investment Policy Statement (IPS) to align with emerging opportunities and risks.
• Leverage technology for data aggregation, deal sourcing, and investment analytics.

4. Artificial Intelligence:

• Integrate AI to enhance efficiency in investment research, reporting, and operations.
• Use scalable, secure platforms while remaining vigilant about cybersecurity and data privacy.

5. Financial Education:

• Equip younger generations with financial literacy to ensure effective stewardship of wealth.
• Tailor education programs to generational priorities and emerging financial trends.

6. Cybersecurity:

• Address increasing cyber threats through practical measures, such as using strong passwords, multi-factor authentication, and enabling automatic updates.
• Incorporate cybersecurity into operational practices without needing extensive in-house resources.

“This guidance is designed to support family offices of all shapes and sizes as they work to ensure continuity across generations,” added Dennis. “Even with technology's potential, human expertise remains irreplaceable—and forward-thinking family offices must define clear strategies and infrastructure to continue adding value as indispensable partners for generations to come.”