UBS: Family Offices Are Fumbling Their Own Generational Wealth Transfers

Ultra-wealthy families must pay more attention to activities beyond their investment portfolios, according to a UBS report.

Illustration by II

Illustration by II

Family offices say their primary goal is to transfer wealth to family members but most are not well-equipped to do that, according to UBS’ latest annual family office report.

The primary goals of most of the 230 family offices surveyed by UBS is to support the transfer of wealth from one generation to another (63 percent) and provide income to family members (55 percent). Family offices were also created to diversify their investments away from the business that made a family wealthy in the first place (41 percent) and help reinvest capital generated by a family business (33 percent).

However, family offices need structures in place to achieve those goals and most of them don’t have them. Only 31 percent of family offices said they exist to help “manage administrative tasks.”

Family offices are working more closely with investment banks and asset managers, and are praised for being sophisticated investors. But they need to pay more attention to everything else outside the investment portfolio — succession plans, cybersecurity, and costs — or risk failing.

“There’s a gap between the family offices’ top stated purpose and the measures taken outside investing to help fulfill that purpose,” according to the UBS report. “The survey reveals how few have the necessary processes, governance, or risk management in place.”


Just 42 percent of family offices have a wealth succession plan for family members and the same percentage have a governance framework.

Greater wealth does not necessarily mean better preparation for generational wealth transfers. Smaller family offices, with between $100 million to $250 million in assets, are especially likely to fall short when it comes to best practices, UBS says. But even at large family offices managing more than $1 billion in assets, only 43 percent have a wealth succession plan and 66 percent have a governance framework.

Improving governance could have a significant, positive impact on a family. Cybersecurity, UBS pointed out in its report, is an example where family offices should improve. More than a third (37 percent) of family offices reported being the target of at least one cyber attack but just 44 percent have cybersecurity controls in place — and only 15 percent of those with controls in place said they were highly advanced.

“Increasingly, we are seeing family offices allocate more resources to cybersecurity protection, including in some instances hiring a virtual ‘chief information security officer’ (CISO) to augment their in-house tech team, or outsourced IT provider,” said Chris Gleason, a vice president and member of the family office team within Goldman Sachs Private Wealth Management.

A virtual CISO can provide an independent and objective view of a family offices’s technology and infrastructure protocols, as well as augment their staff in the case of a breach, Gleason said.

Charles Otton, head of global family and institutional wealth in the Americas at UBS, said that better cybersecurity is one of several things that should be on the to-do list of more families, even if it contributes to the rising costs to run a family office.

Family offices expect costs to moderately increase in the coming years. Personnel are the biggest pure cost to a family office, accounting for 69 percent of the expenses (which exclude asset management, banking, and other fees they pay).

Competition for talent is partly why family offices expect the cost to increase. In the UBS report, the chief investment officer of a family office in Asia said, “Costs are going up driven by the fact that there are 700 new family offices in Singapore and if they all hire two to three people that’s a huge part of the talent pool in a small country. I have heard of people getting 20 percent to 30 percent of their previous salary to sign on, and a guaranteed bonus.”

Out of the family offices surveyed by UBS, 41 percent had four to 10 employees, 18 percent had between 11 and 20 employees, and 18 percent had 21 to 50 employees. Only 4 percent of respondents had more than 50 employees.

“By and large family offices are not equal in their infrastructure and talent to a buy-side or sell-side commercial operation. They never have been,” said Chris Mays, a partner in the family office and business management division at Armanino, an accounting and consulting firm that works with two of the 10 wealthiest family offices in the world, and more than a dozen of the top 100.

“They’re progressing more that way. But a lot of times the talent happens to have grown up on the same street as the founder of the family office, and that person became your CFO. It’s always big news when a family office acquires talent out of one of the big buy-side, or even one of the big sell-side, shops,” Mays added.