Can your family office systems cope with generational advancement?

Tony Solomou - February 09, 2020

Have you made the right strategic planning for the future of your Family Office?

Family Offices have been around in their modern form since the early 19th century, originating with the first explosion of wealth in the US. The Rockefellers are often quoted as one of the earliest established family offices and it still exists today.


Today, the additional growth of wealth in Europe and Australasia has pushed the value of assets under management into the trillions of US Dollars and the number of family offices to even greater numbers. In fact numerous sources show that the industry has now matured and many family offices have continued their existence over many years and multiple generations.



A large number of the individuals who created these early fortunes, will have been survived by their children, grandchildren and even a wider family circle. This will have resulted in a greater complexity in the structure of the operations and the purpose of this blog is to discuss the technical challenges that arise, as the beneficiaries multiply and the family tree evolves in the future.

There is an old joke that the first generation accumulates wealth, the second enjoys its fruits and the third fritters what is left. This is definitely not accurate in the way UHNWIs behave, whichever generation they may belong to.

The modern family office is a professional establishment, managed and staffed by administrators, investment managers, finance and other employees who are experts in their own fields. As the number of beneficiaries increase through generations, there are two natural paths in evolution.

  1. To keep the wealth together
  2. To split it apart as each beneficiary moves towards different directions.

From an economic point of view, the first option is more often the preferred one. But in order to enable this smooth transition, the family office must have implemented a proper entity structure and installed internal systems that can convince the beneficiaries to stick together and take advantage of the size of the assets of the entire family. This is the most desirable option to extract higher returns on investment, which is one of the main objectives of a family office.



Globalisation of activities

As the participators of the wealth increase, there’s a higher probability they spread out geographically, whether for personal or business reasons. With increasingly complex fiscal regulations, it may become necessary to set up companies, trusts or other vehicles in diverse jurisdictions to meet the specific requirements of that person's residence. Some of these may need to be physically located in various jurisdictions. 

The family office's software must provide this flexibility in design, as well as in reporting to regulatory authorities. Furthermore they need to be accessible globally, which means that the solution must be cloud based.


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Diversity in targets and mandates for individuals or groups of beneficiaries

The beneficiaries can have objectives that differ from those of the original creator of the family office, or from the other members. The family office software must be able to record mandates and budgets and track these against the individual's actual performance. Members may wish to invest in their own funds from their private wealth. The fund accounting software will need to have the ability to cater for such needs which are outside the scope of the mainstream family office. 

Flexibility to meet the accounting requirements of diverse family members

In complex family offices there is often an allocation of income and costs that can differ between members or groups of members. This may vary, depending on a number of factors, for example the willingness to participate in specific funds or projects, which can be allocated to members on specific terms. The fund accounting software must be able to automate these allocations to avoid clerical errors and cumbersome data entry.

Maintaining confidentiality of activities between beneficiaries

It's often the case that the management of the individual beneficiaries' affairs need to be kept confidential from other members of the family. The Family Office software must be able to segregate data and reporting and provide complete security in access of information, at all levels. Although high level reports may include comprehensive family information, the detailed data will be available on a "need to know" basis.

Ability to segregate and isolate extract data

Ultimately a member may have the option through the inheritance scheme, to separate their wealth from the rest of the family. The Family Office Software must provide the capability to correctly extract the data relating to that member and "transport" them to a separate system or isolate them in archive format from the main system, without interruption of the latter's continuity of business.



You may begin to recognise the discussion above as resembling the transition from a single to a multi family office and eventually this may be the end result. The point to appreciate is that this process may evolve gradually, with unexpected bumps in the road and unforeseen end results. Some single Family Offices have even progressed to add external unrelated parties to the business, thus becoming a fully fledged multi-family office.

The human factor in the equation, makes it impossible to predict how the family tree will evolve over the generations. Making the right choice, however, in your management and financial software and it can provide the flexibility for expansion and adoption of new processes in meeting these requirements.

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