Wealthy Most Worried by Conflict, Climate and Public Debt

Uber-wealthy families surveyed earlier this year by UBS are most worried about the possibility of a major geopolitical conflict, climate change, and high levels of public debt over the next five years.

While these are clearly important considerations, the potential risks they pose to these families’ investments seem to weigh more heavily on them than closer-to-home risks such as cybersecurity or the transfer of wealth to the next generation—topics that can profoundly affect their current and future lives, according to Judy Spalthoff, head of family office solutions at UBS in New York.

“They’re really narrowly focused on money and not on the implications the money has for the family, whether it be their personal risk, their cyber-risk, or their wealth transition risk,” Spalthoff says. “There’s an opportunity to do more.”

The wealth manager’s annual survey of global family offices this year included responses from 320 families around the world with an average net worth of $2.6 million and liquid net assets of about $1.3 billion. UBS has conducted the survey since 2014.

Overall, it showed families don’t plan major shifts to their strategic asset allocations after moving money into developed-market bonds, largely with terms of five years or less, and out of real estate last year. In 2022, the families surveyed devoted 12% of their portfolios to developed market bonds, boosting that to 16% last year.

Their real estate holdings went from 13% of their portfolios in 2022 to 10% last year, although that allocation could rise to 12% this year, the survey found. Families are also expected to increase their allocation to developed market, publicly traded stocks slightly to 26% this year from 24%; developed market stocks consistently make up the largest percentage of these families’ portfolios.

Spalthoff, who works daily with many of the world’s wealthiest families, understands that they are largely focused on their financial capital and the associated risks. Yet, as a professional serving these families, she finds it interesting “to think about the non-financial risks that aren’t being prioritized.”

According to the report, 59% of those surveyed, on average, say they are prepared to deal with financial risk, but only 24% pay attention to reputational risks and 14% to medical risks and family travel emergencies. The report also indicated there is “some evidence of inadequate planning for ‘key person risk,’” with only 26% of families reporting that they have a family office succession plan in place to address issues such as continuity of staff and services.

“Human capital and intellectual capital” are topics that “time after time people tell us are important to them,” but yet they don’t seem to be a core focus, Spalthoff says.

Though climate change was cited by 49% of families as a “top risk” to their financial capital over the next five years, most aren’t taking this risk into consideration when it comes to their families. Only 9% say their offices are covered for environmental/climate risks. Geopolitical risk was cited by 58% as a concern over the next 12 months and by 62% as a concern for the next five years; public debt was cited by 48% as a five-year worry.

The report also found that only 40% of families surveyed globally have cybersecurity controls in place, down from 44% a year earlier. It also revealed that only 47% have a wealth-succession plan and only 44% have a governance framework. That’s despite the fact that about $1.2 trillion will be passed down from one generation to the next within the next 20 years, Spalthoff says.

Family offices with more than $1 billion in assets appear to pay more attention to non-financial risks, however. The survey found that 64% of these families have a governance framework, 68% have cybersecurity controls, and 44% have risk-management processes beyond their investments.

“Similar uplifts in scores can be found when comparing first-generation family offices with later-stage family offices, and family offices with few staff versus those with large teams,” the report said. “This underlines the journey family offices go through from inception to maturity.”

One reason families may not pay as much attention to non-financial risks is that they want to keep their staffing costs in check. Employee-related costs amount to 66% of a family office’s expenses, the report said. About two-thirds of the offices surveyed have a relatively small staff, with only up to 10 employees—often including one who is a family member, according to 72% of offices surveyed.

That’s “typically not enough to carry out the full gamut of services that might be expected—from investment management through to bookkeeping, philanthropy, tax and lifestyle support,” the report said.

“What I’ve seen is that, yes, maybe it does cost more to manage this (nonfinancial) risk, but there are also great ways to outsource these things,” Spalthoff says.

The question families need to ask is “are we prepared?” she says. Because “it’s not just what money we have and how it’s growing and how we’re allocating it. It’s about what we are doing with it and how we’re preserving our family and the family office itself.”


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