EY Family Office Survey: Family Offices urged to adapt in face of ‘heady mix’ of economic, regulatory and technological pressures

Date: 12 May 2022

Silvia Ricciardi

Family offices – organizations that support the purpose, legacy and ambitions of the world’s most prominent families – need to accelerate their efforts to adapt and transform their strategy and operations to address a series of disruptions brought on by rapid global economic, social, regulatory, geopolitical and technological change, according to the new EY Single Family Office Study.

The study examines the views of more than 250 SFOs in 12 countries around the world. It also explores the challenges and opportunities SFOs are prioritizing in response to unprecedented changes related to issues including wealth and regulation, digital transformation, risk and reputation, and strategy and governance.

Bringing value and purpose beyond traditional performance indicators

A hot topic among many families and their SFOs is the expanding definition of value and purpose beyond traditional performance indicators, to encompass environmental, social and governance (ESG) criteria, and the impacts on human capital, communities, customers and stakeholders. Eighty-three percent of respondents say they believe that tracking nonfinancial metrics does matter according to the study, yet only 30% of SFO respondents undertake any significant measurement of performance beyond traditional financial measures. 

The survey shows that SFOs are facing increasing pressure to improve performance beyond traditional financial measures. Thirty-five percent of respondents cite pressure from consumers, 34% point to the growing influence of Gen Z, 32% highlight action taken by competitors and 28% say they have been spurred on by the emergence of new regulation on nonfinancial and climate disclosure.

The study also highlights that expanding beyond traditional financial measures brings benefits. Fifty-eight percent of SFO respondents who monitor nonfinancial metrics to a significant extent also perform above their expectations – a much higher proportion than those who don’t measure nonfinancial metrics.

Overall, SFO respondents are taking action to pursue more diverse strategies and robust governance frameworks to help ensure their ambitions are being met. In the area of social responsibility, 44% of SFO respondents say they now actively exclude investments that clash with their ethics and values; and the same number of respondents plan to make social or environmental investments over the next 12 months.

SFOs are ready to transform despite regulatory concerns

The study shows that SFOs are concerned about a number of current regulatory issues. Fifty-three percent of respondents are worried about increasing requirements for global transparency and information exchange, while 48% say that the increasing complexity of cross-border tax compliance weighs on them, and 46% note concerns around increased regulatory uncertainty in the wake of the COVID-19 pandemic. In particular, with many family members traveling regularly across borders, 72% of SFO respondents highlight concerns around the potential tax implications of remote working.

With jurisdictions around the world increasingly using tax policy and transparency initiatives to tackle broader economic and social policy issues, the study examines the extent to which SFOs are ready to transform. It reveals that 64% of respondents are not confident that their tax operations are high performing, with respondents pointing to issues with processes, people, technology, cost management and risk monitoring.

Urgency to improve cybersecurity and incident planning 

Examining SFOs’ approach to digitalization and security, the study reveals that 74% of respondents have experienced a cyber breach in recent years, yet 72% do not have a cyber incident plan and 61% do not have processes in place to detect IT breaches, leaving them exposed to future attacks. Looking ahead, 81% of respondents do plan to take action, indicating that they will invest in three or more digital technologies over the next two years.

Questioned about broader risk management, only 49% of SFO respondents say they are confident that they have the processes in place required to identify risks on the horizon, while 31% acknowledge that decisions about risks facing their organizations are not taken at the highest levels.

Kate Barton, EY Global Vice Chair – Tax, says:

The global tax landscape is transforming almost beyond recognition. Governments around the world are looking for new sources of revenue in the wake of the COVID-19 pandemic and other economic pressures. Beyond the huge implications emerging from global tax reform, SFOs must also watch tax authorities’ increasing moves toward digitalization, tax sustainability issues and the tax consequences of remote working. By their own admission, SFOs are not running their tax operations as efficiently as they might. They know there’s more they can do to improve their technology and processes, and much more beyond. Added to that, growing requirements for transparency can be tough for SFOs that are also keen to protect privacy, but it is crucial that they find a way to adapt in order to meet their obligations and improve the way they operate.

Steven Shultz, EY Global Private Tax Leader, says:

This is a time of profound challenge and opportunity for the world’s leading family offices and the families they support. SFOs face a sobering mix of strategic, technological, regulatory and operational disruptions all amid unprecedented economic, social and geopolitical forces that are largely beyond their control. It is critical that their legacy is protected by supporting them to adapt to these trends.

“It’s clear that these changes present both challenges and opportunities, but in order to navigate them effectively, SFOs need to act now. The incredible pace of regulatory change in tax and beyond demands that SFOs learn to adapt quickly; and in the face of rapid digitization, they need to review their technology and their protection against cybercrime. With reputational risk, and ever-increasing threat, SFOs need to look closely at their risk management practices, to ensure they are robust; and when it comes to strategy and governance it’s hard to overstate the importance of taking into account nonfinancial metrics.”

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