European ultra-high-net-worth families are rapidly organizing their affairs in anticipation of the Great Wealth Transfer. However, a significant hurdle they face in transferring their wealth is the apparent lack of willing workers to manage their fortunes at reduced salaries.
A report by HSBC Global Private Banking and Campden Wealth examined the condition of European family offices and surveyed 101 offices collectively managing $136 billion in wealth. These families are particularly focused on securing strong returns and understanding the implementation of generative AI.
The most significant challenge highlighted is finding suitable individuals to manage their wealth. More than 36% of wealthy respondents indicated a limited availability of talent with the necessary personal skills to oversee their estates. Similarly, 32% reported difficulty in locating leaders with adequate interpersonal skills.
Managing a family office can be financially rewarding. The research suggests that the highest-paid CEOs in family offices earn $500,000 (€476,000) annually, although the average salary is $288,000 (€274,600). Despite being appealing, these figures are not as competitive when compared to equivalent positions in other investment sectors. According to executive search firm Heidrick & Struggles, the average salary for private equity-backed CEOs is $447,000 (€426,000). In contrast, the lowest-paid family office CEOs receive around $120,000 (€114,000) annually.
Families possessing more than a billion dollars in assets remunerate their CEOs with an average base salary of $370,000 (€353,000), accompanied by an 88% bonus. This base salary represents less than 0.037% of the total fortunes of these families. Additionally, the compensation is lower for family members and CEOs working in family offices valued under $500 million.
To attract top talent, family offices are offering enhanced incentives. While many provide discretionary performance bonuses, others include co-investment opportunities or a share of generated profits. Historically, family offices have utilized prestige to entice leaders, capitalizing on their smaller teams which allow employees to have a more pronounced impact. They have typically attracted heirs interested in preserving the family legacy.
There is growing concern that these factors may not hold the same appeal for non-family members as they once did. Additionally, younger generations seem less interested in maintaining their parents’ legacy, opting to establish their own paths instead.
A founder of a family office in the U.K. expressed concerns about a shortage of individuals willing to manage family offices, as family members from the 1960s who have been running these offices for 15 to 20 years are now retiring. It is anticipated that many from the next generation will prefer to pursue their own interests outside of the family office, complicating staff recruitment. This might force family offices to hire more professional staff from financial institutions, thereby altering their culture.
Conversely, a family office CEO noted that compliance and regulatory burdens at larger investment firms are prompting more investment managers to consider working in smaller family office environments.
As baby boomers transition their companies and fortunes to the next generation, the trend of hiring non-family members to manage family offices is increasing. This approach can help prevent succession conflicts among heirs, often involving multiple siblings and even cousins from the same founder. A U.K. family office CEO highlighted a scenario where their next generation comprises seven cousins, the children of three siblings, potentially leading to competition for the leading roles in the family business or office.
This article first appeared on Fortune.com on December 5, 2024.
