Family Office Elite Spring_16

THE NEW FAMILY OFFICE MODEL
BASED UPON CONNECTIVITY AND COLLABORATION
by Enzo Calamo, CEO, Lugen Family Office
Our world is changing at an exponential speed with
disruptive technology. When I was growing up, mail,
the rotary phone, telegrams, television, radio, and fax
were the most common forms of communication. In
today’s world, communication is virtually immediate,
and global, with texting, emails, Instagrams, mobile
phones, tablets, personal computers, and the Internet.
In the fourth industrial revolution, described by
Professor Klaus Schwab as the fusion of technologies
between the physical, digital, and biological spheres,
we will need to create a new family office model which
adopts disruptive technologies quickly while relying
more on trusted external information. In my opinion,
we are at an inflection point in history, very similar to
the age of the printing press, where empowering family
dynasties can now be achieved on a much broader
scale. However, disruptive technologies are causing a
major shift in the current family office model, founded
on privacy and confidentiality, since some privacy will
need to be sacrificed in order to take advantage of
the speed of third party platforms and services, such
as the Cloud. In fact, Bernard E. Harcourt’s new book,
Exposed: Desire and Disobedience in the Digital Age
describes:
“that we live in a society where every action,
every piece of social media content, every call and
every purchase can essentially be tracked, traced,
transformed into data and sold. This data, ultimately,
helps solidify a new identity for people, a virtual one.
Even our offline activities leave a mark in the digital
sphere—a world in which our everyday actions can be
used and reconfigured in order to gain new context.
We become data”.
As human knowledge is doubling at speeds never
seen before in history, family offices will need to
become private eco-systems of connectivity and
collaboration for UHNW families, other family offices,
internal and external professionals, and trusted third
party institutions and service providers. In reality, this
increasing speed of change within the fourth industrial
revolution is only highlighting what wealthy families
have known for generations - namely that a holistic
approach to life and intergenerational family planning
is very complex. In the past, and even in today’s
society, this complexity has been the domain of
lawyers, accountants, bankers, and financial advisors
surrounding UHNW families and their family offices.
Unfortunately, when I work with wealthy families, I find
that most of their advanced financial and tax planning
strategies are focused on the founders of the wealth,
their children, and the grandchildren. In my mind,
it is the time that we break this short-term nuclear
family focus since this approach has not worked for
centuries. We have all heard the saying of shirtsleeves
to shirtsleeves in three generations. As Craig Aronoff
and John Ward state,
“In virtually every language there is a similar, fatalistic
view of family wealth and enterprise. In England, they
comment, ‘From clogs to clogs in three generations.’
In Italian, ‘From barn stalls to the stars back to barn
stalls....’ In Chinese there is a comparable expression,
‘The first generation builds the wealth; the second
generation lives like gentlemen; the third generation
must start all over again”.
Research as shown that for 70% of successful
business families, their hard earned money is either
spent or otherwise lost before the end of the second
generation. By the end of the third generation, 90%
of families no longer have their wealth. JSA Advising
explains that “of the 70% of businesses that fail to
transition successfully; 60% fail due to problems with
communication and trust. 25% fail due to a lack of
preparation from the next generation. 15% fail from
all other issues (e.g. poor tax or financial planning, legal
advice, etc.) Therefore, roughly 85 percent of business
transitions fail due to a lack of communication, trust
or next generation competency.” Knowing these facts,
is it not the definition of insanity to continue doing
the same things and expecting different results. Just
to be clear, it is NOT the products, services, strategies,
or professionals that are the issue within the current
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FAMILY OFFICE ELITE MAGAZINE