CONTRIBUTORS
Sandy Kaul
Head of Innovation
Franklin Templeton
Robert Crossley
Head of Industry Advisory Services
Franklin Templeton
Alegria Apikelis
Senior Analyst
Franklin Templeton
Janice Deringer
Senior Analyst
Franklin Templeton
Samuel Huddart
Senior Analyst
Franklin Templeton
This is the 11th article in the Future of Investing series, drawing insights from our annual industry-wide survey. 1 The Overview summarizing the top 10 key findings can be found here along with the entire series of articles exploring the key findings.
Preview
High-touch advisory for ultra-high-net-worth individuals and institutions focuses on community to foster intra-network connectivity and benefits
Today’s platforms that support bankers and advisors in their attempts to deliver high-touch services to their ultra-high-net-worth (UHNW) clients and family offices have significant shortcomings. Most investment offerings remain focused on equities and bonds, and while many of these platforms can handle private funds, these funds are not well integrated into reporting and performance attribution systems. The documents that lay out the terms and covenants required to administer private funds, margin accounts and derivatives are often handled manually and not built into automated workflows. Tools that could help clients model potential portfolio impacts and analyze performance across the breadth of their asset exposures are mostly lacking. There is little interactivity beyond basic chatbots and—in some instances—video-conferencing abilities. The gap is widening between service demands and the portfolio and experience that can be delivered to these higher-wealth clients.
Like institutional investors, the wealthiest individual investors are creating more complex portfolios that utilize a range of investment techniques to leverage, hedge, tilt and structure their asset holdings. They are co-investing with private fund managers and are pursuing direct investment opportunities. They are securing funding to support new opportunities and looking to manage private credit arrangements and private loans. Rather than any type of standard portfolio, these investors need to have their assets managed as bespoke “portfolios of one.”
This is creating challenges for UHNW clients and their families. More UHNW individuals are setting up family offices as the patriarchs and matriarchs reach retirement (80% of single-family offices are first-generation).2 Rather than this being a single point-in-time exercise, there is typically a reduction in the older generation’s participation and a ramping up of the next generation’s involvement. This increases the communication challenges of managing the family’s money as multiple stakeholders may want their voices heard and views taken into account on any decision.
Broadening the decision-maker pool also increases the likelihood that there will be a greater diversity of investment opportunities put in front of the family and that sub-groups may choose to invest in certain initiatives, while others may choose to forego participation. Since many families are aligned through business and social connections, the generational turnover of wealth also encourages a more “club-like” mentality. Generational peers from different families may bring opportunities to each other and choose to invest together, particularly around opportunities that touch on shared passions.
The result has been a growing trend toward wealthy individuals and their families joining multi-family offices or hiring their own chief investment officer or investment team, and even creating their own technology. Survey participants noted that some of these platforms combine bespoke messaging and voting apps to help coordinate a complex set of familial and peer relationships. They also feature customized accounting and reporting systems to address the fragmentation and complexity of the family’s overall and sub-portfolios. Often, families that have made these investments are opting to share their technology with each other, removing these opportunities from the traditional private-banking and wealth platforms.
For more information or to request a presentation on the 2024/25 Future of Investing findings, please contact your Franklin Templeton representative or reach us directly at [email protected]
Endnotes
- On an annual basis, Franklin Templeton’s Industry Advisory Services team conducts off-the-record, unscripted interviews of leaders across the financial services industry. This year, we were fortunate enough to hear from 85 leading thinkers controlling over US$50.1 trillion of assets under management across the financial services industry about their views on the future of investing between March and September of 2024. Input came from a broad cross-section of the industry—asset owners, private banks, wealth managers, consultants, investment managers, crypto firms, academics, industry leaders and fintech firms. Conversations took place formally as part of free-ranging, qualitative, off-the-record, survey interviews, and informally during one-on-one sessions where the implications and plans for each organization are discussed and explored. Each of these inputs added to an emerging picture of an industry that is changing rapidly and across multiple dimensions. Interviews were conducted globally with about two-thirds of discussions held with leaders of firms based in the United States, and the other third spread between Europe and Asia.
- Source: “Family Offices: Global Landscape and Key Trends.” Instead. April 22, 2020.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Companies in the technology sector have historically been volatile due to the rapid pace of product change and development within the sector. Artificial Intelligence is subject to various risks, including, potentially rapid product obsolescence, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.
Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.