This edition of My Family, My Business, features the first part of an interview conducted by Chinasa Collins-Ogbuo (PwC) with Esiri Agbeyi, Partner, Private Clients & Family Business Leader on Family Offices, for PwC Nigeria’s NextGen Talk Podcast.
Our NextGen Talks nugget for today says that: Compared to their global counterparts, most family businesses in Nigeria do not have a family office for their investments and other services. What are your thoughts on this?
We have a lot of family businesses and families that have offices with assets under management of over trillions of dollars. Like the Walton family, or Jeff Bezos, who has his own family office.
In Nigeria, though we have high net-worth individuals and families who probably have passed on businesses to subsequent generations, you don’t necessarily see the modern concept of family offices. This is more because it’s glossed over.
What exactly is the role of a family office and how is it different from a family business?
The main thing is that it’s unique to the family which is why it has the prefix “family”. As well as the fact that it’s there to serve a purpose, which is, ensuring that you pass on wealth to the next generation.
Additionally, you’re using that structure to professionalise the transfer of that wealth as opposed to using just wills.
There is an intentionality around ensuring that the values of the family are enshrined, and those values, in turn, continue to give an impact for generations beyond you. The family office is a fantastic concept, but in simple terms, that’s what it represents.
A lot of businesses in Nigeria currently are run with embedded family office concepts, where they’re using a staff member of the organisation to run their personal affairs.
Essentially, it allows you to have a structured approach to transitioning, so that for the next generation of business owners, there’s a structured approach for them to take over. As opposed to just giving them money. What roles do family offices play in sustaining and growing private wealth?
The point about the wealth growing and going beyond generations doesn’t necessarily mean that it has to do with the legacy business.
It might mean that that wealth then takes a different face entirely, because now you’ve brought on different unique personalities in the next generation who may feel the need to branch out into something else.
The family office then provides a strong backbone. It helps you put the right structure that can guide and foster that objective.
You’re looking at things around investment management, which is, traditionally what a lot of families or individuals would focus on. It’s not just about the money.
At the end of the day money without values is not wealth. You must back it up with the values as these are the inherent advantages that the family has to stand out from other family businesses.
Secondly, you want to start thinking about governance structures, which need to go in a family office. What are the risks of doing things the wrong way? Do I want to be out in the public for the wrong reasons? How do I ensure that our reputation is protected?
Thirdly, it’s important that you have a section that deals with compliance. Now, in the age where we’re seeing the Common Reporting Standards, and the need to just be transparent with information across borders, it’s important that your compliance unit begins to think about such things for the family.
Other roles within the family office, apart from just investment management and compliance, include administration and concierge services. If a family wants to travel, you need people to organise it. This will generally be handled by the family office.
In terms of next-generation education, it’s also within the family office. This involves responsible stewardship, setting the ground rules for how we should behave as a family, or how we run businesses in the family.
The other things we start to see are things around security and safety. Especially now in the age where technology is becoming really vibrant, a lot of family businesses and corporations are exposed to hacks and data leakages.
It’s important that the family office also takes that approach in setting up. One more thing as well that’s important to consider with family offices is data management. As family businesses grow, there’s a lot of data that needs to be managed and handled.
Sometimes managing that data properly, analysing it to make informed decisions across regions helps family businesses be more agile.
What kind of data?
Unexpected events like COVID-19, typically will jolt businesses and then you wonder, what could have gone different? During COVID, there were changes with employees, realising that they could do things by themselves, and branch out.
It also revealed that you couldn’t do business without having technology.
We found that there were a lot of exposures to either not being able to sustain the business for growth, or you weren’t even analysing the data in front of you to make the right decisions, either in hiring people or in even making sales to the public.
That data is what we’re seeing is important that businesses now use them to make meaningful decisions in such events.
A data management store can enable you to make those decisions proactively, and anticipate or simulate them sometimes.
Let’s say I own a business and I don’t know that I have all of these skills, how do I set up a family office? Must I set one up myself? Or can it be outsourced?
It depends on the size of wealth that you have, and what tends to happen is you probably start with doing it yourself. If you’re disciplined enough.
What if I don’t know what I need to do?
The first question is distinguishing your wealth from your corporate or business wealth. How do I then put a structure around that personal wealth? Do I have an intention to pass this wealth on to the next generation? Do I want to leave a legacy? What’s the legacy? What are my values?
The family office takes its life around your values, around what your future objectives are. I said it’s easier to start because it’s costly to have these family offices. The Walton family’s family office or assets are well over millions of dollars.
When we talk about what funds sit within that family offices, ranging from the dividends from their businesses to capital gains when they exit certain businesses, or the IPO, all of that wealth is not the business wealth.
The salary you earn, if you work within the business, is your own money.
A lot of business owners mix that wealth with corporate wealth. Sometimes because they want to be liquid, and at those early stages, it’s quite unrealistic to then ask to set up the family office because you don’t even have the funds to run your business.
Read also: Family Constitution: Why you need one
As you then grow, you have to think about what your legacy is going to be. If one can separate personal from corporate wealth, you then start to reach that point where you decide that you want to set up the family office.
A lot of businesses in Nigeria currently are run with embedded family office concepts, where they’re using a staff member of the organisation to run their personal affairs. Remember when we talked about Compliance sitting within the family office.
If I wanted to be compliant from a tax standpoint, sometimes you would find that these people are relying on staff within the organisation to do the small stuff.
However, that individual who doesn’t have the full view of everything that you do, will probably be uninvested, which is where the disadvantage comes.
You then ask, what’s my footprint? How pervasive is my wealth? Do I need to start pulling out that individual into my personal structure?
That’s a very important point for how you staff the family office. It’s very simple logic. I think it just takes taking yourself out of that corporate world and asking yourself these questions. What are my objectives? How do I set them up, which is where professionals come in. There is no point reinventing the wheel. This is a concept that has existed for years, it works very well for HNIs.
To be continued
