A wide-ranging international study by EY points out surprising weaknesses in their ability to manage a range of risks effectively.

The uber-wealthy seem to be like the rest of us in at least one way. They also have difficulty coping with change. At least that seems to be the take from global consultancy EY in a study released Tuesday that looked at more than 250 of the world's leading single-family offices in 12 countries.

Many of them are having clear trouble grappling with far-reaching changes in government regulation worldwide, including tax policy, and with rising levels of geopolitical uncertainty, as evidenced by the ongoing war in Ukraine.

This, and a need to better manage a wide variety of risks, weighed heavily on the minds of the survey respondents, whose online answers were measured using a mixed-methodology approach supplemented by in-depth qualitative interviews.

Getting Hacked

Most had a sense of urgency when it came to digital transformation and they expected to make significant investments in new tech and related tools in the next two years. But this also carried risks - not just for the office itself but for all the businesses and family members connected to it.

Given that, almost three-quarters of respondents said they had experienced some type of cyber security or data breach. And most do not appear to be handling it diligently, according to the survey's authors, with 72 percent of family offices not having a cyber incident response plan and less than one-third providing any kind of training for employees or family members.

Taxing Obligations

Tax transparency and the exchange of information are long-term issues, with almost two-thirds of family offices expressing little confidence in their tax operations, as one respondent indicated:

«Companies now need to be much more transparent about their taxes to both shareholders and tax authorities. If you want to be sustainable for the long term, you can’t get entangled in a cross-border tax issue.»

This has downstream implications in several surprising ways, not least in the international lifestyle that many family members lead. The post-pandemic new normal of remote working, and its tax consequences, was rated a concern by almost three-quarters of those answering.

 Inadequate Risk Management

Less than half of family offices felt confident about having a robust and structured risk management process, with almost one-third saying that risk-related decisions are not taken at the highest levels of their organizations.

There is an additional difficulty. Enforcing those structures on the wider families, with one SFO saying:

«It can be complex as a family office to manage risk. I can tell employees what to do to mitigate risk, but I can’t tell a family member.»

Governance and ESG

The pandemic has heightened the need for rigorous government, the authors indicate, as a way of setting boundaries and differentiating roles between family and other stakeholders.

Changing societal expectations and younger family members were also having an impact, with 44 percent of single-family offices planning to exclude investments that did not match their ethics and values, not least given that they can influence the family's overall reputation.

EY global private tax leader Steven Shultz summarized the changes many are currently facing:

«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.»