Wealth managers and family offices have a golden opportunity to capitalize on a “tidal wave of change” about to transform family-owned businesses, according to one of the country’s leading private investment firms.

Wealth managers and family offices have a golden opportunity to capitalize on a “tidal wave of change” about to transform family-owned businesses, according to one of the country’s leading private investment firms specializing in founder-owned companies.

“There are about 22 million family-owned businesses that account for roughly half of gross domestic product,” Rodney Goldstein, chairman and managing director of Chicago-based Frontenac Company, said in an exclusive interview with Family Wealth Report. “At least one-third and possibly one half of the principal shareholders are 55 or over,” Goldstein noted. “A majority of family-owned businesses don’t have a succession plan or a long-term strategic plan and two-thirds have not chosen a successor.”

In addition, family-owned businesses are facing significant changes on a number of fronts, including tax policies, estate tax rules, global competition and a “de-coupling” of marketing, distribution and research and development functions in the marketplace, he said.

The implications for wealth managers and family offices will be profound, Goldstein asserted.

“The decision-making process in families who own businesses is going to have to change. Different people will be making decisions and more people will be making decisions,” he pointed out.

“There will be an inevitable need to oversee the transition as part or all of operating assets are converted into financial assets,” he continued. “And it has to be done in a way that reflects the families’ values and be integrated with their  estate, tax and investment planning.”

Families will also need help transitioning governing responsibility and authority from the first to second generation in the wake of  demographic shifts and liquidity events, Goldstein said.

“Advisors to families are looking at a tremendous opportunity that will be complicated and important to get right,” he said.

Reports from other parts of the world help explain why wealth managers are prospecting among family businesses as a source of client. A report issued two years ago by the University of St Gallen in Switzerland concluded that “recent studies provide empirical evidence that family firms are outperforming their non-family counterparts in terms of stock market performance”.

The St Gallen studies found that “data shows that family firms display more stable earnings per share in contrast to their non-family counterparts”.