The great majority of ultra wealthy families have a single family office, and a significant number of these predict material changes in the next 12 to 18 months, according to a survey of its member families released Tuesday by the Institute of Private Investors (IPI) in New York.
Eighty-six percent of the respondents defined themselves as having a single family office, and nine of 10 of those families said their family office is meeting the goals originally set when the office was formed, IPI reported. Nearly four of 10 of those who have a single family office said they were planning to make changes. Half of those are looking to reduce staff, outsource investment management, offer a private trust company or outsource non-investment services to an outside firm.
Of these respondents, 70% employ five or fewer staff, while just 13% have more than 10 employees serving the office, IPI said. The complexity of the families served by the family office varies. Thirty-three percent support five or fewer family members, and only 20% support more than 20 family members.
According to IPI, increasing costs and lower returns seem to have inspired some families to consider the feasibility of outsourcing. Asked which functions they planned to outsource in the next six to 12 months, respondents cited the following:
- Asset allocation: 22%
- Consolidated performance reporting: 21%
- Preparation for tax returns: 16%
- Manager selection and monitoring: 15%
- Estate planning: 15%
- Risk/insurance management: 12%
- General ledger/accounting/bookkeeping: 11%
- Direct investing: 10%
- Trust administration: 7%
- Next generation mentoring/education: 7%
- Bill-paying: 6%
- Family foundation administration: 4%
- Concierge/travel services: 2%
- Family operating business activities: 1%
Professional services firms, multi-family offices, investment firms and private banks all might be in the running to be the firm that assumes one or all of these functions, IPI said.
Survey respondents also offered advice to other families, as cited in IPI’s statement:
On Paying Attention
“A principal needs to stay involved and needs to understand what is going on. Know what you own and why you own it—always—even if you have others select and or manage the money. You simply cannot delegate everything.”
“It is crucial to have family involvement, and someone must step up and monitor the process. This involvement or perceived involvement helps advisors stay focused.”
“Consult your peers to learn about their successes and failures but remember to factor in how your family may be different and how that could impact your own solution.”
Before Establishing a Single Family Office
“A single family office involves a delicate balance between human resources and available capital to be managed. Also, it requires very significant elements of trust and delegation. It's not right for everyone.”