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.”
“A single family office works best when there is more ‘glue’ than just the investments to hold family members together, such as philanthropy, shared property, etc.”
“If considering establishing a single family office, hire talented, experienced, dedicated, conscientious people. Make sure your asset base is large enough to absorb the expense.”
Before Joining a Multi-Family Office
“The cultural fit and the alignment of expectations are terribly important. Also, make sure the multi-family office has the skills that you need.”
“A multi-family office can be a reasonably affordable solution if you are not willing to spend on a dedicated family office, or if you cannot attract people at a level you are happy with.”
“Be careful of conflicted advice from all-in-one outsourced platforms, including some multi-family offices.”
Before Outsourcing or Sharing Resources
“Outsourcing can often depend on the legacy expertise and/or interest of a family or individual family members. Outsourcing may make sense if the family has no background or interest in doing the things that need to be done.”
“You get what you pay for (at least most of the time), so don’t try to hire ‘on the cheap.’"
“Be skeptical. Any solution can be more expensive than promised or expected.”
Nearly one-third of IPI member families participated in the survey. Of those, 45% had total assets of more than $200 million, 35% had total assets between $50 million and $200 million and 20% had less than $50 million of total assets. Fifty-one percent were aged 41 to 55, 27% 56 to 65, 12% “wise beyond years,” 8% 30 to 40 and 2% under 30. These demographics were consistent with IPI survey respondents from prior years and within IPI membership as a whole, the statement said.