“Investing remains the number-one challenge for the single-family office,” says Thomas Livergood, CEO of the Family Wealth Alliance. Livergood (left) announced the findings of the “Third Annual Single-Family Office Study ’10,” on Friday in the library of GenSpring Family Offices in New York, one of the sponsors of the study.
These sentiments echo findings of the AdvisorOne.com/Wealth’s 2010 Top Wealth Managers survey, in which 82% of the registered investment advisors (RIAs) participating ranked investment management as the first or second most important service they provide for clients. Nineteen percent of the Top Wealth Managers are multi- or single-family offices. The findings in the Family Wealth Alliance Study are relevant to many wealth managers, as so many run smaller firms akin to single-family offices.
“Concerns have eased” about markets and the economic climate, but single-family offices (SFOs) still see challenges regarding “transition and family dynamics,” Livergood says, and “regulation is on the radar.”
The Family Wealth Alliance interviewed 34 family offices for the 2010 study, 35 in 2009 and 32 in 2008. Livergood estimates that there are “2,500 single-family offices in America, with assets of $1.8 trillion.” The median SFO serves seven families.
“Sustainability” of the SFO itself is an ongoing concern for participants, along with challenges about “human capital,” Livergood notes. The study found that SFOs in the smallest tier, with less than $100 million in AUM, are concerned about retaining their talent. All sizes of SFO are seeing the compensation for their top executive climb; the top tier ($5 billion plus) paid its CEO an average base salary of $531,000 for 2009, up from $408,000 in 2008, while the smallest SFOs paid their CEOs an average $156,000, up from $147,000 in 2008. But finding the right non-executive professionals is also a challenge.
Mergers of SFOs
Many SFOs are exploring mergers with other SFOs or even moving over to a multi-family office. Why? “Scalability…talent pool…human capital” challenges all play into merger activity for family offices, Livergood asserts. These challenges were exacerbated by the market issues of the past few years. Some SFOs are outsourcing, and it’s not just administrative or back-office types of services. For instance, he explains, 33% outsource their chief investment officer.