Servicing Priorities | Generational - Multi Family Office

Servicing Priorities

Determining servicing priorities: the make or buy dilemma?

Even the largest family office in terms of assets under management will need to assess whether or not to outsource services. Outsourcing certain services can be beneficial from a cost efficiency and know-how perspective, offering advantages to family offices that include:
Reduced costs and overheads, and improved staff productivity

  • Economies of scale, particularly for high-value professional services, thus enabling lower prices for related services
  • The benefits of objective advice from experienced professionals who possess specialized skills
  • Help with defending the family office’s regulatory independence when outsourcing investment management, by allowing investment decisions to be made by external providers
  • Due diligence and continuous monitoring can be carried out by the directors of the family office to ensure performance and security against risk

On the other hand, a number of key services are usually kept in-house. The advantages of this are mostly related to confidentiality and the independence of the family office, and include:

  • Higher levels of confidentiality and privacy
  • Assurance of independent and trusted advice
  • Consolidated management of family wealth
  • Development of skills specifically tailored to the family’s needs
  • Greater and more direct family control over its wealth
  • Keeping investment knowledge within the family
  • Assurance of optimal goal agreement, along with the avoidance of conflicts of interest with external providers

Given these considerations, it is crucial to obtain the right balance and to identify those services best suited for management in-house. Many factors involved in the make-or-buy decision are specific to the setup chosen for the family office, in particular:

  • The size of the family and how many family members want to use the family office
  • The net worth and complexity of the family wealth
  • The family’s geographical spread
  • The variety of assets, both liquid and illiquid, under management
  • The existence of a family business and the link between this and private wealth management
  • The skills and qualifications of family members
  • The importance of confidentiality and privacy
  • The consideration of whether the family office should be a cost or a profit centre

This variety of factors highlights how vitally important it is for the family to clearly determine its expectations and address key questions prior to creating the business plan for the family office. These include priorities setting and scope definition for the services to be offered from the family office:

  • Who should be the beneficiaries of the family office and what is the overall strategy of the family to secure and expand its wealth over generations?
  • Is the family’s priority traditional asset management of liquid funds, with or without a portfolio of direct entrepreneurial investments? And where does philanthropy fit into the mix, if at all?
  • Should the family office act as the asset manager for all family members, or should it just be an adviser for some specific services to selected family members?
  • Is the family office’s core task that of a financial adviser, or more that of an educational facilitator for the next generation of family members?

Although the make-or-buy decision must be based on the specific setup of the family office, some general considerations can help to determine the optimal solution. Best practice is based on the goal of obtaining the most effective services in an efficient way and avoiding potential operational risks.

Key determinants of the make or buy decision

Cost and budget

Escalating costs can pose a serious challenge to family offices. Clearly, it is unreasonable to insource the whole range of potential services without considering the economic benefits. Appointing an outside provider can ensure quality, and possibly cost savings, as the family office would benefit from economies of scale.

Expertise

The priority services as defined by the family will be covered by a multi family office, ensuring independent expert advice to the family. However, the multi family office will gain from outsourcing certain selected services that require specific expertise.

Regulatory restrictions

A family office should consider all regulations, depending on its distinct legal structure. In the absence of professional management, a family office runs the risk of serious fallout from negative publicity. Legal action could also be costly and harmful to reputations.

Technology and infrastructure

The technology employed by an external provider can serve the family office effectively. These services have become even more of a priority as financial operations become more complex.

Complexity

If the family’s assets are substantial and complex, the family office will need a multi family office solution whereby the in-house decisions on all matters have to be final.

Data confidentiality

Confidentiality is a prerequisite to any provider of services to a family office

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