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
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:
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:
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:
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.
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.
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.
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.
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.
Confidentiality is a prerequisite to any provider of services to a family officeGet in touch today