While the family office industry almost takes pride in its ‘no size fits all’ makeup, there is undoubtedly a repetitive nature to the challenges that specific family office archetypes face in the different stages in their life cycle. For the rapidly expanding number of single family offices this can often center around capacity and inexperience while multi-family offices see their own issues, frequently around scaling effectively.
If asked what the most common pain points were across the family office ecosystem the answer would naturally vary depending on who answered, but there is a lot of work being done in the industry by various players to develop and share best practice.
Coincidentally, while growing pains don’t necessarily exist in the real world (there is no evidence that growth itself hurts), it seems the family office industry is experiencing its own very real growing pains. As it continues to grow in both influence and numbers, here’s a handful of common questions that give some insight into what’s causing them.
How do we map out an optimal family office organizational structure?
When structuring is discussed in the family office industry it often relates to asset structuring, jurisdictions, ownership structures and more. But the organization itself is also seeing a lot more attention and this includes both leadership and staff. Talent acquisition and retention is a major concern for all family offices, particularly in the senior roles when there isn’t room for partnering.
Single family offices need input on team roles, hiring progression and operating budgets as they evolve, while multi-family offices frequently lack sufficient sales experience required for business development. Across the board, family offices seek to manage cost efficiencies while simultaneously attracting talent from private equity, hedge funds and other sectors. Team structure and compensation is a juggle at any family office life stage and getting it correct is crucial.
How do we aggregate and manage all our data for better insights?
Family offices manage investments across many asset classes, from traditional stock to alternative investments like real estate, art and even digital collectibles. Consolidating these extensive portfolios with accurate and useful reporting is a challenge thankfully being solved by many new wealth management platforms but family office technology integration is often its own conundrum.
What does an effective succession strategy entail?
For more than a decade, “the great wealth transfer” has been discussed, and now we’re in the midst of it. Family dynamics, diverse portfolios and team limitations often mean the significant challenges of succession planning are deliberately ignored as long as possible. The very private nature of the industry also means that there are few benchmark references, a knowledge gap that can create conflict not just between the generations of wealth owners but also the management team trying to resolve this. If this delicate but essential dialogue is started early it can turn this challenge into an opportunity to structure long term vision and strengthen relationships between boomers, millennials and beyond.
Is there a benchmark approach to risk avoidance?
No longer is the term “risk” only connected to investment-related risks. From regulatory compliance intricacies across different jurisdictions, changing estate planning and global tax laws through to the very real concern of cybersecurity threats, staying in front of potential risks cannot be underplayed. Yet not every family office has a Chief Risk Officer on hand to plan for regulatory, competitive and technological threats. Larger multi-family offices can hire teams to manage this while single family offices rely on outsourcing – but knowledge around best practices is clearly not yet as available as it should be.
How do we compare asset allocation?
While sourcing new investment opportunities is itself a significant challenge for many family offices, it’s part of a bigger uncertainty in balancing long-term growth and preserving wealth while fulfilling and measuring philanthropic and impact investing initiatives. But, it’s also not just about the return anymore, it’s also about where these returns are derived and including a values-based approach, which makes the modern family office investment strategy a complex beast to manage.
This is why comparative views and insights with other family offices can be so handy. The trick comes in to find those family offices that should form part of a comparison exercise. This is where many of the family office reports fall short as it’s not as simple as selecting a region and a size in AUM.
Which provider is best suited to us?
With these common challenges comes a growing variety of solutions providers on offer, with the potential for some to handle more than one major task. The extent of options and often overlapping capacity creates indecision followed by situations where family offices don’t make the best choice, which after integration and onboarding can be a time-consuming and costly exercise with a disappointing result. This is perhaps one of the biggest challenges of them all – finding the service provider that is best suited for that specific family office challenge.
Family offices frequently ask about what other family offices are doing but often don’t want to share about their own operations. It’s here where independent advisory services play such an important role, to advise family offices in an unbiased manner throughout the various challenges they face. It’s also perhaps here where finding efficiencies in the ecosystem can most effectively be unlocked.
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