Outsourced family offices are much more cost-effective as the adviser – or advisers – are able to provide a broad range of services, removing the constraints of family offices.
Integro Private Wealth managing partner Justin Gilmour tells Professional Planner family offices are realising they need a broader skill set to operate effectively in markets and are turning to outsourcing for these services.
“The need for [outsourcing] services is increasing, and that’s difficult to resource internally within one single family office,” Gilmour says.
Gilmour says this is especially true for single-family offices, which focus on an individual or family, as it is difficult for these offices to have the depth and breadth of the experience across different asset classes.
“It’s very difficult for them to have that scope across the investment market as markets are enormous.”
He says an outsourced multi-family office, which targets multiple families as clients, is much more cost effective as the adviser can bring the correct expertise for the particular need of the client to the table when needed.
Gilmour adds it is more difficult to attract talent and train advisers in multiple disciplines to be able to service a single-family office, whereas this is not the case for multi-family offices.
“In a multi-family office, there’d be multiple advisers, and that’s probably the benefit of it so that you can actually match the family with the right adviser,” Gilmour says.
BDO Australia partner Eleanor Moffat agrees the benefits of outsourcing services for family offices outweigh the concern because of the constraints.
“They’ve got better access to technology, better access to other people, a broader range of networks that they can draw on, and they also are able to bring in often more deal flows to the families than just a single-family office,” Moffat says.
This is not to say multi-family offices can provide all the services – they might need to outsource to access a particular type of lawyer, for instance.
Moffat says family offices are constrained by what they are allowed to provide, which requires the need to bring in a professional firm to get the answer for the client.
She adds the advisers working in single or multi-family offices might not have the depth and breadth of knowledge to service every need of the client – another benefit of outsourcing.
“Outsourcing of the services to professional advisers means that the staff associated are receiving adequate training,” Moffat says.
“Whereas they tend to not receive adequate training within a single-family office.”
However, last year a report from UBS found while certain functions of family offices were being outsourced, the preference has still been to keep investments in-house.
‘Perceived trust’
One of the disadvantages of family offices for the client is the lack of direct control they have over their assets and hence the requirement to place full trust in the adviser.
Moffat says while she has not seen a breach of trust in either a single or multi-family office, it’s going to be present because of the family’s wealth.
“We’re obliged to maintain confidentiality and for us it’s just another client,” Moffat says.
“We don’t see the great thing of having so much money and working with these wealthy families. It’s just another family, they just might have a few extra zeros after their name.”
Gilmour concedes there is a trust element as the family has less direct control and that the risk is greater with a single-family office.
However, he agrees it can be handled by keeping the family or families informed on a regular basis and making sure they understand everything that is happening.
“It can be overcome with a good family constitution and a proper scope of brief, in terms of what’s involved for the firm that they’re engaging,” Gilmour says.
Opportunities and challenges
Working in a family office provides new opportunities for advisers as it is a space that spans multiple disciplines and handles huge amounts of wealth.
“The opportunity is that you basically can expand your skill set in the fact that you’re working across a range of disciplines,” Gilmour says.
“It could be their insurance requirements, across philanthropy, financial literacy for kids. It’s a lot broader in scope [and] more interesting for advisers in that space.”
Moffat says the family office space is a huge opportunity for advisers and there is much more work for advice professionals than they realise.
“You’re not necessarily confined by the regulations of working in a practice like a legal firm or an accounting firm or a bank or investment firm,” Moffat says.
However, this is a double-edged sword as the adviser is essentially “on-call all the time”.
“Families might not necessarily understand that you have a life and the boundaries between employer and employee often get blurred. You are on-call a lot more.”
Working in a family office also requires a broad skill set, which the average adviser may not have in their back pocket.
Gilmour says it is “absolutely” a challenge stepping into the space as it’s a multi-discipline approach.
“It’s more like legacy planning. How’s the family going to run, how they’re going to make decisions going forward? What’s the family constitution look like?
“You’re dealing at a different level, which means it needs more sort of skill set than what it would need in a traditional financial planning firm.”
He adds advisers would need a decent amount of experience to have the required skills and knowledge to step into the space.
“It’s not something where you go and do your PY [professional year] and then [start] all of a sudden.”
