The cost-of-living crisis is hitting everyone hard, and family offices are no exception to this, says Lucia Perchard, head of family office product - corporate solutions.
In the current environment, the cost of building experienced teams, implementing the latest technologies and scaling operational infrastructure in-house may become more prohibitive, especially for single family offices.
However, while rising costs will have a lesser impact among the larger family offices, or multifamily offices, we expect to see our clients re-evaluating what can be outsourced to drive greater efficiency in their operations.
Our family office clients are finding that staying up to date with the growing compliance, HR and other regulatory requirements needs a team. Not only is the talent market extremely competitive at present, making it hard to find personnel with the required skill sets, the size and cost of a fixed internal team may be disproportionate to the associated returns.
Along with the talent challenge, many families are finding the costs associated with staffing a complex investment management operation to be considerable. Even when the right investment professionals are in place, there are other functions that require staffing, such as administration and reporting. For all but the wealthiest of families, the cost of these functions can be prohibitively expensive, meaning that outsourcing can be much more viable than building an entire team under one roof.
Similarly with regard to IT and technology platforms, families understand that in addition to investing substantial capital in these projects, keeping technology operations in-house also means owning that risk. As a result, they would rather outsource this to a reliable third party ensuring that for a fraction of the cost, family offices can take advantage of the latest, most advanced technology and are offered greater choice through a combination of the provider's joint ventures with technology firms, as well as their own proprietary platforms
With costs rising, we expect to see an increase in outsourcing as family office clients look to take advantage of the expanded range of skillsets, talent and technology that they can access through an external partner. For smaller family offices, it may well be time to either review the cost benefit of a multifamily officer or looking to retain investment functions but outsource the "adminisphere".
In 2023, we expect reputational risk to become of growing importance, with families reviewing the ESG credentials of their portfolios, as well as of their conduct such as the implications of travel and carbon footprints. While Family Offices have long made investments which are compatible with their values (as well as their return goals), ESG has matured as an investment theme in 2022.
However, family offices claiming ESG-aligned principles must now back up these claims with rigorous and sophisticated data. Families are paying closer attention to the companies they are investing in; requiring hard evidence of positive practices and sustainability to avoid any accusations of ‘greenwashing'.
Yet private wealth planning remains a complex and deeply personal affair. Not everyone views making a positive impact through the same lens. This means that wealth managers and service providers must work closely, as an extension of the family to establish and understand the personal values as well as the financial goals of each client when considering ESG investments
In 2023, we believe family offices will approach ESG with more caution but will not be discouraged from making ESG-aligned investments. Instead, they will seek out the service providers and technologies which allow them to capture the right ESG data from their investments, benchmark and understand its meaning, and to quantify positive change in their portfolio over time.
Many family offices see the start of 2023 as a point of reflection and the year ahead a chance to explore the options available to them. Increasingly, they are finding that outsourcing to a single source provider like Apex Group is about much more than just the structures. Businesses services such as HR and accounting can be outsourced effectively, leaving the family to focus on investing their wealth.
By Lucia Perchard, head of family office product - corporate solutions
