Single-family offices face balancing act
Citing a collapsing investment market and increased demands from family members, many single-family offices are worried about keeping their doors open, saying that “sustainability” is the biggest challenge they face.
Citing a collapsing investment market and increased demands from family members, many single-family offices are worried about keeping their doors open, saying that “sustainability” is the biggest challenge they face.
That was a key finding from the “Single-Family Office Study” released last month by Family Wealth Alliance LLC of Wheaton, Ill.
“For single-family offices, assets are down and expenses are up,” said Thomas Livergood, chief executive of Family Wealth Alliance.
“When things are hunky-dory, as they’ve been for the past few years, nothing is questioned,” he said. “When things start going wrong, everything is questioned.”
Many single-family offices “will need to change,” Mr. Livergood said.
A total of 32 firms, with average assets under management of $562 million, participated in the survey. Aggregate client rosters included more than 900 households and 2,000 family members.
Single-family offices face a stark choice, Mr. Livergood said. They must consider outsourcing services, merging or entering into a joint venture with another single-family office, or becoming part of a multifamily office, he said.
Single-family offices are definitely outsourcing services such as tax planning, compliance, accounting, bill paying and cash-flow management, said Rick Flynn, a principal and head of the Family Office Group division of New York-based accounting firm Rothstein Kass.
“They don’t want the human resources function,” he said.
By contrast, multifamily offices are increasingly seen as a more popular business model, according to “The Multifamily Office Solution,” a study released last month by Rothstein Kass.
“Multifamily offices are well-positioned to offer a deeper, broader scope of services,” Mr. Flynn said. “They have a very efficient structure and can offer economies of scale, due diligence and open-architecture platforms.”
In light of the recessionary environment, a number of single-family offices will be reassessing their priorities, said John Benevides, president of the Chicago-based Family Office Exchange.
“Some offices are asking themselves “Why are we doing this?’” he said.
The result may be that “some may not exist” within a year, Mr. Benevides said.
Other single-family offices will scale down in-house services, collaborate with other like-minded offices or consider turning themselves into a multifamily office, he added.
Multifamily office executives who have been talking to their single-family counterparts say that many are eager to make deals.
“I’ve spent the last four to five months going around the country, visiting family offices, and single-family offices are struggling,” said Colleen Manley, a trust and estate attorney from Phoenix who joined New York-based Shelterwood Financial Services LLC as a senior wealth and legacy adviser in March. “Most that I talked to said they were looking for a strategic alliance.”
Ed Lazar, president of Threshold Group Inc., a multifamily office based in Gig Harbor, Wash., said that though he has been approached by single-family offices, he doesn’t “necessarily want to partner with someone who has a problem. I want to look at a partner who wants to grow.”
Finding and keeping talent was also a challenge that single-family offices in the Family Wealth Alliance survey face.
“A number of participants mentioned the difficulty they face in recruiting and retaining talented staff members,” the study reported.
“It’s hard for them to attract first-class talent,” said William Rankin, Shelterwood’s chief executive. “You’re confined to the world of one family, and many professionals feel that’s too confining and takes them off a career path that would serve them better in the long run.”
Mr. Benevides said that the issue of attracting and retaining talent is the result of “accelerating professionalization” at single-family offices.
Although single-family offices may be going through a rough patch, industry veterans said that they will always be around.
“The mega-wealthy will always need them,” Mr. Rankin said.
“There is peer pressure to have one and they like the confidentiality,” he said. “Even if some shut down, new ones will pop up.”
E-mail Charles Paikert at [email protected].
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