Finding Strategic Fit With Family Office Service Providers


Family offices that look to function at their most efficient will almost always rely to some degree on outside service providers. While new and smaller family offices are understandably more reliant, larger and established family offices will also use third-party providers that specialize beyond the family office capabilities. But finding the right providers can be a pain. From defining requirements to compiling a shortlist – there are several stages where things can fall apart.

Knowing the need for these symbiotic relationships highlights the importance of getting them right, and finding fit or moving on as quickly as possible when engaging with service providers. It’s something best done through a diligent process to minimize the risk of time and financial loss. This isn’t just entirely up to family offices either, but service providers themselves need to be transparent about their capabilities.

Build A Structured Process

Taking a systematic approach to ascertain whether a potential service provider is going to be the best fit is highly recommended, especially when there is the constant need within the family office world to balance privacy and trust. Being adaptive and efficient in the due diligence process is essential, with every situation bound to have its own nuances, but the importance of obtaining references from other families and clients is always crucial.

In building this structure and taking a detailed upfront look at the risks associated with different services, from wealth management to real estate, lifestyle or other, family office management teams would do well to get outside perspective to ensure they ask the right questions and get insight on common challenges across the industry.

“We think that actually, when you look across family offices, they are all different and the families are different,” Lisa Cornwell, a partner at PwC Switzerland noted during a recent discussion on this particular point, “But the risks they face, the areas they’re typically working in, you will see similar risks.”

Communication, Communication, Communication

Business management guru Peter Drucker said, “The most important thing in communication is hearing what isn’t said,” and anyone that’s worked closely with the often delicate and complex structure of a multi-generational family office immediately understands this. Communication is not just about an exchange of information, it’s the building block for the entire relationship between a family office and external service providers and therefore demands appropriate consideration.

A customized communication plan tailored to family preferences, with direct access between key decision-makers on both sides is vital to promptly resolve important issues that arise. And while there may be a demand from either side for speed, establishing rules around updates and timing helps to ensure accuracy, which is the most important factor.

“We’ve moving into a culture where sometimes everyone wants everything instantly,” Hari Hundle from London-based multi-family office, Hundle, pointed out, adding, “But when you’re expecting really good advice or you’re having to work through a complex problem, rushing things or being obsessed with daily moves is not the right approach.”

He further noted that finding a sensible balance around this is also greatly helped by transparency between teams, especially when it comes to negotiations around fees and providing context around pricing. Once there is clarity on this and with the right channels of communication agreed on between parties, there isn’t as much need for constant feedback.

“When performance is great, you don’t really hear from (family offices),” says Rebecca Cowley of EFO Advisory Services, noting that “When performance isn’t great, those are the more difficult conversations to have, and so silence, actually, in terms of communication is often a great verification of things working.”

What’s Measured Is Managed

Similarly to how things are communicated, setting up an agreed-upon list of qualitative and quantitative measurables to monitor ensures accountability and reduces the potential for frustration on both sides. Regular reviews that align with the communication structure will set the expectations and avoid any unwanted surprises when it comes to potentially contentious issues around progress on key projects or unforeseen expenses. This is something best dealt with at the start of any new partnership.

Align Resources Effectively

Just as service providers need to honestly assess whether they’re up to a potential project, family offices should make an honest evaluation on their capabilities. This should also be a regular task, and aim to determine if they have the right mix of internal and external support based on their evolving needs. Part of this is to correctly frame whether the family office resources are used to deliver on priorities for wealth owners versus a misalignment, where outsourcing something would be far more efficient.

Lisa Cornwell recommends a forensic analysis into areas the family office team is spending their time, itemizing what that is costing and comparing that to where the wealth owner believes they’re receiving the most value from. In her experience she’s found that because of shifting priorities, there will frequently be a mismatch between the two and and this can create the opportunity for outsourcing to a third-party service provider that can achieve better results at lower cost.

“If you’ve got a robust payment system in place and over time that’s developed so that to make a payment, three different people have to review it,” she points out as an example, “And there’s a report that goes out and has to be made every month, the cost per payment is going to go up, but the family won’t feel that as a benefit.”

Be Adaptable, Until You Can’t

Maintaining healthy relationships between family offices and service providers can sometimes be a challenge, especially when the needs of a family shift over time and when new generations become involved. There are often emotional and relationship-based decisions that can impact partnerships with service providers and test their ability to deliver.

It’s useful for service providers to understand that having a solution that is dynamic, that can be adapted to the shifting requirements of the family over time can be exceptionally valuable, but also that sometimes their offering may no longer be the most suitable option. For family offices to know that a service provider can accommodate changes easily can be quite an attractive factor in its own right, and highlighting that ‘plug and play’ capacity during an exploration phase is something that could help a service provider establish themselves.

Ultimately, each family office needs to understand what are the most important factors for them and whether it makes sense to have internal resources for things that aren’t part of that list. Independent advice can be invaluable for this process but also for both the family office and service provider when it comes to finding fit in an efficient manner – and to help deal with issues that arise during long term partnerships.

With technology driving new solutions that are often powerful yet increasingly complex, choosing service providers strategically is essential to ensure these solutions are embraced in the most effective manner. Developing the right approach to these partnerships and structuring them correctly at the outset helps them flourish over time and enhances family offices’ ability to navigate the risks of a changing industry.

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