FOX recently conducted a research project to study how family offices explain their value to clients, as well as to look at the complexity and cost allocation of family offices. The study participants included:

The four key topics of the study included:

1. The value proposition
2. The scope of services
3. Complexity factors driving cost
4. Fee allocation methodologies

1. The value proposition

Key value proposition messages to family members include sharing the importance of:

• Seeing the family in motion consistently instead of at a moment in time.
• Integrating wealth planning with execution.
• Providing scale and buying power that clients could not obtain by themselves.

Tangible values are often reflective of the family values, so the family can more easily recognize them within the office. Some examples include:

• Design of financial goals
• Integration of strategies
• Coordinated execution
• Purchasing power
• Risk management
• Investment alpha
• Clear picture of finances
• Single point of contact

Some examples of intangible benefits of the family office include:

• Peace of Mind
• Objectivity and trustworthiness
• Family values
• Family engagement
• Family reputation
• Family guardian
• Family guardian

2. Scope of services

Philosophy, vision and values of the family are the driving forces behind the scope of services for a family office. This next section represents the various categories of services provided within the family office and the average percentage of where time is spent, as well as how much of the work in each category is completed in-house:

• Investment planning (17% of time total spent / 70% in-house)
• Wealth/tax planning and administration (20% of total time spent / 66% in-house)
• Philanthropic planning and administration (4% of total time / 76% in-house)
• Recordkeeping and reporting (20% of total time / 89% in-house)
• Lifestyle/concierge services (12% of total time / 78% in-house)
• Risk assessment and management (7% of total time / 67% in-house)
• Family office strategy and management (9% of total time / 89% in-house)
• Family office governance (6% of total time / 80% in-house)
• Family engagement and education (5% of total time / 82% in-house)

3. Complexity factors driving cost

The study showed different types of family offices are defined by a variety of complexity factors. High complexity family offices have a more complex legal and financial architecture, they manage more entities, and provide more services. Low complexity offices have smaller staff and fewer clients, and tend to have fewer entities and a smaller percentage of assets in trust. According to our analysis, factors showing the highest impact on cost are:

• Size of FTE office staff
• Number of adult households
• Size of investable assets
• Number of tax returns filed
• Number of legal entities, compliance and administration
• Number of family trusts

4. Fee allocation methodologies

The study unveiled some of the best practices for allocating costs:

• Allocate time for trust activities and charge to trust entities.
• Charge the work done for investment partnerships to each individual fund/pool.
• Separate corporate work performed for operating businesses and bill on a project basis.
• Support the start-up needs of young entrepreneurs through a fund structure or a team of advisors.
• Identify work done for personal financial planning and wealth transfer, and bill to the individual.
• Itemize the work done for foundations, and bill separately to stay in compliance.

Founder and CEO of Family Office Exchange, Sara is a recognized visionary in the private wealth community. While a trust officer at Harris Bank in Chicago in the late 1980s, Sara witnessed the emergence of family wealth management as an industry. Hundreds of U.S. families became centi-millionaires overnight through leveraged buyouts that spawned private financial offices commonly called family offices, to manage family assets and educate wealth owners. Sara was the first professional to recognize family offices as a complex market segment in wealth management. Areas of Expertise: Enterprise Families, Governance Read More →