Executive Summary

Current Trends
The 21st Century SFO is run like a business. SFOs value quality of service, control, flexibility and cost efficiency more than longstanding relationships
Generational and technological shifts are the main accelerators of structural change in SFOs. Recent market turmoil has added momentum
Increased number of providers and solutions creates more flexibility and cost leverage for SFOs   

Key Take-away
SFO service providers who adapt their business model to these current trends will win

The establishment of an SFO has long been regarded as the best way for a family of significant wealth to exert control over its destiny, to fulfill its legacy and provide stewardship for successive generations. Recently, the continued viability of the SFO business model has been called into question. Far from becoming extinct, we believe that the SFO is alive and well and is evolving to take advantage of market opportunities.

SFOs oversee a broad range of services, including financial, tax and estate planning, investment management, financial accounting, reporting and bill pay, trusteeship, lifestyle management and education for their family member clients. While some SFOs fulfill nearly all of these services internally, many SFOs are able to effectively oversee the balance between internal and externally provided services. Almost all SFOs oversee the investment process. A recent Family Office Metrics SFO survey revealed that 9 out of 10 multi-generational SFOs were formed specifically to manage the family's investment assets.  Nevertheless, new technology and service models have made it possible for SFOs to delegate vital functions to external providers while maintaining strong oversight, control and a focus on increasing returns and minimizing costs.     

The 21st Century SFO Is A business
The 21st century family office is managed like a business.  With a corporate structure and hierarchical governance framework the modern SFO values speed, quickness, flexibility and efficiency. Generational and technological influences have been the biggest drivers of this shift because younger family members and executives appreciate the benefits of technology and know how to use them to best advantage. Recent market pressures have accelerated the move to employ more technology and automation as SFOs seek to become more efficient and reduce expenses, including labor costs. According to Family Office Metrics client experience, SFOs spend up to 70% of their operating budget on labor costs excluding investment management fees.  SFOs understand that there are more choices and flexibility than ever before and, as a result, they are making more demands upon their service providers. SFOs are also open to new channels and are increasingly receptive to Software as a Service (SaaS), for example. SaaS can be extremely cost efficient because software is paid for each year to the vendor who is responsible for all uptime and support, thereby reducing the need for onsite IT support.  Many software and service providers offer SaaS alongside the traditional in-house ownership and outsource service models.

Surprisingly, one of the biggest problems for SFOs is 'too many choices.' SFOs are faced with a growing number of service providers and software solutions. Adding to the sheer volume of choices available is the fact that the lines between providers are blurring.   

In the past few years there has been an explosion of firms that offer services to SFOs. Firms that previously only served the hedge fund or private equity markets are gaining traction with SFOs because they provide accounting and reporting solutions for alternative asset classes in which many family offices are heavily invested. Firms like Archway Technology Partners, SunGard Investran, Relevant Equity Systems, eFront, Vitech, Jobstream and TheNextRound can accommodate a complex portfolio of alternatives combined with complex multi-tiered ownership structures. Jason Brown, CEO of Archway, noted that "Previously, nothing in the family office space could do the type of reporting families needed" (for all asset classes).  

Technology firms like Advent and SS&C that previously provided portfolio accounting only for traditional assets to SFOs have begun to offer accounting and reporting solutions for alternative assets.  

Alongside the improvements in portfolio accounting and reporting there has been forward progress in other important technology applications for SFOs, including client relationship management, document management and database management.  Relatively new technology software manufacturers like Salentica and Aristata provide client relationship and document management solutions, respectively, that are specifically targeted to SFOs.   Tim Davey of Salentica noticed that "there was a glaring lack in the (family office) marketplace for a product that could track every aspect of the family, even art, real estate, and collections where the linkages can be immensely complicated."  While many integrated service providers and analytics engines, like PerTrac and FinCad, offer data management tools as components of their platform, firms like DataAgent now provide the capability to 'bolt-on' data management and analytics capabilities to portfolio and general accounting software.