Many firms such as IQ-EQ, Apex and Pathstone provide a variety of services for family office clients to handle the routine aspects of running an office. Tommy Wright, a private client services and national tax leader for family offices at Chicago-based RSM US, said his firm also provides these services, and he is seeing the same outsourcing trend as his colleagues.
“Family offices may decide that they are tired of having all of those employees, all the headaches of managing those employees, and they will outsource various functions to outside vendors,” he said.
Technology has also hastened these trends, especially in the wake of the recent pandemic. Many people grew accustomed to the idea of remote working at the height of Covid-19, and companies realized they could draw from a larger talent pool that was not limited to one geographic region. For example, they could work with staff via videoconferencing and still maintain the close relationships they did before.
Outsourcing also allows family offices to hand off certain tasks they don't want to deal with, such as compliance, payroll or even investing (if they don't have the resources to select, monitor or track securities). A third-party manager can identify new and unique investments in line with the family office’s needs while the office maintains its independence.
“What we see more these days is thinking around keeping a single-family office idea with a core group of family and trusted personnel but outsourcing the rest of it so the decision-making is kept in-house,” King said. “That becomes a very attractive and efficient use of resources.”
At the same time, family offices might not want to outsource everything. For instance, they might worry about the quality of work being done by third parties, in particular when it comes to compliance. Regulators won't distinguish between errors made by a third-party and the family office itself. King said family offices should do thorough research before engaging with any outside firm.
“In choosing the firm, you must perform your own due diligence to ensure that the firm is operating with the resources that it needs and is operating compliantly,” he said.
In some cases, Wright said that family offices avoid working with third parties because they are loyal to staff members who have been with the office for many years. But in many cases, he said, that loyalty can cloud sound judgment.
“Our clients will rely on loyalty to their own fault rather than having sophisticated up-to-date financial and internal controls and monitoring those controls ... and governance,” he said.
In those instances when these employees fail to do their jobs or deliberately defraud an office, additional time and money has to be spent to determine what happened and the damage done.
By working with a third party, an office might be able to avoid all that mess.