The cost of running a family office, as a percentage of investable assets, has remained constant between 2014 and 2017, according to the 2017 Family Office Study by Family Office Exchange (FOX).
“Although the overall cost has remained stable, there have been shifts within the makeup of expenses,” says Amy Hart Clyne, Executive Director of the FOX Knowledge Center. “We see that external investment management costs are declining as families incur reduced fees as advisors compete harder for business. Those savings are being re-deployed to staff up internal operations for sourcing and vetting direct private equity investments and philanthropic activity.”
In the study, 57 per cent of families reported active involvement in direct investing. The internal costs of running the family office, which include staff, occupancy, and technology expenditures, are now 51 per cent of the total. External investment expense is down to 36 per cent of the total.
Business-owning families, 64 per cent of the sample, are more focused on preparing the next generation for leadership than families that don’t own a business. The families that don’t own a business state greater concern about preserving their wealth.
Family offices take their role as risk managers seriously with 80 per cent having some sort of risk plan in place. Types of risk plans include: Financial Ownership and Control Risk (60 per cent); Family Business Governance Risk (52 per cent); Family Continuity Risk (48 per cent); and Cybersecurity Risk (43 per cent).
Fifty eight percent of family offices operate under the guidance of a governing board. Today, one in four of the outside directors is an external advisor to the family.
Family education is very important in preparing the next generation. The education takes many forms including: Annual Family Meeting (67 per cent); Participation in Board Meetings (40 per cent); Attending Advisor Meetings (39 per cent); Formal Education Program (31 per cent); Industry Workshops and Forums (29 per cent); and Participation in Board Committees (25 per cent).
Assets held in trust structures meanwhile, have declined over the last decade to an average of 49 per cent for business assets and 56 per cent for investable assets. As assets pass to succeeding generations, the percentage of assets held in trust increases as families work to protect assets from creditors and transfer the assets tax free to the next generation.