Family offices retool after recession

The family office is turning back to basics, focusing more on risk ad wealth management services in the wake of the Great Recession, according to a study by U.S. Trust/Campden Research.

Entitled Building for the Future, the study found advisors to ultra-high-net-worth families are reassessing their service models, with many weighing the viability of their practices.

“Like most financial services organizations, family offices were not immune to recent market upheavals,” says Belinda Sneddon, group executive, U.S. Trust Family Office, part of U.S. Trust, Bank Of America Private Wealth Management. “Scandals and widespread investment losses have left family offices poised for a period of significant evolution.”

Financial advice is central to nearly all single family offices, but half (49%) have branched out into ancillary services, including life management or concierge services.

With a renewed focus on risk assessment, many family offices are recruiting in-house research analysts, which would enable them to provide independent, proprietary research to their affluent clients.

While 22% of family offices surveyed said they planned to hire research staff within the next three years, finding that talent, however, may prove problematic, as 23% said there was a shortage of such professionals.

“The tumultuous economic and market climate of the last thirteen months has exposed the weaknesses and strengths of the family office model, and as a result, we are going to see family offices increasingly concentrating on core competencies and looking to others to provide non-core services,” said Mindy Rosenthal, managing director of Campden’s North American Business and author of the research.

The days of the single family office may be numbered, however, as 28% are considering opening their practice to clients outside of the founding family. The primary reason cited for such a move was the greater access to investment opportunities that a larger asset base would afford them (54%).

Retention of staff was another reason (31%), as the larger asset base would expand revenues for both the firm and its top investment professionals.

Among the options provided by a larger asset base, 23% said they were focusing on opening an internal hedge fund or private equity fund, while 15% said they were considering offering a hedge fund of funds or diversified investment services.

Nearly one third of family offices said there was a possibility, however remote, that they would close up shop altogether.

“Now more than ever, family offices will be considering significant organizational changes ranging from consolidation with other family offices, opening services to non-family clients or possible closure,” says Rosenthal.

(12/15/09)