Single-family offices question their sustainability

Thomas Coyle

22 April 2009

Bad markets, demand for new services and the effects of time undermine SFOs. Ultra-wealthy families in the U.S. are questioning the old-style single-family-office model, according to a new report by the Family Wealth Alliance . The main pressure points are sagging investment markets, demand for more services and intra-family wealth dispersal.

The FWA, a Wheaton, Ill.-based consultancy to ultra-wealthy families, conducted its poll of the heads of 32 single-family, closed and non-commercial family offices that collectively serve more than 900 households and 2,000 family members late in 2008.

Uncertainty

"When simply asked to list their three biggest challenges, concern for their family office's sustainability came out on top," says the FWA's founder and CEO Thomas Livergood.

By "sustainability" the FWA means everything from financial viability to a family's sense of cohesion to its ability to hold up during transition periods -- as when one generation of family leaders replaces another.

"We note, with some significance, that outpaced concern for the financial markets by a good margin," adds Livergood.

That said, single-family-office executives ranked "turmoil in the investment markets" as their second biggest worry, with about half of the entities surveyed having altered their investment policies in the previous year -- and many having trimmed exposure to publicly traded securities in favor of private equity before 2007 was out.

The third biggest challenge facing single-family-offices is the difficulty of securing willing and qualified staffers -- an obstacle they share with commercial family offices, according to FWA studies of multifamily offices going back over the last three or four years. A good 14% of single-family offices report senior-staff vacancies, and a quarter of those entities have turned to recruiting firms for help.

Perhaps oddly given their fears about sustainability, more than 80% of the single-family-office executives surveyed expressed confidence in being able to keep up with present and future anticipated demands. A mere 11% of them say they're "somewhat" worried about being replaced by a private bank or commercial multifamily office and just 3.6% say they're "very" worried about it.

Here are some other findings of the FWA's single-family office study.

One in five respondents said that their family office lacks the expertise to evaluate investment vehicles and strategies, and more than a quarter said they had outsourced the role of CFO. The median age of the family offices in the survey group was 34 years. The oldest was founded in 1909, the newest in 2005. On average, they served 1.6 households in what the FWA calls "Generation 1" -- that is, the founding generation -- 5 households in "Generation 2," 7.8 households in "Generation 3," 12.5 households in "Generation 4," and -- wait for it -- 59.7 households in "Generation5." Around half of the family-office managers polled said they'd recently received requests for additional services from family members -- mainly things like family-meeting facilitation, enhanced security for communications, better investment-performance reporting and asset-protection planning, and air-craft services. More than two thirds of the group say their offices provide family education, either directly or through outsourcers and the average age of such programs was nine years.

The FWA undertook its first single-family office study with support from DWS Investments, HUB International Personal Insurance, Firemen's Fund Insurance, State Street Wealth Manager Services and State Street Global Advisors and from the multifamily offices Aspiriant, GenSpring Family Offices, Pitcairn and Vogel Consulting.

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