Insights


As a Family Office executive, are you managing these six common pressure points?

by Simone Rouse Director Simone has 20 years’ experience providing investment solutions to a range of clients around the world – ranging from global institutional investors, high net worth families and individuals and not-for-profits. She is passionate about building trusting, long-lasting relationships with clients and truly understanding their unique needs, expectations and constraints. Simone delivers unconflicted, fully-integrated wealth management services to clients by developing appropriate long-term investment strategies, incorporating asset allocation, portfolio management, risk analysis and tailored reporting. Contact Simone

The structure and complexity of each family office varies greatly, creating an assortment of challenges for family office executives. Each pressure point distracts executives from achieving their fundamental purpose: delivering on the family strategy and objectives. Identifying and resolving key pressures is crucial when running a successful family office.

Six common pressure points for executives running a family office:

1. Inefficient investment reporting and administration

Investment reporting is the biggest single consumer of time for a family office, and often the main point of anguish. As we discussed in a recent article, ‘Six signs of ineffective family office reporting‘ some family offices spend up to 75% of their time collecting, verifying, analysing and consolidating financial information.

Often, executives are working off multiple manual spreadsheets, co-ordinating a range of counterparties, and understanding a variety of investments within numerous entities. In our experience, this can lead to increased error and the provision of meaningless or untimely information, and it distracts executives from focusing on strategic matters. Seeking a comprehensive external custody, administration and reporting platform could help overcome these inefficiencies, while improving the effectiveness of reports.

2. Lack of investment policy

More than one third of family offices are yet to adopt a structured investment policy, according to the Family Office Exchange (FOX) 2016 Global Survey. Without a framework for investment, there is no clear direction for an executive to work towards; no measure of success; and no basis for decision-making. Investments may be made on a case-by-case basis on their own merit, but not in an overall portfolio context. The can result be an assortment of investments (potentially across multiple service providers) which, when combined, are not aligned with the family goals and objectives.

Your family office investment policy need not be a complex document. It just needs to clearly articulate how the purpose and objectives of the family wealth will be achieved, including risk and return objectives, asset allocation policy, and risk and performance management.

3. Executive remuneration and alignment of interests

What is a family office executive worth? This is a very delicate question to answer and can be a source of contention for family office executives (especially given industry benchmarks are challenging to identify). Pressures arise when the interests of family office executives and family members are not fully aligned.

While family members may be looking to control costs, executives are commonly seeking higher earnings and career progression.Furthermore, families are often focused on very long term goals (such as sustainability of wealth for future generations) versus family office executives, who are often incentivised over the shorter term (by annual performance bonuses). Incentives based purely on short-term investment returns may result in a skew towards shorter-term investments or unwanted risk-taking in the portfolio.

To help align interests, remuneration and promotion policies should be developed that are aligned with the family strategy (including timeframe), and periodic performance reviews undertaken.

4. Operating costs and access to expertise

Family office operating costs vary greatly and are directly related to office complexity. Significant time is spent debating cost pressures such as technology, staff compensation, advisory fees and other general operating costs.Maintaining up-to-date, secure IT and infrastructure with limited scale can be challenging and expensive. It is also difficult to find sufficient specialist knowledge within the executive team, who are typically required to be generalists across a broad range of financial and non-financial matters.

A detailed family office service-scoping document, organisational structure and operating budget can help manage costs, while also setting a benchmark for comparison against other family offices. A family office should recognise their capabilities and scale limitations – even a partially outsourced model might achieve material time and cost savings and provide access to best-of-breed expertise.

5. Co-ordinating multiple service providers

One challenge for family offices is ensuring their various advisers are connected and communicating with each other. Problems arise when family offices use multiple service providers (several banks, brokers, asset managers, tax advisers, property managers,etc.) all working in silos. Co-ordinating a complex web of advisers and ensuring each is performing in line with stated objectives can be challenging and time consuming. Considerable inefficiencies arise if the individual service providers are not working together to achieve family goals, such as cash flow requirements, wealth sustainability or tax-effective investing.

It is important for executives to connect advisers and empower them to speak with each other. Alternatively, an integrated offering can provide a unified team to provide solutions across tax, investments, portfolio administration, superannuation and reporting.

6. Family dynamics

Managing a family office comes with non-financial pressures, including the relationship and emotional dynamics of family members. Family relationships can be complex. Tensions and conflict can surface if family members are not all aligned and if governance structures are not defined. Our experience shows that if families are not aligned around a common purpose, they won’t stick together – research shows that 70% of wealth transfers fail.

A governance framework outlines the family vision, goals and strategy and should oversee how the family works together, makes decisions, manages wealth, accesses income and transitions assets across generations. These governance structures provide ground rules for engagement for family members and executives and assist with handling the challenges of family dynamics, including any emotional aspects that may arise.

The Mutual Trust ebook, An Insider’s Guide to Family Office, addresses many of these challenges and provides a practical roadmap to help families and family office executives successfully build and sustain wealth across generations.


Mutual Trust Pty Ltd ACN 004 285 330 (AFSL 234590). Liability limited by a scheme approved under Professional Standards Legislation. For participating members (other than for the acts or omissions of Australian Financial Services Licensees). This information is general in nature and subject to change. It does not constitute tax, legal or financialadvice. We recommend you seek advice specific to your circumstances before taking any action. Copyright © 2014 Mutual Trust Pty Ltd.
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