September 17, 2009
As wealthy families transfer power to the next generation of leadership, many are letting go of in-house staff in a move to cut costs, and are instead turning to outside professionals for ancillary services like accounting, taxes, philanthropy, mission statements, and governance, according to a recent study commissioned by Rothstein Kass and conducted by Russ Alan Prince and Hannah Shaw Grove. Family offices are also migrating from the single family office model to the multi-family office structure, in order to consolidate knowledge and expenditures.
The survey found that 81.9% of the 100 single family offices interviewed over four years handled philanthropic advisory services in-house prior to the transition of power, versus 35.1% after. Educational services shifted from 71.3% to 12.8% after, and in-house concierge services nosedived from 86.2% to 21.3%. Security concerns ran counter to the others, with 36.2% of families handling them in-house before the transition, and 48.9% handling them in-house afterwards. This is likely due to the fact that many SFOs polled had family members in the public eye, like athletes and entertainers.
According to Rothstein Kass Family Office Group principal Rick Flynn, the broad changes shown in the survey largely stem from the fact that many SFOs were hastily created amid the market boon of the last ten years, and simply weren’t equipped to survive the long haul. “This is much more evolutionary than revolutionary,” Flynn says. “These changes were certainly accelerated by the recent market downturn, but I don’t want to give the impression that last year’s carnage was the direct cause.” Flynn adds that many of the older, more established families, particularly from Europe, are more likely to maintain in-house staff. The same holds true for families with more than $1 billion in assets.