You might imagine the efficiency of a Family Office is measured by comparing numbers. Perhaps year on year performance or annual fee levels? But a lot of Single Family Offices end up doing a lot of “stuff” which can be hard to measure. SFO executives explained this frustration at a recent Family Office Council roundtable: “It is very difficult to measure the efficiency, or effectiveness of just doing ‘stuff’ and the consequences of not doing it and the alternative sources of people that can do ‘stuff’. So this makes it incredibly difficult to measure.” said one Family Office Manager.
This concept of the ever-expanding and sometimes distracting ‘stuff’ strikes a chord with many family offices. Special projects for Family members, managing the household, art collections, luxury yachts, private jets, education and next generation issues are all considered ‘stuff’ and all the sort of thing that requires intensive C-suite input.
The Single Family Office can increase the efficiency of these operations and sometimes this can be demonstrated clearly. One Family Office CEO explained: “Some things you can clearly measure numerically. By bringing accounts in-house we were able to save ‘this’ amount of money. By going into contract with a single travel agent we were able to measure the benefits. Yacht service was historically negotiated by the Captain and he paid what they asked, so in year one I could demonstrate actual value saved or added through me running the Family Office.”
But often this can be a one-off benefit, due to glaring historic inefficiencies. “Going forward, after year one it is difficult, as once you have instilled you are no longer going to get ripped off, it becomes harder to gain efficiency.” He said.
The ‘stuff’ can cause headaches. “Do not underestimate the problems that the ‘stuff’ will cause.” said a Family Office Manager “The things that everyone views as toys [eg yachts and planes] are difficult from a tax perspective, a jurisdictional perspective, particularly if you are in a resident non domiciled family situation. Everyone focuses on investments as they are the easier things to measure. But the ‘stuff’ always falls to a PA and the PA is not necessarily the right person to be dealing with it.”
Educating the family so that they engage the Family Office early is key: “When they buy, say a yacht, they don’t just tell us they’ve done it, but we are right there with them negotiating.” said a Family Office Executive. To ensure the investment team is not distracted by the “stuff” one families solution was to split the office in two, with Investment activities in one office, while the tax, operations and structuring is done elsewhere. “Make sure the investment staff are not diverted nor their attention distracted.” Argued one Executive. Ultimately, the role of Family Offices is to serve the family in a variety of ways, and if this means doing ‘stuff” then so be it.