Shared service models – the
next evolution for family offices?
The
development of shared services for wealth managers within large
retail banks has often been driven by group policy and focused on
technology, HR and the more traditional support services.
Independent advisers have achieved some of the same savings through
the development of networks.
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Until recently, family offices have
largely resisted the shared service model. But rising client
demands for investment advice and reporting, coupled with increased
compliance costs could be changing this.
The argument that the family office
is unique and therefore unable to identify or benefit from sharing
functions with others has only partly been dispelled by the success
of the multi-family office.
In the US, there are currently 150
multi-family offices nationally, with approximately $400bn in
assets under management, according to a 2009 Family Wealth Alliance
study.
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By GlobalDataBenefits for scaling up
services
Bessemer Trust is an example of a
family office that benefited from scaling up its services. In 1975,
it revolutionised the family office sector by opening its doors to
outside investors; 35 years later, they still own Bessemer, but
their wealth only accounts for a tenth of the $56bn it manages.
Today, money is pouring into
multi-family offices in the US from merging single-family offices
and from banks and brokerages. This is driven by the increased cost
of compliance and demand to cut costs while raising levels of
service and reporting.
In Europe, the same combination of
compliance and client demand, compounded by the global crisis of
the past two years, has put enormous pressure on family offices to
assess their operations and seek efficiencies.
The high profile troubles of UBS
have also highlighted the fact that biggest is not always best. The
private banks have traditionally argued that they are able to
provide a broader range of services than a family office. Family
office proponents have maintained that personalisation and unbiased
advice is what differentiates them from the private banks.
The true opportunity for
multi-family offices is to continue to develop these areas of
differentiation and to open their doors to providing services
between themselves.
Family offices should
co-operate with shared model
The Hollywood film industry long
ago accepted the idea that no single studio could hope to contain
all of the best skills in every area of film making. Films are now
made by co-ordinating the skills and expertise provided by many
independent specialists, who bring together market leading skills
for the duration of a single project.
If family offices were to embrace
this ‘Hollywood’ model, they would be able to share the specialism
they have, while maintaining the high levels of customer service
and lack of bias which marks them out from many private banks.
There are signs that this new level
of co-operation is beginning to emerge, with several prominent
family offices in the UK and Switzerland exploring the possibility
of opening their doors to collaboration or provision of
services.
With many of the banks being forced
to regroup and reconsider their scale-based models, and with the
increasing use and availability of technologies for both user and
adviser, the door is open for networks of family offices to bring a
new level of service and breadth of service to their clients.
So far, the shared model success
stories are limited and compromises have to be made.
Many of the traditional problems of
family offices carry over to the shared service solution. These can
include a clash of cultures, ineffective communication and a
failure to adopt and adapt to new processes serviced by products
that are varied and require detailed knowledge.
The relentless demand for more
complex, global solutions, greater transparency and compliance, as
well as ever higher service levels will force many of the single
family offices, as well as the smaller wealth managers, to join
forces. <
Simon Pearce is
director at financial services management consultancy
Bluerock
