High net worth families are almost invariably reluctant
to share wealth management strategies, which makes the efforts of
Family Office Exchange to promote best practice all the more
laudable. Paul Golden talks to Kripa Sethuraman about the growing
demand for getting the inside track on how families
operate.
Go deeper with GlobalData
A lack of specific research on
the family office industry is one of the reasons organisations such
as Family Office Exchange are gaining traction. While the concept
of the family office has been around for many decades and its key
functions, such as wealth management and succession planning, are
well understood, its operations are by their very nature
discreet.
In 1991, Family Office Exchange (FOX) founder
and chief executive Sara Hamilton initiated one of the earliest
state-of-the industry studies, which profiled 100 families with
average assets in excess of $300m.
Research continues to be one of the key planks
of FOX’s offering to high net worth families.
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By GlobalDataRisk attitudes changing
In November last year it released the results
of a six-month study of how wealthy families are changing their
approach to risk and risk management after the financial
crisis.
The study, produced jointly with family office
services provider Harris myCFO, found that many families were still
recovering from the market downturn and determining the best
actions to manage the events likely to follow.
This included regulatory and tax changes,
realignment of compensation structures across many levels of
financial services and even changes in public attitudes toward
wealth.
This type of activity is not exclusive to FOX.
Ian Woodhouse, an independent consultant to the wealth and asset
management industry, says there are other US-based organisations
offering similar services, such as the Family Wealth Alliance.
“There is also a lot of research underway into
the challenges facing the sector,” says Woodhouse.
“Although much is unpublished and commissioned
by banks and family offices. This particularly relates to issues
such as costs of operation and more core areas of good practice
family governance, succession planning, next generation wealth
education and philanthropy.”
Family office best practice
However, FOX’s UK-based managing partner for
international markets Kripa Sethuraman, is eager to push her
company’s unique offering.
“We see other organisations looking at creating
networking opportunities, targeting family office advisers or
focusing on research.
“We touch upon all these elements – our goal is
to create a network of peers across family offices and advisers as
well as developing best practices, education and in-depth
research.”
The company has been working with family
offices in the UK for the past 10 years and opened a dedicated UK
office about five years ago. It is a relatively small operation
with three people, including Sethuraman and joint managing partner
Paul Pratt, who both joined in August 2008.
Building its European profile
A number of its members have offices in the UK,
although they are not necessarily UK companies, explains
Sethuraman. She says the company is committed to extending its
footprint across Europe.
“Our profile is highest in the US, where we
work with more than 300 wealthy families, but we are looking to
develop our international presence. We have members in the Middle
East and Asia and a strong member profile in Australia,” she
adds.
When pressed on which elements of its service
were in greatest demand, she says it depends on where the family
office was at in its development cycle.
“In the early stages, research is the most
important component – it can be challenging to design a family
office when you cannot view something that has already been
developed,” she says.
“However, it is also useful to be able to share
experiences with other families who have gone through the process.
We work with everyone from new wealth owners to established family
offices,” she says,
“There is increasing demand from wealth owners
who are considering the family office model, particularly in Asia
and Australia,” she adds.
Crisis impact on family wealth
According to Sethuraman, the fallout from the
global economic downturn has caused a lot of people to revisit the
concept of the family office.
In her experience, the three most common
observations made by wealthy families are:
- I am disillusioned with my
advisers; - It is becoming expensive to operate as
a single family office, should we consolidate into a multi-family
office and take advantages of economies of scale with regard to
back office functions? - I need to run my family office
effectively to best meet the needs of the family.
Then there are wealth owners saying that the
downturn impacted their family and they want to be to be able to
manage the threats and opportunities from future risks, she
says.
FOX refers to significant growth in the
professionalism of family offices in Europe over the last decade in
particular, with a corresponding increase in demand for research
into the unique challenges facing the sector.
Identifying risk
The risk management study published last
November was the second study to specifically examine how families
with substantial wealth can effectively identify, prioritise and
investigate risks.
“Our members have told us that there is a need
for more information in this area,” says Sethuraman.
“We have a research agenda in place and we also
conduct investment and family office operations benchmarking and
write on technical issues such as cost management as part of our
commitment to address the technical as well as the strategic
challenges of managing a family office.”
FOX is a private company so does not disclose
sales, revenues or profitability. However, Sethuraman says it is
looking to develop its knowledge centre in Europe and extend its
understanding of best practice in European family offices during
2010.
