How to Cut Family Office Costs

The operational costs of managing a family office are not insignificant. Proper cost-cutting measures can help.

How much does it cost to run a family office?

Typical family office costs can range from $1.5M to more than $14M annually. The combination of rising internal operating costs and an uncertain investment landscape leave family office managers looking for ways to cut expenses.

The winning solution for managing family office costs is a combination of leveraging the right technology and a thoughtfully executed talent strategy that might include a combination of external hires, outsourcing, and remote collaboration.

Understanding the Role of the Family Office

A family office is a private organization dedicated to managing the financial affairs and investments of an ultra-wealthy family or multiple families. It provides a range of wealth management services tailored to the family's specific needs, ensuring the preservation, growth, and effective transfer of wealth across generations. 

These services can include: 

  • Investment management and portfolio construction
  • Financial planning, including retirement planning and tax optimization
  • Estate planning and wealth transfer strategies
  • Philanthropic advisory and charitable giving support
  • Family governance and wealth education
  • Risk Management and insurance planning
  • Lifestyle and concierge services
  • Consolidation of financial accounts and reporting

The only question is–how can a family office do all of this well and keep costs under control? Here are a few ways to slim operating costs.

4 Ways To Reduce Family Office Costs

1. Make Use of Outsourcing

The first question to ask is–should you handle everything in-house? Historically, family offices have been ‘in the family,’ meaning that much of the work is done in-house by qualified members or representatives of the family. 

But that approach might cost more money. Instead, consider these questions:

  • Are you spending a significant amount of time on lower-value, manual tasks and administrative burden? 
  • How much time do you spend on specific tasks like performance reporting or private equity processing? Could a larger, third-party firm do those tasks more efficiently? 
  • Do you truly have the skills you need in-house? For example, if your specialty isn’t tax planning or accounting, would you net better results by outsourcing?

Even if this in-house team does a great job (or at least as great as their abilities allow for), it still comes at a significant cost. Strategically outsourcing tasks to reduce administrative load, access specialized expertise, or leverage efficiency is a great way to reduce family office costs.

In a survey of 130 family offices responsible for more than $62B AUM, a staggering 91% majority believe that outsourcing will continue to increase over the next three years–making it a key driver of operational efficiency.

Learn More: Family Office Outsourcing with Empaxis

2. Layer In Automation to Free Up Time

Automating appropriate tasks within a family office yields significant cost savings

Automation tools for family offices can streamline processes, lower the cost of labor, and minimize human error.

Use of automation to reduce labor-intensive processes, freeing up your talented family office staff to spend more time doing what they’re great at. High-value activities like focusing on long-term investment strategies, portfolio reviews, and family governance support are more valuable than the administrative tasks eat up way more time than it should.

How much time do you spend completing tasks that could be automated, like:

  • Investment Reporting
  • Expense Tracking
  • Document Management

Automating tasks such as investment reporting, expense tracking, and document management reduces labor-intensive processes allowing family offices to focus on more strategic initiatives such as long-term investment strategies, portfolio reviews, and family governance support. 

3. Take Advantage of Specialized Expertise by Hiring External Talent

It might seem counterintuitive, but hiring the right talent (even if you pay them more) can be an effective way to manage family office costs. According to the Global Family Office Report, staff costs account for 69% of family office costs.  

Here is how hiring external talent can help:

  • Access specialized expertise to add value (knowledge and expertise) to improve investment strategies. 
  • Hire on a fractional or contract basis to supplement specific needs.
  • Take advantage of the flexibility of remote work to broaden the talent pool.
  • If you hire the right talent, it will save money in the long run, as you are not wasting time and money on people who are ineffective and ultimately need to be replaced.

4. Stay On Top of Current Trends

Watching what everyone else is doing keeps family offices up to date and ready to evolve and adapt to change when necessary.

You will find ways they drive down costs (outsourcing and automation are some examples), but you can also see how they're investing.

There are various investment opportunities that family offices globally will pursue, and to the extent you educate yourself on those opportunities and have the means to take advantage, your family office will be in better shape.

As one example, many single- and multi-family offices are investing in private equity and enjoying better returns than sticking with only public equities.

Similarly, as these SFOs and MFOs handle more private equity statements and downloads, they have found ways to cut down those costs by automating those activities with Empaxis.

How else can staying on top of current trends help you manage family office costs?

We don’t have to look too far back into history to see a relevant example. By March 2020, a global pandemic changed the way we live and work. Prior to that time, very few family offices were utilizing hybrid or remote work structures, but those who were in-tune with current trends had the technology infrastructure to adapt to changing conditions while those who didn’t suffered setbacks.

According to PwC, the pandemic brought a variety of trends front and center for family offices, including:

  • Professionalism
  • Governance
  • Transparency
  • Succession & Planning
  • Globalization
  • Values Alignment
  • Philanthropy
  • Geographic Structures

The Rise of Machine Learning

With rapid advancements in technology, artificial intelligence (AI) is catching the attention of many.

Family offices' relation with AI isn't just in terms of a lucrative investment opportunity, but also a tool that can be used to drive greater efficiencies in-house.

While still in relatively early stages of development, machine learning can be a game changer in many areas, including investment analysis, research, risk management, and decision-making at large.

Check out this Forbes article about AI and family offices.

A Future Full of Efficiency for Family Offices

In the realm of ever-evolving technology and collaborative opportunities, there lies a unique opportunity for family office managers to enhance their internal financial well-being. Family offices can streamline operations while achieving savings by implementing strategic measures such as outsourcing, task automation, and utilizing external talent with a watchful eye. 

Empaxis, with its tailored solutions and expertise, is ready to be your trusted partner in family office operations support, future-proofing your processes and allowing you to focus more on things you do best.

Want to learn more? Contact Empaxis and see how family offices have benefited from cost savings and greater efficiency and scale.

Chat with an Expert

Get the latest in financial technology support, AI and digital transformation and investment operations outsourcing

Our monthly newsletter features helpful resources, articles, and best practices to implement within technology providers and investment firms