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.
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:
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.
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:
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
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:
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.
And with AI, tax reporting and compliance record-keeping can become more automated, sifting through large amounts of data and documents to produce a deliverable, where it can be completely automated, "... That future is coming quick,” said Mark Rogozinski, head of family office services at Cresset, “It’s not 10 years from now, it’s a year or two from now.”
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:
Be smart about cost-cutting activities. Don't let reducing expenditures mean a compromise in work quality and performance.
Gio Maso, part of the Family Office Advisory Services at Ernst & Young, share his take:
“While initially reducing employment costs may offer short-term financial relief, it is essential to consider the impact on the performance and success of the family office in the long run. Lower compensation tends to limit the family office's ability to attract and retain top talent, which is a valuable and scarce resource within the industry, given the unique skills involved."
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, Gen AI, 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 leveraging streamlining, automating those activities with Empaxis.
And in the AI space, they can make use of Large Language Models (LLMs).
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:
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.
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.
And to their credit, many family offices have found ways to cut costs already
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.
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