Outsourced family office services are a great way to help single-family offices (SFOs) and multi-family offices (MFOs) achieve their organizational objectives.
There are many reasons to set up a family office, whether it’s to grow and preserve family assets or facilitate wealth transfer through a structured and formalized framework, overseen by financial services and legal professionals.
When you think about what family offices do, it likely includes pooling resources into hedge funds or private equities, contributing to philanthropic causes, or distributing wealth to beneficiaries. In order to carry out these activities, it requires administrative and operational work, which is essentially the cost of doing business.
Nobody goes into business for the cost of doing it. Investment managers want to cut to chase; they want to take concrete action to advance the firm’s objectives right away, not be tied up with costly admin tasks. Outsourcing the middle- and back-office operations is a way to help advance SFOs and MFOs objectives.
Outsourced Family Office Services: The Benefits for your Operations
Lower Operating Costs
Simply put, back-office operations outsourcing reduces expenses. Not only is the cost high for
keeping in-house talent, but even if cost was not the issue, then a lack of talent certainly is a question mark, especially in a tightening jobs market.
How much can costs be lowered? 20-30% is not unreasonable, and leading fund administration outsourcing services providers could reduce back-office operations costs as much as 50%. The best way to find out is to meet with the vendors, explain your current operations, and they’ll produce a proposal.
As family offices become more concerned about costs, they “embrace” strategic outsourcing. It’s a growing trend, and it’s definitely something to consider for your operations.
Less Complexity for the Family Office
For all the benefits there are in starting family offices, it can be complicated, especially when hiring staff. No longer is running a family office just an internal family affair; it’s an employer. And with that comes an extra set of responsibilities in managing staff.
A Harris myCFO report mentions some of the complexities when family offices hire:
- Employment laws
- Compensation agreements
- Hiring practices
With each of the above points comes a series of legal and regulatory hurdles to deal with, and it can be burdensome, both financially and in terms of the administrational workload.
Outsourced family office services reduces the burden for your operations by providing you with a team of portfolio accounting experts. The outsourcing provider handles the hiring and compensation of the staff so you don’t have to, and you simply pay for how much labor you need and when you need it.
Focus on Your Core Competency
When starting a family office, it implies a focus on the organization’s strengths, which include preserving and growing assets by creating sound, reliable investment strategies and goals.
But as mentioned earlier, costly and time-consuming administrative work is inevitable, and this kind of work is not the main reason for starting a single- or multi-family office. When the organizational strengths are on the investing side, it doesn’t make sense to pour resources into areas that aren’t your strong points.
Employment issues via turnover, less qualified applicants or rising costs will threaten a family office’s efficiency, and because middle- and back-office outsourcing companies have the resources to provide a more efficient and superior operational experience at a lower cost, the decision to work with outsourcing specialists has its advantages.
Access to Technology and Operational Know-How
Because dealing with operations is not generally a strength going into the family office establishment, the resources for running a solid back-office are not always there, and even if the resources exist, they’re not implemented correctly.
Whether it’s a lack of technology automation to run the daily reporting needs quickly and accurately, or finding the portfolio accounting system too difficult to use, working with a back-office fund administration outsourcing services provider is something to consider.
Not only do the outsourcing providers have the resources to implement the automated technology your firm needs to be efficient, they have the skilled and experienced portfolio accounting talent to run the software.
In addition, their ability to easily adjust to a family office’s labor needs, ramping up or down the staff as required, is another benefit of back-office outsourcing for SFOs and MFOs. Adding or subtracting staff for projects can be a smooth and painless experience for you when working with a third-party, as the provider has the operational know-how you seek.
Family Offices Making the Right Operational Moves
Outsourced family office services for operations has proven to be a strategically wise decision in the wake of rising costs and inefficiency as a result of lacking the operational expertise needed.
Lower costs, simplicity to the operations, ability to focus on core strengths, and access to technology and operational expertise are compelling reasons to think about how outsourcing can work.
SFOs and MFOs are in it to maintain and build the wealth and assets for future generations while
simultaneously donating to and investing in charitable causes, and operations is a cost of doing business (a growing cost), so it’s time to think about back-office operations outsourcing specialists for family offices, because after all, the goal of their business is to lower the cost of doing business for you.
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