While external investment management expenses are down, family offices are spending more internally to find and vet direct private equity investments
CHICAGO, October 19, 2017 – Family Office Exchange (FOX), a global membership community of enterprise families and their key advisors, released their 2017 FOX Family Office Study of family offices which revealed that the cost of running a family office as a percentage of investable assets has remained constant between 2014 and 2017.
“Although the overall cost has remained stable, there have been shifts within the makeup of expenses,” said Amy Hart Clyne, Executive Director of the FOX Knowledge Center. “We see that external investment management costs are declining as families incur reduced fees as advisors compete harder for business. Those savings are being re-deployed to staff up internal operations for sourcing and vetting direct private equity investments and philanthropic activity.”
In the study, 57% of families reported active involvement in direct investing. The internal costs of running the family office, which include staff, occupancy, and technology expenditures, are now 51% of the total. External investment expense is down to 36% of the total.
|
Total Cost of Managing Wealth |
2014 |
2017 |
|
Internal Family Office Costs |
48% |
51% |
|
External Advisory Costs |
12% |
13% |
|
External Investment Costs |
40% |
36% |
|
Total |
100% |
100% |
Based on a subset of common participants in both studies.
Source: 2017 FOX Family Office Study ©2017 Family Office Exchange
Other highlights of the study include:
- Business-owning families, 64% of the sample, are more focused on preparing the next generation for leadership than families that don’t own a business. The families that don’t own a business state greater concern about preserving their wealth.
- Family offices take their role as risk managers seriously with 80% having some sort of risk plan in place. The types of risk plans include:
- Financial Ownership and Control Risk 60%
- Family Business Governance Risk 52%
- Family Continuity Risk 48%
- Cybersecurity Risk 43%
- Fifty eight percent of family offices operate under the guidance of a governing board. Today, one in four of the outside directors is an external advisor to the family.
- Family education is very important in preparing the next generation. The education takes many forms.
- Annual family meeting 67%
- Participation in Board meetings 40%
- Attending Advisor Meetings 39%
- Formal education program 31%
- Industry Workshops and Forums 29%
- Participation in Board Committees 25%
- Assets held in trust structures have declined over the last decade to an average of 49% for business assets and 56% for investible assets. As assets pass to succeeding generations, the percentage of assets held in trust increases as families work to protect assets from creditors and transfer the assets tax free to the next generation.
|
Average % of Assets |
Business Assets |
Investable Assets |
|
Generations 1-2 |
44% |
52% |
|
Generations 3+ |
58% |
61% |
|
Average |
49% |
56% |
Source: 2017 FOX Family Office Study ©2017 Family Office Exchange
First launched in 1991, the FOX Family Office Study is the longest running study of its kind and the only one that provides participants with a comprehensive report designed to articulate the value of the office and educate board members and clients about how their family office compares to other family offices. The final report provides insights on Ownership and Governance, Owner Engagement and Education, Office Strategy and Risk Management, Family Office and Advisor Services, Cost of Wealth Management, Staff Experience, and Direct Investing.
For anyone interested in participating in the next study or joining FOX to obtain a summary of the report, please contact info@familyoffice.com.
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