Family Offices Seek To Share Costs

Family offices are starting to appreciate the old maxim that a burden shared is a burden halved.

After pulling through the financial crisis, smaller family offices in particular are taking a hard look at their future. And they are realizing that while they may not want to, nor have to, close up shop, they also may not be able to thrive in a challenging environment of uncertain markets and more complicated regulations—unless they change something about the way they operate.

Costs and the risk of long-term dilution of family wealth were among their top concerns, according to a recent study conducted by the Chicago-based Family Office Exchange and sponsored by the Okabena Company, the family office for the Dayton family, the venerable Minnesota clan of Dayton’s department store fame. “Now more than ever, in this uncertain economic climate, families are looking for ways to share strategies for sustaining small family offices and enhancing the value they provide to the clients of the office,” Sara Hamilton, FOX’s founder and chief executive wrote in the study, entitled “Innovating to Survive and Thrive: Meeting the Challenge of Small Family Office Sustainability.”

At a follow-up workshop earlier this month, an “even broader spectrum” of participants than those who participated in the study shared concerns face to face and discussed ways to “survive and thrive” in the longer term, according to Karen Neal, managing director of consulting at FOX.

Looking For Options

“What they came to the workshop to discuss were questions like, ‘Should we be thinking about outsourcing certain services?’ Or, ‘Should we look to collaborate with other single family offices?’ We found that smaller family offices are not shutting their doors, but
they are looking for other options,” Neal said.

And it’s not just small family offices that are looking at their options. Many multi-family offices forsee more consolidation and customization this year. Okabena Company, for example, has a 40-year track record, 30 employees and about 90 family members to serve. But it, too, needs to find ways to contain costs, explained Christine Galloway, president and chief executive of Okabena. Hence its sponsorship of the Family Office Exchange study.

“The challenges that small family offices have happen to be almost identical to what large family offices are facing,” Galloway said. “The resource issues are quite different, but the concerns are no less painful and acute.”

In fact, Okabena has already taken steps to build up its economies of scale and lower its costs. Five years ago, the investment arm of Okabena opened its doors to tax-exempt organizations with $5 million or more in assets, to realize more benefits of scale and to control costs in the investment process. Now, its doors may be open to smaller family offices who want to share on the same basis, Galloway said.

Core Competencies And Concerns

“We would propose that there may be some core competencies that we would have that a small family office would not, and we are asking, ‘Is there a way to share costs?’” she said. “My own personal opinion and mantra, after being in this business for 17 years or so, is that family offices, rather than struggling through issues alone, might be best served by finding ways to collaborate in and around certain parts of our businesses. Sharing experience and expertise would turn out to be a win-win proposition.”

Of course, collaboration has its challenges, such as finding a good fit with a partner and keeping true to the mission of the office, whether that means staying profitable or keeping a service mentality, she pointed out.

But no matter what the mission of the family office, none can afford to keep losing money indefinitely in this challenging regulatory and economic environment, said Jamie McLaughlin, former chief executive of Geller & Co., who has been researching family
offices of all sizes and stripes, and consulting with many in the past year. Finding ways to “survive and thrive” is a most fitting discussion for this time period, he stressed. “Nobody can do it all the best, and they can’t do it all profitably,” McLaughlin said. “Family offices both large and small have got to find ways to get rid of what is
adjacent, and focus on core.”

“The decision on what is core versus what is adjacent has to be made by every one of these firms,” he added. “There’s no getting around it. It’s a review that every single one of these family offices, large and small, have to go through.”

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