Family offices are becoming more professional, but face 10 key challenges

Family offices are evolving and becoming more professional in how they are run, according to new research.

But while this sector of the investment and wealth management industry has some significant opportunities, it is also facing some significant challenges regarding governance, portfolio management, and succession planning.

Ocorian, a services provider to the industry, surveyed 300 family office professionals managing a combined $155 billion in assets under management and found that 85% reported that their family office has become more professional in its operations and structure over the past five years.

Among the most cited improvements in professionalism is a stronger succession plan (53%) while 48% said that have introduced or strengthened the family constitution or charter, 46% have added support from third parties, and 45% have bolstered their management team.

Investment management has also been improved with 41% saying that they have developed a more diverse and professional portfolio, and 40% have strengthened compliance, tax and legal infrastructure.

More than one third have developed a more cohesive and robust philanthropy programme and 11% say they now have much better oversight of all the assets owned by the family office.

However, having the right governance in place and ensuring their investment portfolio is properly managed and aligned with the risk and return profile of the family are the top two challenges cited by respondents.

10 biggest challenges facing family offices:

1             Having the right governance in place (86%)

2             Ensuring the investment portfolio is properly managed and aligned to risk/return profile (59%)

3             Having a robust succession plan in place (44%)

4             Upgrading technology (40%)

5             Maintaining confidentiality and privacy (39%)

6             Preparing the next generation for their wealth transfer (36%)

7             Navigating regulatory compliance issues (34%)

8             Preserving value of assets (28%)

9             Managing leadership transitions (27%)

10           Ensuring the investment portfolio is being properly managed (22%)

“I’d suggest this rapid and widespread professionalisation is a result of the explosion of growth in number of family offices; they simply have to professionalise as a way to stand out in an increasingly crowded market,” commented Michael Harman, commercial director – Private Client at Ocorian. ““Despite this rapid increase in sophistication, they face a number of significant challenges in the near future – particularly around regulation and compliance.”