Finding the expertise you need to run your family office
Whether you are running a family office or looking to set up one, chances are you will not be doing everything internally and will use the services of external advisors. How you will source and assemble the right team of specialists will impact how you will reach the goals you have set for your family office. We have asked Catherine Grum to share her experience in sourcing and coordinating the work of experts for family offices. Catherine Grum is the Head of Family Office for KPMG UK. She is based in London.
What is your definition of a family office?
This question always makes me smile as you can get very different answers depending on who you ask. For me, it is the professionalisation of a family’s personal affairs. In some respects every family has an embryonic family office although this is usually either one or other spouse.
When the term family office is used, things have usually progressed a bit further on from this however. As a family increases in wealth, their affairs get more complex and time consuming and there comes a point at which family either leans on a few people within their family business, hires someone to help or asks one member of the family to take things on as their full-time responsibility.
What are the typical needs of a family office?
A family office is ultimately there to help manage a family’s wealth and their lifestyle. Some will have more of a bias towards one or the other of these but there’s usually an element of both.
In terms of wealth, different needs exist depending on whether the family are still looking to create further significant wealth and the family office is an enabler for this or if they are more focused on preserving the existing wealth (in real terms) for future generations. There’s often an array of assets to manage from financial portfolios, private equity and direct investments through to real estate and personal assets such as a yacht, plane, art collection or wine cellar. From a lifestyle perspective, the family office may be expected to relieve the administration burden on the family, managing their households, helping with travel, managing their tax compliance or it may be more focused on supporting family values around education or philanthropy. Almost inevitably the list of needs will get longer over time!
How to decide about what to outsource and what to do internally?
In order to meet all the varying needs of the family exclusively from within the family office, it is likely to require the entire cast of Downton Abbey and costs can run into the millions. At some point therefore a decision needs to be taken about what services to outsource. The best approach here is to start with the family’s vision and values – why they want a family office in the first place. For example, does the family have a desire to create something that will provide them with a focal point following the sale of a family business? Are they looking to develop some of their philanthropic ambitions? Do they simply want administrative support to help them manage their affairs? Are they still in wealth creation mode? These type of questions help identify the types of services that will be required as a priority and therefore of potentially the most value to have in-house.
It is also helpful to understand what the family’s financial goals are. How reliant are family members going to be on income from the family office versus other sources of wealth? Do they expect to achieve a certain level of capital growth? Or, on the flip-side, are they simply looking to preserve their existing levels of wealth for future generations? What level of wealth do they currently have? These questions will help determine the extent to which they need to develop investment expertise in-house, certainly the most expensive of all the potential family office activities.
In terms of assessing the complexity of their needs, you need to consider the variety of assets they expect to be managed, the locations of these and of the family members themselves to determine whether outsourcing is viable. As part of this take time to consider whether they expect a fully personalised and bespoke approach and are willing to pay for it. Could their needs be met by working with a multi-family office for example or is it going to prove too challenging to meet their expectations?
Finally, what is the family’s attitude to control? What expertise do they bring with them? Do they want greater transparency? How comfortable are they with delegation? This will help to ascertain the value they place on conducting activities in-house and the associated costs as opposed to having a much smaller operation and outsourcing various functions.
To put this into practice, if a family is focused on wealth creation and plan to be investing directly into a portfolio of businesses then they may need to hire people with an M&A background but they may be quite relaxed about their personal affairs and happy to outsource travel arrangements to a professional concierge company. At this stage a high-level business plan should be drawn up to start to test the assumptions and look at potential costs so that the final decision can be made with eyes open.
How developed is the market of service providers for family offices? Where are the gaps in the market where Family Offices struggle to find help?
The market is more developed in some areas than in others. For example there are plenty of private client lawyers and accountants who work with family offices. There are a growing number of firms offering more specialist advice for example around art and others providing some of the concierge and lifestyle services. The multi-family offices usually have set list of services that they can provide in house, almost always including investment management. Many of the private banks and wealth managers also have family office teams, which often link into their investment banks in some way. With an increasing number of private investment offices springing up too, this part of the market is particularly crowded.
In terms of the gaps, we offer family offices support with how they actually run the family office, using the skills and knowledge we have gained working with many private businesses but tailoring the approach so that it is relevant and appropriate for the family office environment. Issues can range from cyber security to tax compliance, reviewing investment processes or auditing their operations. I’m not aware of other firms offering many of these type of services to family offices. Another area which is underdeveloped relates to direct investments from accessing these right through to exit.
How best to source experts?
If families do not have the necessary experts, the best place to start is to speak to other families or your existing advisers and ask for recommendations. I am often asked this by clients and I’m very happy to make introductions to others I have worked with in the past. There are also a number of family office networks that maintain directories of relevant experts. These are usually vetted to ensure quality although the experts can be charged a subscription fee for inclusion on the list so they are not necessarily completely open-architecture. Pricing will depend on the type of services being sought. For almost all services you should be able to get estimates up-front if not fixed fees for a piece of work. Ask around and don’t be afraid to get several quotes, fees for some services can vary widely between firms. If you know other families in similar situations, ask them what they pay.
According to your experience what are the key enablers to get great results from outside experts?
If you are working with outside experts, it can be tempting to restrict the flow of information and only share what you deem to be strictly necessary. However, you will usually get much better advice from an expert who understands the bigger picture. Often aspects you might not think relevant can have a significant baring on the success of the outcome.
For example if you are outsourcing your investment management, share with them what other investments you have. If you have a lot of US-focused private equity investments, or a significant euro exposure through a property development you’re working on, these may have a bearing on the way in which your investment portfolio is constructed. Secondly, look for experts who are willing to work in teams, for a similar reason. For example if you are about to go through a complex transaction it is much better to have your advisers all contributing ideas together. I worked with plenty of clients in the past who received advice from one party such as their lawyer but, when they took it to another party such as their trustee to execute it, they found bits of it were either too expensive to implement or simply would not work in practice. You have recently joined KPMG and are now the Head of Family Office services in the UK.
How do you see your role and in what circumstances should a family office reach out to you for help?
I love working with complex families to help them get the most out of their family office arrangements. This is why we established KPMG’s Family Office Services. For some families this means helping them to think through what their family needs and how they get themselves organised in order to achieve this. For others with more established operations it can be reviewing and fine-tuning one particular element or supporting on a specific transaction where the family office may not have the relevant expertise or the bandwidth themselves.
The benefit of our approach is that we have a wide range of different services in-house from tax advice, succession planning and structuring through to employment, risk, strategy and audit, across many different countries so that families only need to explain their circumstances once rather than repeating themselves to each new expert they employ and they can have one point of contact for them all. I am often involved early on in a project to help with the initial brainstorming and then help to coordinate with both KPMG experts and the family’s other advisers in order to bring the solution to life.
While we have a wide range of expertise in-house, we are not seeking to be a one-stop-shop and work with a variety of other advisers from philanthropy advisers to reputation managers or even consolidated reporting software specialists. We have an extensive network of contacts so our clients are usually only one phone call away from finding the necessary support no-matter how niche or specialist. We would typically provide them with the names of several firms and if necessary can set up introductory meetings and accompany clients to these. It’s important the clients make the choice but if the advisers are to be part of the team, establishing that rapport early never does any harm.
In regards to Family Offices, what is KPMG’s ambition going forward?
We already have one of the most comprehensive advisory practices for family offices globally. However, for those clients who have not worked with us before, there is often a preconception that as one of the ‘Big Four’ we are not as well suited to working with family enterprises. I would therefore love it if we became the clear choice for any family office looking for new professional advisers.