The opportunity for advisers to support booming family offices

financial advice Family office technology alternative investments high net worth

19 June 2024
| By Laura Dew |
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Financial advisers have a unique opportunity to consult and support family offices as they look to mature and utilise complex investment strategies. 

The term “family office” is defined as a “corporate structure set up to manage the assets of a single family or multiple families”. These families have achieved a high level of wealth and have reached a new tier, seeking to differentiate themselves from the mass affluent or ultra-high-net-worth (UHNW).

KPMG’s The 2023 Global Family Office Compensation Benchmark Report found family offices in Australia have increased by 150 per cent over the last 10 years, with 57 per cent of firms surveyed having been set up during that period.

The family offices surveyed described their purpose as to create risk-adjusted growth, wealth preservation, administer the family’s wealth and philanthropic initiatives.

Over half (62 per cent) said they managed up to US$500 million ($750 million) in assets under management, but 3 per cent said they managed more than US$5 billion.

Robyn Langsford, partner in charge of family business and private clients at KPMG Australia, flagged the rise in family offices stems in part from clients’ mistrust of broader wealth management firms.

“It is also the case that the financial services industry in Australia has been affected by a number of issues that have decreased trust in third-party wealth management and heightened the idea that a founder and their family can build their own solutions in-house.

“From being traditional recipients of third-party services, family offices are now suppliers of services to usually one client being the family. Those services are being delivered by investment industry professionals and experts attracted to the more streamlined nature of working inside a family office.”

Recruitment firm Capital Executive Search recently identified family offices as an area where firms are actively hiring, particularly as some offices become more sophisticated and opt to in-house their investment capabilities.

According to Netwealth, this is where financial advisers can step in and consult with family offices on how they are navigating this sophisticated marketplace. This can include help with investment management, tax planning, estate planning, philanthropic planning, family governance and family education. 

In PWN’s 2022 Annual Member Survey, which surveyed over 100 members of Australian families of significant wealth or their family office executives, 70 per cent of family investment decisions are made by less than three people. 

This indicates staff may be less familiar with the complex or alternative investments that HNWs are now seeking, with 43 per cent of assets invested in alternative asset classes. They may also lack the right technology, reporting and governance processes, which is an area where Netwealth said advisers have expertise. 

“Advice firms are by their very nature well-adapted and have vast experience in investment management, and as such, are perfectly placed to help family offices overcome these challenges and become better asset managers.

“Financial advisers have an advantage as their technology systems, often an investment platform, and processes are geared to sophisticated reporting. They are well-versed in different reporting metrics and well-placed to advise on the important ones as well as developing new and more customised key performance wealth indicators.”

Modern investment platforms used by advisers offer advanced data analytic capabilities, improved efficiency, lower costs and better cyber security features. In contrast, family offices tend to rely on Excel spreadsheets to generate reporting. 

It is not just technology either as financial advisers have the ability to communicate complex financial concepts to their clients in a way that is accessible for all ages and levels of financial education. They are also used to tailoring their communication to the needs of different clients. 

Click here to listen to a Relative Return podcast episode with family office Victor Smorgon. 
 

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