Mounting internal and external challenges are putting new pressure on family offices to institutionalize and reassess their services -- and that's looking like a good thing for financial advisors.

Indeed, with all the hard choices now facing wealthy families, "financial advisors' insights are critical in helping the family offices evaluate and execute their next steps," says Julia Cloud, national managing partner of private wealth, for Deloitte, the giant accounting and financial services consulting firm.

Internal challenges for single family offices, as well as many multifamily offices, include transitions of control in a family business, succession planning for an aging patriarch or matriarch or the spinout of a family office from an operating company, according to the 2015 Private Wealth Outlook, a new report from Deloitte.

The report also cites several external sources of pressure, including accelerated technology changes; increasing operational, legal and reputational risks -- and the bad experience of families who haven't paid attention to processes and controls.

Advisors can capitalize on these trends in three key areas, according to the report:


Ideally, governance structures for family offices begins with a mission statement outlining the family’s values and clearly defined roles, responsibilities, goals, and accountability for family members. Governance should include succession planning; defining the authority of family members; establishing operating agreements for partnerships; choosing trustees; and setting controls over investment transactions.

What advisors -- and families -- need to realize is that the family goals may change and need revising, Cloud says. "It's critical to go back to the beginning and reaffirm the family's goals and objectives and what path they want to be on now," she says.

When working with wealthy families on governance, advisors shouldn't shy away from the tough issues families may be facing, Cloud adds: "Family issues can be opaque and very sensitive, but advisors need to  help the family work through them and make sure they identify areas that need to be clarified."


Family offices tend to employ long-term professionals who often take on more than one role, and that can lead to an overreliance on a few employees and create “key person” risk, the report notes. As a result, more family offices are outsourcing key roles and bringing in more subject-matter experts in finance, operations, technology, and investment management.

"The most likely areas for outsourcing," according to the report, "include financial reporting and, for firms that have it, parts of the internal audit function."

But families and advisors need to take into consideration not only the costs of outsourcing, but the loss of direct control, Cloud warns. "New technology may be coming inside the family office and confidential data may no longer be as secure as it was," Cloud says. "That needs to be addressed. Advisors can help the families weigh the benefits versus the risks."

Culture is another factor to consider when bringing in outsiders, Cloud cautions. "Try to make sure there's good fit," she says. "Some people slide in to a family office culture easier than others."


Family offices are particularly sensitive to risks to the family's reputation, as well as cybersecurity and fraud threats, according to the Deloitte report.

Advisors can help families deal with these issues by being aware of "risk sensing" -- what the report defines as "a rapidly emerging trend in risk management [that] involves a combination of human analysis and sophisticated technology that continuously analyzes massive amounts of structured and unstructured data in near real-time."

Put another way, risk sensing uses different technology and information sources "to think two or three steps ahead," Cloud says. Advisors can help families "set up  information flows that have early indicators to provide feedback and raise antennas so families can act accordingly."

Advisors can also help wealthy families monitor their social media presence -- an increasing source of concern.

"If you have an online presence you have a brand reputation," Cloud says. "You want to find out how to get in front of what's appearing online and on social media so you can manage it, versus having it manage you."

Read more:


Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access