What You Need to Know about Family Office Outsourcing

Family offices are set to increase their outsourcing activities as their clients demand more sophisticated support, especially as the latter’s risk appetite continues to grow and intergenerational wealth transfers become more prominent. Here's what to know about family office outsourcing.

In its 2024 Global Family Office Insights Series, Deloitte reported that 34% of family offices expect to increase their reliance on third-party service providers, a significant increase from 25% in 2021.  

The same report also found that family offices have been adapting a hybrid model. This model enables them to “deliver services through a mix of in-house employees and outsourced resources” — a move that allows them to improve service levels during high-volume periods or when they need specialized expertise.

What is family office outsourcing?

Family office outsourcing means working with an external provider in handling specific business functions, such as accounting, reporting, advisory, and investment management. In most cases, external providers act as the middle- or back-office arm of a family office’s operations while the latter takes care of the core business and confidential client information. 

By outsourcing, family offices can increase their operational capacity while keeping overhead costs to a minimum. They can also use it to onboard specialists, deliver better client service, manage risks more proactively, and ensure timely compliance with regulatory requirements. 

Why do family offices outsource?

Outsourcing augments a family office’s ability to deal with complex client demands and regulations.  

Like other industries, family offices use outsourcing to fill specialized roles outside their expertise. For others, it gives them the flexibility to handle the growing administrative tasks that come with their growing operations.  

Here’s a list of the common reasons why family offices outsource. 

1. Increased demand for more specialized and sophisticated services

Ultra-high net worth families are requiring more sophisticated services. Family offices need all the extra resources they can get to deal with such demand. 

Intergenerational wealth transfers in regions like Asia, in particular, are at an all-time high — with next-gen asset owners heading on to more non-traditional paths which can ultimately reshape family portfolios.

Aside from their conventional businesses, family members are showing an increasing interest in digital assets, impact investing, healthcare and life sciences, and even collectibles like non-fungible tokens (NFTs). 

While these are good indicators of families’ willingness to adapt and innovate, undergoing these drastic changes can be challenging for asset and wealth managers. To serve their clients well, they need to be experts themselves in these areas or get the help of specialists. 

It's no wonder why 71% of family offices view outsourcing as a way to improve their service levels. Sixty percent (60%) of them also believed that having third parties can give them access to a broader range of financial services and solutions. 

2. Market volatility and constant regulatory pressures

Recession, geopolitics, and inflation are the top concerns that perturb family offices as they head on to the next one to two years, Goldman Sachs disclosed in its latest Family Office Investment Insights Report.

These concerns prompt a major strategic shift within family offices and are influencing their restructuring decisions and asset allocation efforts.

Aside from dealing with market changes, family offices are also facing constant regulatory pressures from authorities. Compliance with diverse tax rules, reporting requirements, and anti-money laundering laws also adds to their current workload.

In as much as they want to uphold their fiduciary responsibilities, dealing with such complexities can throw them off balance. In-house specialists can only do so much, and their time is better spent on managing their clients’ assets.

Both single and multi-family offices can augment their capabilities by outsourcing to specialized providers. This gives them more flexible options to bring in regulatory expertise and administrative support. With enough hands onboard, they can guarantee compliance with relevant regulations and maintain focus on portfolio management at the same time.  

Read Next: The Benefits of Back-Office Outsourcing for Wealth Managers 

3. Finding qualified experts amid tight talent market

The evolving nature of family offices can only be possible when they have the right expertise and skillsets on board.  

However, “many family offices are not yet equipped with the right resources or talent,” shared Laurent Capolaghi and Lars Goldhammer, both of whom work as private equity professionals in EY Luxembourg. 

Being a niche sector that requires specialized knowledge about asset, investment, and financial management is not the only challenge for family offices.  

Like several other industries, they’re also affected by the ongoing accountant shortage. They’re not simply competing for top talent against other family offices but also with other professional services firms. This leaves them with an even slimmer chance of hiring qualified professionals. 

“The talent pool shrinks further when family offices narrow down candidates to those who fit into the culture of the family office,” said Matt Norman, chief investment officer at Japanese SFO Kenjiro Private Office, in this article. 

However, they can still turn this exact dilemma to their advantage. 

Rather than hiring in-house experts, they can opt for the more long-term, cost-effective option: outsourcing services from other professional services firms. Doing so can lessen their difficulties in finding qualified professionals. At the same time, it also reduces their administrative responsibilities as an employer. 

Family office services to outsource

Deciding what services to outsource and which ones to retain in-house all depends on a family office’s unique needs. Long before an outsourcing engagement begins, they must conduct a thorough business analysis: 

• What are our core functions? 

• What do we aim to achieve from this initiative (outsourcing goals)? 

• In which areas do we need to implement strictest confidentiality? 

• In which functions do we lack expertise? 

• Which tasks consume most of our time? Are those tasks essential for our main business? 

• How much can we allocate for outsourcing? 

Administrative services are often the easiest to outsource. Aside from being easy to delegate, there’s also lesser worries about sharing confidential financial information. They’re also time intensive. Entrusting them to managed service providers can bring back family office’s focus on their main priorities. 

In terms of finance and accounting services, among the easiest to outsource include: 

• Accounting and financial reporting  

• Advisory services  

• Bookkeeping 

• Cash flow management and budgeting 

• Fund administration 

• Tax preparation and compliance 

Beyond administrative accounting services, family offices can also outsource more technical and high-level functions like investment management, advisory services, software and IT consulting, and compliance and regulatory services to enhance their operations cost-effectively.  

Like how our society functions, family members are the most immediate person you can turn to when you need help. But when your collective skills and resources are no longer enough, there’s always a community you can run to for support. 

Single family offices and multi-family offices alike can be part of a larger community of service professionals. By expanding their network and outsourcing family office operations support, they can provide better service to their clients.  

Back-office outsourcing for family offices

D&V Philippines offers a wide range of back-office accounting solutions for family offices, wealth management firms, asset managers, fund managers, and real estate firms. 

Discover how we can streamline your accounting operations through our high-level and administrative support solutions. Contact our team today or download our latest whitepaper for more information.