Why Family Offices Need to Strategically Outsource

Russ Alan Prince
Russ Alan Prince

I consistently find great value in the writings of Russ Alan Prince, a founder and the Executive Director of Private Wealth magazine and author of the Serious Money column on Forbes.com. In this Forbes.com post, he explores why single-family offices may benefit from strategically outsourcing certain functions.

Archival Property Solutions, LLC is a prime example of a firm that offers a specialized service beyond the scope of a typical family office’s core competency. The dynamic that Russ Alan Prince describes in the article below is equally applicable, if not more so, to multi-family offices. We look forward to working with a variety of family offices to enhance their effectiveness and make them look that much better in the eyes of their very demanding clients.

by Russ Alan Prince

Single-family offices are often expensive propositions. They’re generally very much boutique operations employing high-caliber experts in the service of the very wealthy.

The costs of running a family office have always been a consideration, but have become even more scrutinized since 2008. According to Steffianna Claiden, founder and editor-in-chief of Family Office Review, “Both families with existing offices of some kind and families new to having an office have deduced that doing everything themselves can all too easily become a massively expensive headache. Hence the rise of “strategic outsourcing”—the trick is figuring out which functions make sense to keep at home and which to farm out. The second challenge is finding and evaluating suitable providers and then choosing the right one. Land mine city, doing all of that.”

Another leading authority in the field, Linda Mack, president of Mack International, LLC, explains, “Family offices are increasingly looking at how to best provide the highest level quality services to their family clients on a cost effective basis. This includes a comprehensive review of strategic outsource alternatives. An increasing number of them are ascribing to the view that if a strategic outsource provider can provide the service in question at a higher level of quality and excellence than we can in-house, can provide it at a better price, and can provide it without conflict and with transparency, it makes sense to strongly consider that alternative to best serve the family’s needs and objectives.”

“We’re seeing smart family members taking a hard look at the expenses attached to running their family offices,” explains Richard Flynn, principal at Rothstein Kass, “At the same time, the very wealthy have become clearer and more precise on just what expertise they need in various circumstances.” Combining these two considerations, the family offices creating the best solutions for the ultra-wealthy are the ones:

1. Identifying and concentrating on their high-impact core capabilities, and
2. Strategically outsourcing non-core capabilities, while
3. Maintaining diligent oversight on the professionals delivering the non-core capabilities.

These three organizational competences can prove problematic. The ability to determine and justify core versus non-core capabilities is often fairly difficult for many wealthy families. Big picture, the following equation conceptually captures the factors that need to be evaluated in determining whether to outsource capabilities:

(Frequency + Criticality) – (Cost + Exclusivity) = Determination

• Frequency is the likely amount of usage by the family office for the expertise.
• Criticality is the importance of the expertise to the family office.
• Cost is the differential expense of the expertise depending on whether it’s in-house or outsourced.
• Exclusivity is the level of requisite proprietary access to the expertise.
• Determination whether to bring the expertise in-house or not.

Another complication is that being able to adroitly select professionals to outsource is fraught with the potential for disaster. This is a function of decreased control thereby making sourcing independent professionals a very important process.

Strategic outsourcing, in effect, is an extremely powerful and ubiquitous trend in the family office universe. The issue is to engage in strategic outsourcing wisely. The answer is often extensive and ongoing diagnostic assessments coupled with the structural flexibility to adjust quickly.

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About Archival Property Solutions, LLC

Archival Property Solutions documents and catalogs the tangible assets of high-net-worth owners for their personal viewing pleasure and support of crucial Family Office and wealth management activities. Clients who have substantial and complex holdings in multiple locations can now keep their catalog of non-financial assets stored securely for private, confidential access via computer, tablet or phone. When maintained with current information, this confidential digital catalog can keep owners and their trusted advisors better informed, enabling them to stay current with professional service objectives and to plan for, protect against, cope with and recover from life’s unexpected events.

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