As part of this news service's series examining trends within the world's family offices industry, we talk to Standard Chartered about the work it does in this space and what its perspectives are.

This news service questioned a number of wealth management industry figures about what trends they see unfolding in the family offices space. Here we talk to Armando Rosselli, who is head of wealth advisory and UK resident non-domiciled at Standard Chartered. 

How are family offices deciding whether to outsource work or keep it in-house?
There are commonly three top level, broad factors (and possibly a fourth) that can influence a decision:

Costs: this is probably the simplest; a family office might not have the economies of scale across all area of advice (e.g. tax, legal advice, finance) as most financial resources will usually focus first on the investment side, and any additional budget for resourcing work in-house will be driven by the given need and its economics.

Expertise: scarce resources need to be focused where they are more needed, as for any other business. Therefore, while family offices will invest in in-house professional expertise, there will be topics and services where in-house intellectual capital will not be at the same level, and therefore outsourcing is the first alternative.

Confidentiality: there will be times when a family offices might decide to source expertise internally on the grounds that it believes information might be sensitive or might affect an underlying business/investment. Therefore, the preference is for the work and the outcome to be retained in-house. In family businesses, this can be driven by the need to retain a competitive advantage in a given market or industry.

Accountability: possibly the fourth one; there will be areas of expertise and advice where strategically the FO might prefer to outsource on the grounds of responsibility and/or ultimate liability for the given work and advice. This is often the case for complex tax matters or possible arbitration and eventually litigation. Or even within the core activities of the family office, where it is believed the risks of retaining a decision in-house are perceived as too high. In some instances, professional indemnity cover might also come into play and reliance on a third-party cover might be perceived as the optimal solution in the circumstances.

Many family offices which have been amateur outfits in the past, are now more professional – thoughts?
It’s certainly worth pointing out that still today, “family office” is a concept that means different things to different people. As an extreme, including very wealthy families, one person dealing with the family’s primary needs (travel, access to finance, lifestyle etc) could be a family office service. Cultural aspects also still play a role, especially in certain jurisdictions. Family connections and perceptions can sometimes prevail over focusing on professionalism. This is certainly changing though.

The clear trend over the last decade has been for increased professionalisation very much in line with what has happened across the financial services industry. Even from a purely investment perspective, generating returns has been an increasing challenge. This has often led to the need to tap into returns outside the original comfort zone, with the consequent demand on more specific expertise.

Managing risks in a complex financial world and generating alpha, along with the focus on increased diversification, has been a key driver for more professional family offices. Additionally, international efforts to achieve transparency - and consequently  the requirements of financial service providers like private banks to do likewise - have also increasingly led to more specialisms being required by family offices in this space. Finally, families are growing in size and trans-generational transfers mean that the need for strong governance has increased. This has led to family offices building specialisms across risk and investment committees, as well as the need for expertise in compliance, tax and different legal systems, in light of families often being spread across jurisdictions.

Are family offices being set up for the right reason? Why are families creating a family office? Is it for status reasons rather than actual necessity?
Originally, there is no doubt that an element of “status” has led to certain families looking more specifically at a family office solution. However, this is for most a matter of the past. Nowadays, most FOs are based on strong and sound family needs and ultimately in the long run the economics also need to be sustainable.

From an HR point of view, it’s difficult to hire the right talent. A professional joining from a top tier bank, for example, would expect back office/admin support - something a family office might not be able to offer. How can you attract the best people? The quest for talent and professionalism is not unique to family offices; it’s certainly a challenge for the entire professional services industry, and across jurisdictions, including investment and private banking. And, this is not just for senior executive or investment professionals but also for middle- and back-office talent.

Family offices need to have a clear strategy on investment and growth and the related resourcing requirements, across the value chain – and not just the lead individual. This, again, is an area where family offices have clearly become much more experienced over the years.

Attracting – and clearly retaining – talent is key, of course. While, there is no one size fits all, incentivisation plays a fundamental role. Family offices need to be creative on how to make themselves attractive in the long run. The quality of any financial package, the amount of middle/back office support being available or budgeted for, the stability and governance around the family and the ability possibly to co-invest in certain family ventures - all can play a role in the decision-making process for any candidate. This is, of course, in addition to the expected increased flexibility, independence and entrepreneurship of the role, in contrast to more institutionalised jobs in larger organisations.    

How are family offices being structured - a trust, foundation or company?
Whilst it is prudent not to generalise, in an international context the corporate structure usually prevails. This is where the family office provides a series of services and oversight across liquid and business assets and, of course, directly to the family, on primary needs. Also, where family office professionals are commonly employed (contracts of employment, payroll, etc). Clearly all asset holding vehicles will often be considered in terms of owning the given family wealth. This can include corporate structures, partnerships and fiduciary arrangements like trusts or private trust company structures and will be considered for liquid and business assets. 

Additionally, closely held investment funds are also increasingly playing a role - and not just in relation to real estate - for their clear benefits from a governance and transparency perspective, especially where wealth remains pooled while facilitating the trans-generational transfer of benefits. Also, bespoke unit-linked insurance arrangements should be included here, as part of a broader structure. Of course, the choice of structures will be driven by several factors including flexibility and governance objectives, but a key role will also be played by considerations such as residence, domicile and nationality of family members, location and nature of family assets to ensure that the appropriate structures are chosen. This clearly can be complex and will usually require the input of tax and legal advisors.

Are family offices investing in philanthropy more than before?
On the whole, historically, this has been driven by the vision and aspirations of the first generation, sometimes even just the head of the family. There is no doubt that over the years, with increased involvement of the next generations and possibly a grown perception on the impact of charitable endeavours, this has led to philanthropy becoming a much more strategic focus for families and therefore for the family office. However, the current global pandemic could further change this.

Interestingly, while this is not strictly speaking philanthropic, the importance of ESG investing has also increased. There is no doubt that when families and family offices consider where to actually deploy the money through targeted investment decisions, we will see increased overlap going forward.