Family Office

Single-Family Offices Pausing To Reflect As Dodd-Frank Looms

Harriet Davies, Editor - Family Wealth Alliance, 19 October 2011

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Faced with the Dodd-Frank financial reform single-family offices are “pausing to take a hard look at themselves,” but many still do not know the impact of the new regulations on their businesses, according to the 2011 Single-Family Office Study from the Family Wealth Alliance.

Faced with the Dodd-Frank financial reform single-family offices are “pausing to take a hard look at themselves,” but many still do not know the impact of the new regulations on their businesses, according to the 2011 Single-Family Office Study from the Family Wealth Alliance.

The overall message from the study, which covered 44 single-family offices with average assets under supervision of $658 million, was that these businesses are “confused and uncertain,” said Robert Casey, senior managing director of the Alliance, speaking at the firm’s annual fall conference in Chicago.

Over half the participants (54.5 per cent) still aren’t sure of the impact of the new rules, while 52.4 per cent have sought advice from a lawyer or compliance consultant.

In terms of what SFOs are doing to comply, 21.4 per cent said they had “already taken steps or will do so” to avoid registering with the Securities and Exchange Commission, a requirement for those offices not complying with the regulator’s new SEC exemption. Interestingly, there were no mentions of planning to register with the Commission, said Casey. Instead, it appeared most within the sample either complied or would tweak their business models or strategy to do so, he added.

This is the first time a family office has been “legally defined,” and this in itself is “a big deal,” said Casey. Meanwhile, Thomas Livergood, the organization's chief executive, cautioned that Dodd-Frank "couldn't come at a worse time," what with the volatility in financial markets SFOs are having to contend with.

On the positive side, family offices are using the opportunity to pause and tackle a range of issues such as leadership succession, mission and management, according to the report summary. “There’s a lot of introspection,” said Casey.

"We are looking at our goals and our focus," said one family office chief executive in the survey. "We are trying to keep up with the changing environment and predict what will be needed in the future."

Challenges

Participants ranked generational and family office succession as their top challenge, followed by investments, which topped the list in the previous two years. Other challenges of rising importance were family cohesion and governance, consolidated reporting, relationship management and managing the family office.

The study also identified concerns over sustainability among SFOs, with 55.8 per cent saying they were “somewhat or very” concerned about long-term sustainability. Although this figure has remained fairly steady over the last three years, the share within this group saying they are “very concerned” almost doubled from the previous year.

However, the respondents are not taking this challenge lying down, and the vast majority (88.6 per cent) said they had taken steps to “strengthen their family offices and improve their ability to function effectively in the future,” according to the report summary. These were steps such as strategic reviews, governance reforms, succession planning, or efforts to generate new revenue streams.

Although investment challenges had dropped in importance, 31.8 per cent of survey respondents said their SFO “lacks sufficient expertise in-house to evaluate investment vehicles and strategies,” according to the report summary. Meanwhile, use of external chief investment officers stood at 31.8 per cent, down slightly from last year.

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