How to gain a birds-eye view by understanding family office services
Family offices rarely think about their operating costs in basis points – surprising when such a measurement is a common component of determining expense vs value when comparing investments. Navigating your supplier universe can help you gain a much-needed system overview.
Service Provider Selection Published on Simple January 18, 2021

Asset management industry fees as a whole are being squeezed. Fees on hedge funds have come down by a third. In contrast, the costs of running a family office remain stubbornly high despite technology enabling us to do more with less.

Where are the costs vs value vs efficacy analysis? And how can a family office in Australia get the very best for their basis points?

When engaged by an office, one of the first things to do is to complete a systems report. Everything that touches the family office investments needs to be written down with comments, pros, and cons. Often, this is the first time this has been done and while it creates a source document for our review it can provide a moment of clarity for the family and staff on how many suppliers are currently receiving and transmitting their data and taking fees.

The list includes suppliers such as brokers, platforms, file sharing, asset managers, accounting software, research and business intelligence tools, and banking arrangements. Everything that is used to run the investment office. It’s important to work with the CEO, CFO, CIO and COO, family members, admin staff, and everyone that has a place in the overall process. This is a counterparty risk overview as much as a systems list.

From know your client, to know your supplier

Know Your Client is a well-established process across the financial services sector, which ensures that investment advisors know detailed information about their clients’ risk tolerance, investment knowledge, and financial position. Risk management, customer acceptance policies, and transaction monitoring are all crucial policies for KYC compliance.

Like KYC, KYS is a mantra that everyone should have when it comes to building out investment infrastructure. Not all suppliers provide explicit detail on your counterparty risk and total costs – and just because you don’t have your assets custodied with a reporting platform, doesn’t mean you’re not exposed to their ability to report accurately and timely.

Without a crystal ball, reputational risk is often very hard to avoid, and only without is often mitigated by questions of ownership and supply chain. Often one client referral is ok, two is better, but three gives us much more comfort. Nothing narrows the focus like sunk costs meaning it’s often a good idea to speak to those that have already had an experience with a supplier – both good and bad.

About the Authors

Shaun Parkin

Shaun Parkin

Investment Operations & Technology

My central philosophy is that of a Sherpa. I believe in acting as interpreter, educator, assessor, and advocate for family offices – whilst still being independent.

Connect with Shaun Parkin View Shaun Parkin Profile

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