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Annual Study Identifies Top Challenges For Single-Family Offices

Harriet Davies

18 October 2012

The top challenges for single-family offices in the current environment are regulatory rules, investment performance and security issues, the fifth Annual SFO Study from The Family Wealth Alliance revealed.

The study, unveiled at a conference in Chicago this week, found legal fees are imposing a heavy burden on family offices. “Legal fees or other expenses affected 38.2 per cent of participating SFOs. Reported costs range from $300 to $450,000, and average $64,000,” said Bob Casey, head of research at The Alliance.     

In other key findings, 32.4 per cent of offices said that new regulations requiring family offices to register with the Securities and Exchange Commission – as part of the Dodd Frank Act – had impacted them.

On the investment side, around two-thirds of offices say they have sufficient expertise to analyze investment vehicles and strategies, while 35.3 per cent say they outsource the chief investment officer function. This last figure has risen from 31.8 per cent last year.

There were signs that family offices are paying closer attention to their investment policies, as the proportion which had reviewed them over the year rose from 39.5 per cent last year to 51.5 per cent this year; 27.3 per cent had actually changed their investment policy during the year.

Cyber security: a big threat

The survey also revealed a high prevalence of internet security threats to wealthy families, with around 20 per cent saying that a family member had been a victim of identity theft via the internet at some point. Meanwhile, just over 10 per cent of families said a member had been a victim of burglary or robbery. Perhaps due to this high incidence of security violations, 12.1 per cent of family offices in the study employ a security consultant.

The high number of family offices working with a security consultant came as no surprise to Bill Marlow, a consultant to high net worth families and advisory board member at the security advisory firm TorchStone Global. In fact, he says that it’s likely a greater number than that are engaging cyber security consultants specifically – somewhere in the range of 20 to 30 per cent.  

“The threat profile has changed – not only identity theft, but social media abuse, cyber bullying, theft of passwords and accounts, mobile device cloning, mobile device message intercept, mobile device spyware, internet tracking, mobile device tracking, and the list goes on,” Marlow told Family Wealth Report.

“Many family offices are being proactive at protecting the family members from these by getting the right cyber security consults to establish a family-level protection that requires little to no effort on the family members themselves but provides a huge reduction in risk. These include the installation of blind encryption, unique apps on mobile devices, and the creation of ‘friends and family’ secure social media sites. Many of these techniques are the same as being implemented by MI6/MI5, CIA, NSA, GCHQ, etc.,” he added.