Family Offices in 2019: three key observations for SFO and MFO executives from the UBS Global Family Office Report

UBS’s Global Family Office Report 2019 has now been released, featuring insights gathered from surveying of 360 single and multi family offices globally.

Below, we’ve extracted three of the most pertinent points for family office executives (i.e. Chief of Staff, Chief Investment Officer, CEO, Chief Operating Officer, Finance Director, Managing Director, General Counsel, etc) – covering the broader investment trends (and its inevitable impact on recruitment), the state of outsourcing in 2019, and changes in remuneration.

1/52% of family offices are anticipating an economic downturn, and are re-aligning to mitigate risk

Investment allocations have dropped for the fifth year in a row, demonstrating family offices are doubting hedge funds’ ability to protect wealth during the economic downturn that 55% of family offices believe we will enter by 2020.

Family office executives with a negative outlook on the year ahead cite, in particular, Brexit and its impact on both the UK and EU (62% believe it will make the UK a less attractive destination for investment), and the ongoing trade war between the US and China, which a huge 92% believe will have a significant (and detrimental) impact on the market.

Those most pessimistic about the short term are cutting equities and replacing them with less volatile bonds and real estate. They’re also increasing liquidity in order to enable easier purchasing if a crash does occur.

But not all family offices are worried. A significant proportion of those anticipating a downturn aren’t letting it slow down their investments for fear of missing opportunities. Meanwhile others are unfazed by what they consider ‘short term turbulence’ due to their long term (ten to fifteen year) investment planning. A further cohort aren’t anticipating a downturn, and continue to be bullish regarding the near term.

2/Financial planning, financial reporting and succession planning are the areas where in-house spend on staff is rising mostly quickly

Spend on professional services and advisory services rose in 2019, and has now reached a global average of $1 million (versus $784,000 in 2018). Advisory services saw a slight uptick also, with average spend increasing from $1.4 million to $1.5 million. This includes expenditure on areas such as family governance and succession planning, concierge services, and security, among others.

Could this affect family office recruitment? Of note is that although more than 60% of offices do continue to keep financial planning and reporting exclusively in-house, there appears to be a greater trend towards outsourcing these tasks.

Meanwhile, spend on the traditionally more readily outsourced investment related services are decreasing, tracking at $2.9 million in 2019 versus $2.5 million in 2018.

It’s worth keeping in mind that this still puts the average spend on investment services at more than $1 million more than professional and advisory services combined – with private banking and FX management in particular both primarily outsourced.

Investment banking functions also remain a popular choice for outsourcing, with a ‘mixed’ in-house/outsource approach is usually taken. Among those using this blended method, 54% of investment banking activity is outsourced.

3/CEO salaries creep upwards, and discretionary bonuses are overtaking formulaically-set targets for many in the C-suite

Family office jobs are becoming more lucrative – average global CEO salaries have increased slightly, from 3.7% to $335,000, and U.S.-based C-suite staff continue to lead on salary by a wide margin. But of greater interest to family office leadership may be the rise in discretionary bonuses, which are now significantly more common than formulaic bonuses at the top tier of family office management, with 44% of CEOs reporting a discretionary bonus versus 32% in 2018. 35% of CIOs saw a discretionary bonus versus just 20% in 2018.

Formulaic bonuses are also beaten out by mixed bonuses – which feature a mix of discretion and formulaic targets and/or proportional profit sharing. 25% of CEOs and 27% of CIOs are compensated in this way, although they’re less popular among COOs and CFOs, where discretionary bonuses take precedence this year.

As many single family offices and multi family offices ‘batten down the hatches’ in anticipation of an economic downturn, it’s perhaps unsurprising that we’re seeing the effects ripple across services spending.

The indication of a trend towards outsourcing of financial planning, and a decrease in spending on investment could be an indicator of how family office executives should plan their family office’s recruitment through 2020 – and until the financial storm, or the expectation of one, has passed.

True House Partners is a specialist family office recruitment agency, and we are ideally positioned to help navigate modern single, private and multi family office executive search. For more information, please call +44 (0)20 7846 0025 or email: paulavon@truehousepartners.com