How Should I Surround My Single Family Office With Advisors?
Introduction
Most SFOs draw on the expertise of a variety of outside advisors, including lawyers, accountants, bankers, insurance providers, investment advisors, philanthropic consultants, and information technology specialists, among others. Seeking advice when needed, contracting for services, and coordinating the efforts of these specialists is a major responsibility of the SFO.
A well-run SFO will have a clear process for selecting and vetting advisors. While many members of the SFO team will have experience working with various service providers, it is important for the team to have clear procedures for selecting advisors to avoid conflicts of interest or playing favorites. Many SFOs establish budgets for advisor-related expenditures on an annual or more frequent basis, thereby prioritizing needs and giving SFO staff clear parameters for defining the scope of each project with advisory team members. Performance of existing advisors should be reviewed frequently to ensure the services they provide are of high quality and appropriate to the problems the SFO faces. Important questions to ask on a regular basis include:
- Is family privacy and confidentiality respected?
- Are fees appropriate to the work accomplished?
- Are the advisor’s services relevant, comprehensive, and delivered on a timely basis?
- Does the advisor alert SFO staff to newly arising or unexpected issues or opportunities?
- Does the advisor coordinate with other service providers working on the same issues?
While many SFOs seek to develop in-house expertise in certain areas, many SFO activities can be outsourced, which may offer the family greater access to expertise at lower cost. An extreme example of this trend is the virtual SFO, an entity without an office or even dedicated staff of its own; rather, SFO services are provided by a group of advisors on a contract basis, quarterbacked by one of those advisors.
The advantages of having an in-house, dedicated team to manage the SFO are clear:
- The team’s focus will be undivided; its skills will be matched to the needs and requirements of the family, and the SFO’s specific assets rather than those of each team member’s own general client base.
- The family’s privacy and confidentiality will be maintained, and the expertise will be on-call and available whenever needed. Highly confidential and mission-critical services should be the first priority when determining which activities will be handled in-house.
- Generally speaking, in-house professionals will tend to be more focused on and responsive to the family’s needs, and their work will be under the sole control of the family.
Having said that, the advantages of outsourcing SFO services are also significant:
- Lower cost, exposure to a broader range of advice and the perspective and experience gained from serving multiple similarly situated families.
- Economies of scale and access to higher-level expertise, particularly in areas where the SFO’s investments or needs don’t justify the expense of a full-time individual or bespoke service.
- Highly complex services requiring substantial capital investment and delivered in rapidly changing environments and circumstances should be the first priority when determining which activities will be outsourced.
- Generally speaking, outsourced service providers tend to have better access to a wider range of information and are subject to the discipline and best practices of the wider marketplace.
Frequently Asked Questions
What types of outside advisors do single family offices rely on?
Single family offices draw on a range of outside advisors including lawyers, accountants, bankers, insurance providers, investment advisors, philanthropic consultants, and IT specialists, among others. Seeking advice when needed, hiring for services, and coordinating the work of these specialists is a major job of the family office.
Why does a single family office need a clear process for selecting advisors?
A clear, written process for choosing and checking advisors is essential to avoid conflicts of interest or playing favorites. Even when team members have worked with various providers, set procedures keep things objective. Many family offices also set annual or more frequent budgets for advisor spending to rank needs and define the scope of each project.
What questions should a single family office ask when reviewing its advisors?
A family office should regularly ask whether family privacy and confidentiality are respected, whether fees fit the work done, and whether services are relevant, thorough, and on time. It should also ask whether the advisor flags new issues or opportunities and whether the advisor coordinates with other providers working on the same matters.
How often should a single family office review the performance of its advisors?
A single family office should review its advisors' performance often to make sure their services stay high quality and fit the problems the office faces. Regular review against a set list of questions covering confidentiality, fees, relevance, timeliness, and coordination helps confirm advisors keep meeting the family's changing needs.
What is a virtual single family office?
A virtual single family office is an entity with no office or even staff of its own, where SFO services are instead provided by a group of advisors on contract, led by one of those advisors. It is an extreme form of outsourcing, which can give families wider access to expertise at lower cost.
What are the advantages of keeping single family office functions in-house?
Keeping functions in-house gives the team undivided focus, skills matched to the family's specific needs and assets, and protected privacy and confidentiality, with expertise on call whenever needed. In-house professionals tend to be more focused on and responsive to the family's needs, and their work stays under the family's sole control.
What are the advantages of outsourcing single family office services?
Outsourcing offers lower cost, access to a wider range of advice, and perspective from serving multiple similar families. It also brings economies of scale and access to higher-level expertise where the family's needs do not justify a full-time hire, and outside providers tend to have wider access to information and the discipline of marketplace best practices.
Which single family office activities should be prioritized for in-house versus outsourcing?
Highly confidential and mission-critical services should be the first to handle in-house, where privacy and direct control matter most. On the other hand, highly complex services that need heavy capital investment and operate in fast-changing environments should be the first to outsource, where scale and specialized marketplace expertise add the most value.
About the Author
Marc J. Sharpe is the founder and Chairman of TFOA, an organization formed in 2007 to provide a forum for education and networking and to serve as a resource for single family office principals and professionals to share ideas and best practices, pool buying power, leverage talent and conduct due diligence. Mr. Sharpe also teaches an MBA class on “The Entrepreneurial Family Office” as an Adjunct Professor at SMU Cox School of Business. Contact: marc@tfoa.me
About TFOA
The Family Office Association (“TFOA”) is a global peer network that serves as the world’s leading single family office community. Our group is for education, networking, selective co-investment, and a resource for single family offices to share ideas, deal flow and best practices. Members are not actively marketing products or services to other members and no contact information or email lists will ever be shared. Since our founding in 2007, TFOA has led the global single family office community by delivering world-class educational content, unique networking opportunities, and exceptional thought leadership to our highly curated network of the world’s largest and wealthiest families: www.tfoa.info
Disclosures
The Family Office Association (“TFOA”) is a peer network of single family offices. Our community is intended to provide members with educational information and a forum in which to exchange information of mutual interest. TFOA does not participate in the offer, sale or distribution of any securities nor does it provide investment advice. Further, TFOA does not provide tax, legal or financial advice. Materials distributed by TFOA are provided for informational purposes only and shall not be construed to be a recommendation to buy or sell securities or a recommendation to retain the services of any investment adviser or other professional adviser. The identification or listing of products, services, links, or other information does not constitute or imply any warranty, endorsement, guaranty, sponsorship, affiliation, or recommendation by TFOA. Any investment decisions you may make based on any information provided by TFOA is your sole responsibility. The TFOA logo and all related product and service names, designs, and slogans are the trademarks or service marks of The Family Office Association. All other product and service marks on materials provided by TFOA are the trademarks of their respective owners. All of the intellectual property rights of TFOA or its contributors remain the property of TFOA or such contributor, as the case may be, such rights may be protected by United States and international laws and none of such rights are transferred to you as a result of such material appearing on the TFOA web site. The information presented by TFOA has been obtained by TFOA from sources it believes are reliable. However, TFOA does not guarantee the accuracy or completeness of any such information. All such information has been prepared and provided solely for general informational purposes and is not intended as user specific advice.
Frequently Asked Questions
How should a family office select investment advisors?
Advisor selection should follow a structured process: define the mandate clearly, conduct a formal RFP to multiple candidates, evaluate track record, fees, team stability, and alignment of interests, check references, and negotiate terms before appointment. Ongoing monitoring should be as rigorous as the initial selection.
What are the biggest conflicts of interest to watch for when selecting family office advisors?
Common conflicts include advisors who earn higher fees for recommending proprietary products, placement agents who receive undisclosed fees for fund introductions, custodians who favor affiliated managers, and consultants who earn referral fees from the managers they recommend. Always ask advisors to disclose all compensation arrangements in writing.
How many investment managers should a family office use?
Most single family offices work with a relatively small number of managers — typically five to fifteen across different asset classes — to maintain meaningful relationships, negotiate favorable terms, and monitor performance effectively. Over-diversification across too many managers can reduce oversight quality and dilute the benefit of active selection.
What is the difference between a discretionary and non-discretionary advisor?
A discretionary advisor has authority to make investment decisions on behalf of the family within an agreed mandate, without obtaining approval for each transaction. A non-discretionary advisor provides recommendations but requires the family's approval before executing. Most SFOs use a mix, with discretionary authority for liquid markets and non-discretionary for significant direct investments.
