To outsource or not to outsource – that is a question for family offices.

To outsource or not to outsource – that is a question for family offices. Is it better to provide concierge services in-house, or more sensible to call in an outsider?

There is no clear-cut answer as to the “right” or “wrong” approach here, but family office professionals have told this publication that the trend so far appears to be towards more outsourcing both in the single and multi-family office segments.

"Single family offices tend not to outsource as much [as MFOs] because of privacy issues, but they are slowly opening their doors to outsourcing. Many [family offices] have found that they just don't have the resources [to outsource],” Thomas Livergood, chief executive of the Family Wealth Alliance, told this publication recently.

There is currently a dramatic difference between how single family offices and MFO clients use concierge services, a term that can comprise services as diverse as booking hotel rooms, organizing trips for a clients’ child or hiring a private jet.

A number of major concierge businesses – such as Quintessentially and Pure Entertainment Group – operate as private members’ clubs rather than as business-to-business providers, such as Lifestylist Advisory, a US firm also interviewed by this publication. In the latter case, Lifestylist Advisory says it is seeing strong and growing demand for its services from institutions.

The family office market for concierge is a mixed one. The Family Wealth Alliance’s annual survey this year of multi-family offices, drawn from responses from 72 firms, showed that 32.4 per cent of MFO clients use concierge/lifestyle services, while among the 34 single family offices it tracked, 81 per cent of clients use them.

The reason for the marked difference is that a single family office may have only a small handful of clients, so if concierge is not going to be highly utilized, the family office will not find it economical provide it.

Forces at work

Inasmuch as there is a trend towards greater outsourcing, it is fuelled by several forces. It is, for example, likely to become more costly to operate family office structures in future, as these institutions are drawn into the regulatory net after the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act. (There remains debate about how exactly the Securities and Exchange Commission will interpret this legislation). As a result, providing concierge in-house may not make sense.

Even before this latest regulatory surge, family offices have been reviewing their business models. Last year, for example, these institutions were reported to be “turning back to basics” and focusing on core wealth management strengths, according to the 2009 US Trust/Campden Research North American Family Office Survey.

Meanwhile, there are new players in the concierge outsourcing space. At Lifestylist Advisory, for example, it was founded as recently as 2009 by Kathy Reilly, its CEO and a veteran in the industry with 20 years of experience. She says the trend towards outsourcing is clear.

“Family offices in the main see their function to be `stewards of wealth’, not to have to deal with many of the detailed, but laborious work involved in concierge type services. Complex lives require experts. The level of planning and seamlessness of the execution required to support families and family offices is time consuming and requires a certain level of experience that is not readily available on staff,” Reilly told this publication.

"Wealth is not an end in itself - it is also a means to enjoy life and we feel we are a close adjunct to a family office,” she said.

"By employing an [outsourced] firm, you have a whole team of people,” continued Reilly. She described other benefits from outsourcing concierge: individual expertise across a number of different lifestyle areas; access to many “helping hands” and a collaborative team effort with years of experience and a more economical service than having a full time assistant that the firm has to pay, manage and make sure they are used to full capacity.

"This is our whole focus - what might take someone 10 hours to do, we can do it in just three," she said. Reilly also argued that an expert firm focusing on this area can avoid mistakes and pitfalls that can arise if someone approaches the area for the first time.

"We are a much more economical way; with us, you are not having a full-time employee sitting in an office. They [clients] might only need us six or seven times a year but when they need us, we are up and ready."

Another example of a firm that provides such concierge services to institutions is Total Personal Services, a business founded in 1993 that handles much of the laborious work that family office clients face in dealing with mails, bills, payments and other tasks. As many ultra-high net worth clients have businesses and assets across the globe, such services are far from being a “non-core” offering.

The European approach

Outside the US, inquiries by this publication seem to suggest no overall pattern. Stanhope Capital, the multi-family office headquartered in London, outsources concierge work because it considers itself to be primarily an investment business. At Fleming Family & Partners, the MFO, it provides certain concierge services to its clients.

Concierge services are seen as being peripheral, however, according to some survey evidence in Europe, which suggest that outsourcing is likely to be the preferred option to in-house provision for many family offices. A survey of European family offices by Campden Research and Merrill Lynch in 2008 found, that on a scale of one to five – where a score of one means clients regard a service as very important and five as not important – concierge services rated a score of 3.31, the lowest score, far behind “control and consolidation of family wealth,” at 1.31.

Notably, that survey was carried out before the full blast of the credit crisis had taken hold. In a more cost-conscious environment today, it is likely that outsourcing will gain hold.