EXCLUSIVE: 2014 FOX Forum: The Top Three Trends Driving Family-Advisor Alignment

Eliane Chavagnon

13 May 2014

During Family Office Exchange’s 2014 Wealth Advisor Forum, Amy Hart Clyne, executive director of FOX’s Knowledge Center, walked through some of the top trends driving what the global organization described as “family-advisor alignment.”

Clyne got the ball rolling by noting that, for businesses, trends can present risks, challenges and opportunities. “The impact of a trend is affected by the magnitude and the pace of change,” she said.

Indeed, there are a raft of significant trends in the wealth management sphere at present, as some 150 attendees heard and Family Wealth Report can exclusively report on.

Trend 1: “Rapid technological advances are threatening the protection of client assets, privacy, and security.”

The issues surrounding data protection and security are arguably the most crucial facing the wealth management industry and family office space today, particularly given the fiduciary role of the advisor.

Industry executives have said, for example, that rising risk, complexity and internet exposure are prompting wealthy families and family offices to pay more attention to their insurance coverage.

It’s an “intensifying concern and challenge,” which centers on the protection of client assets, client identity and privacy. Data security is a “significant emerging issue,” with no easy or obvious solutions.

“This trend will impact the behavior of advisory firms and clients ,” Clyne said.

She pointed to a report by Experian, entitled The Portrait of a Fraud Victim, which found that 43 per cent of the wealthiest US households are at risk of identity fraud, while PwC, in its Global Crime Survey, revealed that 39 per cent of global financial services companies have experienced cyber crime.

Indeed, according to the 2013 FOX Family Office Benchmarking: Technology in the Family Office study, security worries - which apply both to data itself and how it is communicated - are now mentioned just as often as the issue of technology integration.

In response to this trend, Clyne said FOX’s executive council members are actively seeking education advice and solutions, with some hiring chief information security officers.

Meanwhile, advisors have responded in a number of different ways: by providing full-service IT consulting with IT risk assessment; offering education and conducting research on cyber risk; and performing penetration tests for clients. One particular organization is providing cyber insurance and has also created a mobile app for cyber education.

Trend 2: “Advisors are realigning their service models to optimize client experience.”

“This was a universal cry,” Clyne said.

After periods of growth and consolidation, many industry players are looking to “perfect” their service model and trying to determine the optimal number and types of services. The focus on “experience” is about attracting and retaining clients, as well as business economics.

A telling statistic: Clyne noted that 80 per cent of respondents to the FOX Member Feedback Survey in Q4 2013 assigned a “high importance” to achieving the optimal client experience in service delivery process. She also cited recent data from SEI, highlighting that four in five investors disagree that investment organizations “understand what they want.”

Clyne emphasized the importance of segmenting clients when thinking about the “optimal client experience.”

In other SEI findings, she noted, investors aged 60 and older assigned 20 percentage points more importance when considering the advisors’ experience compared to the under-40 investor.

Attendees heard that optimizing the client experience is, however, challenging, due to the scale and breadth of the tasks involved, as well as associated costs.

“Doing this in such a way that it is still profitable is a challenge,” Clyne said. “Advisors and technology have the potential to support the client experience but we would argue that in order for this to work, data security challenges have to be evaluated and addressed.”

A number of firms have focused on enhancing their client experience by creating roles – appointing a managing director of client experience, for example. And while these positions may sometimes incorporate business development or sales aspects, Clyne said it is encouraging that such steps are being taken.

Meanwhile, some FOX members have established client advisor councils to identify solutions that elevate the service model, whilst others are conducting client satisfaction surveys.

Trend 3: “Single family offices are continuing to explore outsourcing.”

For trend three, Clyne talked about the notion that single family offices are increasingly interested in partnering with third-party providers to deliver services - at a time when expenses are outpacing asset growth. But what’s driving this trend?

Clyne pointed to a number of factors: the 60,000 wealth owners with over $30 million; heightened global economic and political issues creating an extremely challenging investment environment; and the “highly-anticipated great wealth transfer.”

Additionally, the private sector “has a much broader array of service providers and solutions than ever before,” she said.

In the 2012 Family Office Benchmarking study, it emerged that 75 per cent of outsourcing operations were around integrated planning, 65 per cent centered on investment planning and 57 per cent on accounting, reporting and compliance.

More recently, earlier this year FOX conducted a preliminary MFO benchmarking study and found that 75 per cent of MFOs surveyed provide services to SFOs, while two-thirds of SFOs are also partnering with external consultants.

These consultants are primarily providing strategic asset allocation , manager selection and client reporting . “I think that is to be expected,” Clyne said. “What I think was a little unexpected was the following two: client reporting and performance , and education materials and seminars .”

In response to trend three, FOX’s senior management council is assessing capabilities and analyzing fees to determine what are the best services to outsource. Many advisors, meanwhile, are providing independent financial management structures through CFO outsourcing.