Breakout Session 3: Improving Quality Through Family Office as a Service

Date: Oct 09 2020

Karen Rush, Managing Director, Membership

Here Rob Mallernee, a long-time member of FOX and the CEO and System Designer at Eton Solutions, looks at how family offices can use a process driven approach to help determine core competencies, and to understand clearly what should be insourced and outsourced.

Maloney examines the family office “as a service” (XaaS). Essentially, XaaS means:

  • You buy a solution to a problem through access to that product, rather than through full ownership;
  • This is often accompanied by complimentary services; and
  • You pay for this on a “pay per use basis.”

Basically, you buy the output from someone else’s systems instead of building your own system. There are upsides and downsides of full ownership vs. the XaaS model, and the spectrum of choices between the two. A  benefit of moving closer toward a XaaS model is economies of scale. Also you don’t have to worry about the activities that go along with ownership, and greater speed to market.

There are also downsides of the XaaS model. You lose some transparency, as you don’t really know every single detail and logistic. It is also more complex and takes a higher level of commitment. You have less control, and therefore more risk.

Sometimes creating your own business from the ground up just doesn’t make sense. So you outsource and leverage the expertise, time and energy that other service providers have put into building some of these platforms for you, usually at a lower cost.

Further, family offices experience many benefits from outsourcing services, such as:

  • Frees up the ability to focus on important tasks
  • Gives peace of mind
  • Provides better quality and specialization
  • Offers higher reliability and lower cost because of economies of scale
  • Allows for faster start up
  • Enhances capabilities and variety
  • Reduces risk by leveraging expertise of others

While there are also possible perceived downsides, Maloney lays out this strategy to help mitigate risks:

For example, mitigate for privacy and security risks by:

  • Working with dedicated resources
  • Monitoring and track consistently
  • Employing sophisticated audit logging systems
  • Look at independent rating systems
  • Utilize encryption technologies and enhanced security technologies

Further, you can mitigate against client customization requirements through using highly configurable systems, services and flexible delivery models. And you mitigate against perceived dependence on third party again by utilizing dedicated teams. And lack of transparency can be mitigated by detailed process documentation and keeping audit logs of who is doing what when. To mitigate against displacement of existing staff, you can work toward redeployment within the office or even to the vendor.

All of this tends to reinforce why family offices often don’t build their own solution, but instead outsource to a service model. If you are going to use family office “as a service,” make sure you do your homework and make the best match possible in evaluating who you work with.

Karen Rush is managing director of the family office and wealth advisor markets for Family Office Exchange (FOX).  Karen works with family and advisor members to understand their objectives, providing guidance to help address their needs through the resources available at FOX. She also co-chairs FOX Advisor Councils and assists in the development of new and enhanced service offerings for members. Formerly the events manager, she was responsible for planning all external FOX events, including forums, workshops and regional events.

Areas of Expertise: Industry Trends, Advisor Strategies, Family Office Compensation

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