Outsourcing vs. insourcing: Which experts do family offices need on staff?

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Multi-family offices are known for making life easier for their clients. Need complicated business accounting or real estate tax services for that new condo in New York? They can handle that. Or maybe you need help setting up a family foundation, or you want to teach your adult offspring how not to blow all their wealth on parties and designer bags.

But how do family offices determine which professionals to employ in-house rather than drawing on outsourced partners? According to these three experts, the decision-making process is complex – and often as bespoke as the services themselves.

Mark Barnicutt, president, CEO and co-founder, HighView Financial Group, Oakville, Ont.

It’s a fine balancing act between insourcing and outsourcing. And it’s not a simple one-size-fits-all approach in my experience. You have to tailor it depending on the nature of the business and the client you’re dealing with.

Even with a multi-family office, the principles are the same. Every family office has a bias in terms of what their core competency is. It always boils down to two: They’re either going to have a chief financial officer (CFO) bias or a chief investment officer (CIO) bias. And that’s going to draw you toward having those relevant professionals in-house.

So, for us, we’re CIO-biased. Having more people in-house from an investment standpoint makes sense. We’ve outsourced our CFO expertise.

But beyond that, there’s something else to consider: the ability of a professional to competently execute over the long term. I’ve seen this with accountants and some specialized lawyers. They’re not cheap. Say you have the money to afford them, and you bring them in-house. But now you’ve taken them out of their professional environment where they operated in a collaborative way with other people. It’s a risk. Their talents can start to decline because they’re out of that wheelhouse.

I find a lot of firms say, “We can afford it. Just bring it in.” Well, wait a second. How do you think they’re going to operate when they’re in your environment? Are their skills going to stay relevant, or are they going to deteriorate over time? A lot of times the answer is, “Maybe, regardless of money, we shouldn’t bring that role in-house.”

Judi Cunningham, founder, Trella Advisory Group, Toronto

It really depends on the multi-family office. I’ve worked with multiple multi-family offices and some of them are very comfortable in those so-called “softer spaces.” I worked with one where they actually hired somebody who does some of the family dynamics work and does it all internally. Others won’t touch that with a 10-foot pole. It scares them. They’re like, “We don’t want to go down there. It could risk our relationship.”

I think the big challenge in the multifamily office space is that they’re all very different based on who runs them, how they conceive of what the service is, and what the marketplace is demanding. They will say, “We have all of these people surrounding us that we have relationships with, so we can pretty much help you with anything that you need. And if we don’t have an expert, we’ll find one.” That’s the general mindset of a multifamily office.

You bring them in-house. But now you’ve taken them out of their professional environment where they operated in a collaborative way with other people. It's a risk.

Mark Barnicutt

But sometimes there’s someone inside of that organization who is really passionate about things, like philanthropy. Some multi-family offices feel like it’s core to who they are and what they do, so they have people specialized in that. Other multifamily offices treat it like it’s just another outsourced offering. They’ll say, “We have our preferred partners that we work really closely with and we’ll help facilitate that.”

But just the fact that somebody can say, “Okay, we can find a person and bring them in,” that’s a service in and of itself. A lot of people don’t have the time or energy to go looking for their experts, no question.

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I was working with a multi-family office and their clients were talking about things like home management, gardeners and nannies. They wanted their multi-family office to vet these people for them. Families of wealth, they often feel very vulnerable because they’re in situations where people could be trying to take advantage of them. Some of them are heavily in the public eye and they’re nervous about who they can comfortably hire and know they’re getting the best people. So they feel much better asking their multi-family office to vet those people for them.

Shelley Forsythe, director, Family Enterprise Planning, BMO Family Office, Vancouver

I would definitely say, “it depends.” And it can evolve over time.

Really, what you’re trying to do is assist clients with putting together their unique house. You’ve got to understand the architectural design of their house, the various rooms, doors, windows and whether they have built a solid foundation. What is the purpose of this wealth? Do they want it to transcend generationally? The roof is helpful to protect against the elements over time. The house could require renovations or updates in the future to evolve with the family or enterprise.

That would be the starting point: doing a SWOT analysis, which is looking at strengths, weaknesses, opportunities and threats. What types of financial assets do they hold? Is there a foundation or donor advised fund already? Are there possible learning requirements both individually and collectively as a family?

I always see the technical side covered first – you’re really making sure the wealth engines are covered. You have your CFOs, CIOs, COOs, trustees, property management, tax and legal. You might have a board of directors or advisory board if there are operating entities. And then there are the add-ons, what I call from “the human side.” That’s family governance, mediators, therapists for the emotional intelligence pieces and strategic philanthropy.

So, it’s always about trying to weave a family’s wealth and legacy plans together and really determining what they need. When you’re large enough to have your own infrastructure in place, typically you’re still outsourcing for particular areas where you may not have the expertise, or you are so specialized that it wouldn’t make sense to have somebody full-time on staff, like cybersecurity experts who come in to do an assessment.

Responses have been lightly edited for clarity and length.

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