The Rising Costs of Operating a Family Office

The cost of operating a family office is on the rise, with the average now at around $3.2 million per year, as stated in the J.P. Morgan Private Bank Global Family Office Report. This increase in expenses is primarily attributed to the growing competition for talent within family offices. As family offices expand in size and number, they find themselves competing more directly with private equity, hedge funds, and venture capital firms for top-tier talent.

While the average cost to operate a family office stands at $3.2 million annually, the expenses can vary significantly based on the assets under management. Smaller family offices, managing less than $500 million, spend an average of $1.5 million per year. On the other hand, family offices with assets exceeding $1 billion shell out an average of $6.1 million annually. The biggest cost for family offices is staffing, with salaries for senior talent skyrocketing in the last five years.

Family offices are increasingly shifting their investments into alternative asset classes such as private equity, real estate, venture capital, and hedge funds. This move is driven by the desire to diversify their portfolios and seek higher returns. As this trend continues, family offices find themselves in direct competition with major players in the private equity and venture capital industry for hiring top talent.

According to surveys conducted by industry experts, family offices are ramping up their compensation packages to attract and retain top talent. Chief Investment Officers (CIOs) at family offices with assets over $10 billion can expect to earn nearly $2 million on average. To sweeten the deal, family offices are incorporating long-term incentive plans, such as deferred compensation, to entice potential hires. Lower-level staff are also benefiting from the increased competition, with salaries on the rise even at entry-level positions.

Family offices face a significant challenge when competing with major private equity firms for talent. While they may struggle to match the salaries offered by big players like KKR and Blackstone at the senior level, family offices are finding creative ways to attract mid-level talent. By offering more authority, better access to deals, and opportunities for profit-sharing, family offices are able to make themselves more appealing to potential recruits.

The landscape of family offices has evolved significantly over the past decade. What was once considered a retirement destination for finance professionals seeking work-life balance has now become a dynamic and competitive environment. With higher compensation, access to exclusive networks, and the opportunity to make a significant impact, family offices are now seen as attractive career destinations for talented individuals in the finance industry.

The rising costs of operating a family office are directly influenced by the growing competition for talent, the shift towards alternative investments, and the need to remain competitive in a rapidly evolving financial landscape. Despite the challenges posed by big players in the industry, family offices are finding innovative ways to attract top talent and secure their position in the market.