The climbing cost of (human) capital

As the family office space matures, so does the recruitment and retainment of top talent from outside the family, driven by competitive C-suite salaries and bonuses—although their ranks remain stubbornly male-dominated

More complex investments, professionalisation of the sector, and competition for talent is driving hefty pay increases for family office C-suite employees this year.

Family office chief executives had a pay rise of nearly 10% in 2017, according to The Global Family Office Report 2017 (GFOR), as investments become more complex and need top teams to manage them.

The average chief executive base salary is $367,000 this year, compared with $334,000 in 2016. Chief operations officers got the biggest average raise (10%), pocketing $215,000 base in 2017 compared with $195,000 the year before. Chief investment officers were paid $314,000, while chief financial officers earned $213,000.

Susan Ward, managing director of UK global family offices at UBS, says since the global financial crisis, family offices are doing less outsourcing and instead want in-house expertise. They are also taking on higher-risk assets with greater complexity in the search for elusive returns.

“Willingness to spend [on staff] is being driven by family offices moving into asset classes they are not necessarily comfortable with, as yield is hard to find. They need to pay the right people to do that because they need to manage that risk,” Ward says.

Also driving salary growth is the increasing demands of regulations, levels of disclosure, and tax compliance, Ward says.

Family offices in North America had the highest returns during 2016, and their chief executives were rewarded accordingly the following year, topping the regional pay rankings earning a base average salary of $411,000. They also received the highest proportionate bonuses, 54% of base, bringing total compensation to $631,000. Their European counterparts grossed $497,000, while chief executives in Asia-Pacific and emerging markets earned $362,000 and $408,000 respectively.

Josh Roach, chief investment officer at the US-based Lloyd Capital Partners, says family offices are realising they need to pay market rate for their C-suites, and he expected salary growth to continue.

“Family offices (FOs) looking to make direct investments really need the skill-set and connectivity of a private equity professional—and we all know how those pay packages work,” Roach says.

“I do not see it so much as a correlation with investment gains, but rather a need to hire the right person with the requisite skills. This is not an easy find, so FOs should pay up if they are expecting to earn above-average returns across their portfolio.”

Family members occupy 44% of chief executive roles, but it was less common for other C-suite roles to be held by family members, with 25% of chief investment officer, 14% of chief operating officer, and 11% of chief financial officer roles held by family.

Paul Westall, co-founder of family office resourcing and recruitment specialist firm Agreus, says while family offices were once seen as “a place to retire, now it is a space for professionals”.

“It is attracting more professional candidates from investment banking, wealth management, legal, and these sorts of sectors, which has increased the level of salaries,” Westall says.

The family offices who took part in the GFOR had on average 12 members of staff, with four investment professionals, two providing general advisory services, two offering family professional services, and four administrators. Single family offices reported they had an average of 11 staff, while multi family offices had 14.

Westall says smaller teams mean roles are often more varied, and come with the opportunity to learn new skills.

“If you are in a bank, your focus is on a particular product, or client base. Whereas that could be very broad in a family office. You need to adapt and to be a problem solver. You may be used to investing in property and you have proven yourself there, but now [the family] wants to invest in a yacht.”

Many advisers are attracted to family office jobs as they offer opportunity to work on the “coal face” of deal-making, Westall says.

“You get access to working directly on the deals, and with the principal, but what can be the interesting part of the job can also be quite stressful.”

For the first time this year, the GFOR explored the ratio of men to women working in family offices, and found less than 8% of chief executives and 13% of chief investment officers were female.

Women were more likely to occupy other C-suite roles, and accounted for 38% of both chief financial officers and chief operating officers.

Westall says some of the most successful family offices were female-run, but his firm occasionally found that “some families from some parts of the world feel more comfortable having a man at the top than a woman”. However, 46% of the placements Agreus has made this year are women.

Ward says during her 15-year career in banking, female representation at director level moved between 9% and 13%, depending on the stage of the cycle, as companies tend to invest more in retention when the market is buoyant.

“If you think about the pool FOs are drawing from, they are drawing from the big banks, the private equity firms, the accountants, lawyers—all of whom are struggling to keep women,” Ward says.

“It is disappointing, but I do not find it remotely surprising.”

Ward says in order to attract more women, family offices needed to allow flexibility and invest in retention.

Dr Rebecca Gooch, director of research at Campden Wealth, says she constantly hears from female wealth holders they would like to see more women among their advisers.

“We now have women controlling more wealth, let us aim for equality in the people that serve them,” she says.