Family offices - tightly controlled services set up by wealthy families to direct their investments - are experiencing growing pains.
Increasingly, families are complaining about the types of investments their offices are making and how information on those investments is delivered to them.
Meanwhile, the investment professionals that staff the offices say they need more objective instructions and guidance than most families are prepared to give.
These and other disagreements are brought to light in a white paper released this month by Graystone Partners, a Chicago firm that helps family offices make investment manager selections.
Graystone, a subsidiary of New England Investment Cos., held a series of focus groups with 40 wealthy families and their office managers this spring to assess the state of this rapidly growing cottage industry.
"There was a recognition that the family office is an imperfect environment," said David B. Horn, chairman of Graystone.
Mr. Horn hastened to add that family offices are more sophisticated and more adept at managing money than they were five years ago. And, while most are still trying to improve, they want to steer clear of emulating bank trust departments, which they stereotyped as aloof and bureaucratic.
"Most families get a level of intensity in service that is not equaled by any corporate fiduciary," Mr. Horn said. "The quality of the family office staff is such that families can really count on their objectivity, whereas at a bank people are pushing product."
Family office managers, who usually retain a bank for master trust and custody services, tend to hire several nonbank money managers, each with distinctly different investment styles. Because of this, the family offices assert that they are more objective when picking products and, as a result, more loyal to the family.
But many banks have developed private client teams to cater solely to families and are now competing directly with family offices.
"The reason family offices have to improve is because many banks are offering the same services that they provide," said Michael P. Kostoff, managing director of the Advisory Board, a Washington, D.C., firm that consults with private banks.
The rivalry could intensify as banks are more willing to name money managers outside their trust departments.
"It used to be banks would only offer a proprietary product," Mr. Kostoff said. "Those days are over."
