Still smarting from the downturn, some wealthy families are turning to external chief investment officers for help managing their investments and controlling overhead.

Millionaires shed more than a quarter of their financial wealth in 2008, according to Spectrem Group. With the stock market having largely recovered, rich investors have regained their confidence, newer Spectrem surveys show, but they now believe it is harder to make money from securities than it was before the downturn.

For some of those rich enough to afford their own family offices — private wealth management entities that can cost millions of dollars a year to run — the answer lies in outsourcing investment discretion to outside CIOs. They believe these outside firms are better equipped to manage risk and seize chances to make money, and to do it cheaper than in-house alternatives.

"The do-it-yourself model hasn't worked out so well," said Robert Casey, research chief for the Family Wealth Alliance, a Wheaton, Ill., consultancy to wealthy families. "And there's the cost," he added, noting that a big family office can have as many as 12 well-paid investment professionals on staff.

Some families see another reason for outsourcing investment decision-making: new rules stemming from financial reform legislation. Though now on appeal, a law passed last summer calls for some family offices to register with the Securities and Exchange Commission. This would add expense and red tape, and — perhaps the biggest issue — force families to tell the world what they're worth.

A recent Family Wealth Alliance survey suggests that about a third of U.S. family offices, which number a few thousand and account for about $1 trillion in assets, use outside CIOs.

External-CIO services — offered by firms like Hirtle Callaghan, Morgan Creek and Balentine LLC — include investment-policy design, asset allocation, manager selection and performance reporting.

Unlike investment consultants that advise institutions such as pension plans and endowments, however, outsourced CIOs are given the authority to make their own investment decisions and act on them.

Some families are delegating investment decisions because they know lucrative tactical opportunities can come and go before they have time to approve them, said Kim Wood, who runs the U.S. outsourcing business for the consulting firm Mercer.

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