The market correction of 2008 and a lower return environment have families looking under the hood now more than ever at their investment returns and spending.

The market correction of 2008 and a lower return environment have families looking under the hood now more than ever at their investment returns and spending. Lower returns and potentially higher taxes are changing their psyche not to mention their lifestyle as they look to rein in and justify costs to preserve wealth.

Following the financial crisis “balance sheets are more looked at than before,” John Elmes, senior partner at GenSpring Family Offices, told Family Wealth Report. In terms of fees it is incredibly important to show tangible results, he said.

To preserve wealth in the current environment it is important for families to understand the implications of spending, he added. They may want, for example, an illustration of what lower returns and higher taxes mean for them, their lifestyle and heirs.

Families are making the connection that a lower returning investment climate and higher taxes will have a real impact on their long term wealth accumulation, Elmes said. “Things they can control become very important - spending and risk allocations.”

“The integration of all the wealth decisions become highlighted - for example - higher taxes and lower possible returns may influence wealth transfer techniques - either accelerating, shifting or completely changing giving techniques,” he added.

The market correction of 2008-09 brought everything home to roost, according to Chip Wilson, director of client services and executive vice president at Glenmede. "Diversification didn't protect some investors to the extent they had hoped it would," he said.

“Every investor has ratcheted up their due diligence both for current and new providers.” Wilson notes that requests for proposals from family offices and foundations and endowments at Glenmede have increased 300 per cent between 2008-2010.

Greg Coules, managing director at New York-based recruiting firm Hunter Advisors, says there has been a trend among family offices to outsource non investment services to rein in costs.

Coules co-leads the hedge fund recruiting practice and leads the family office and endowment practice. He is also a board member of the Family Office Association and a senior advisor to the Gruss-Lipper Family Foundation.

Legal functions and tax and accounting services, for example, are easily outsourced. Coules said that using legal expertise as needed at a large firm instead of having someone on the payroll full time also allows for better resources and diversified expertise.

Families are also selling vacation homes and instead renting properties. Some are choosing to give up personal drivers and use a firm that provides drivers on an hourly basis. This cuts down heavily on costs when factoring in the expense of payroll taxes and benefits, Coules notes. 

Others, meanwhile, are foregoing private jets in favor of fractional shares, leasing or choosing to fly commercially in first class.

But Coules said while families are cutting costs on non-investment services they are not cutting corners on investment expertise.

"Families are willing to spend on the investment side of the ledger and to allocate resources toward high quality investment talent," he said.

In its annual survey of single family offices The Family Wealth Alliance found that investments once again remained the number one challenge faced by single family offices.

At the same time more respondents - 81.8 per cent versus 66.7 per cent last year - said their single family office has sufficient expertise in house to evaluate investment vehicles and strategies. SFOs with more than $500 million in assets all expressed full confidence in their investment expertise, while smaller firms were less sure, FWA found.

The Family Office Association, meanwhile, found that the top worry of single family offices is investment theory and asset allocation strategies in order to preserve wealth, according to survey it conducted last summer.

SFOs cited endowment and tactical allocations models as the two they use most and cited implementing these strategies as their second biggest worry.