I recently earned a Certificate in Financial Management for the Family Office and during the seminar we had many interesting discussions on the state of the industry and its future path. The following blog is an attempt at channeling some of the information discussed.
The Family Office space represents a niche of the wealth management industry; Family Offices have been around since the first great fortunes were made in the roaring years of capitalism in America but they did not become a commercial reality until the 1990s. Since then the industry has changed in many ways and today we see a multitude of trends developing.
For one, the industry is much more structured and organized and more information and networking seem to be available to industry professionals. Such increase in resources is also occurring at the educational level for all family members.
The Industry is growing fast, keeping pace with an increasing number of families looking for family office platforms even at levels of wealth that may not justify the set-up of a dedicated operation. Such dynamic is creating the conditions for rapid growth in the Multi Family Office (MFO) segment.
Genspring, which presented at the seminar, produced this comprehensive chart listing, by categories, all the services potentially related to a Family Office platform:
Lifestyle |
Expense Mgmt |
Taxes |
Document Mgmt |
Fiduciary |
Goals based financial planning |
Account payables |
Comprehensive tax planning |
Document Inventory |
Trust administration and management |
Capital Sufficiency Analysis |
Establish internal controls |
Charitable tax planning |
Fiduciary accounting and beneficiary communications |
|
Liquidity mgmt. and reporting |
Categorize and code expense transactions, including tracking transfers between entities |
Tax planning for trusts and estates |
Provide infrastructure and liability support and advice for all Trustees |
|
Risk assessment, insurance review |
Maintain/Manage cash balances |
Tax compliance services and tax return preparation |
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Assistance with acquisition and financing of lifestyle assets |
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Customized financial reporting |
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Investments |
Education |
Estate |
Philanthropy |
Governance |
Investment Policy Statement |
Family learning programs |
Review and illustration of Estate planning |
Education |
Family meeting facilitation |
Strategic asset allocation and implementation |
Next generation education |
Creation and communication of wealth transfer objectives |
Next generation Involvement |
Family mission statement development and implementation |
Investment due diligence, selection and monitoring |
Trustee and beneficiary mentoring |
Annual estate plan review |
Shared Values and giving interest identification |
Family governance system development |
Consolidated investment reporting |
Learning events |
Foundation governance |
Succession planning |
|
Charitable structure evaluation |
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Not all services will necessarily be offered by every FO or MFO and not all services may be required by each family; in this light a “a la carte” system is becoming popular were the family chooses a tailored menu comprising specific building blocks that fit the present needs.
Another major topic at the seminar was the effort the industry is making in highlighting the core difference in the business model between a FO or MFO versus similar platforms provided by traditional broker/dealers. Broker/Dealers are held to a “Suitability” standard which means the investment manager is legally required to put the client in products that are suitable for his/her objectives, means and age. Conversely, a Family Office (often registered as a RIA) is held to a “Fiduciary” standard. This means the manager is legally required to act in the exclusive interest of the client, provide transparency for all expenses and conflicts and can potentially be sued for breach or responsibility.
In other words, the bar for a Family Office manager is much higher and it should be as the relationship with the client is clearly based on trust and care and not economies of scale.