REVIEWED BY ADAM HAYES Updated Jun 16, 2019
What Are Family Offices?
Family offices are private wealth management advisory firms that serve ultra-high-net-worth (UHNW) investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer, and tax services.
Understanding Family Offices
Some high new-worth individuals may want to consider opening a family office. A family office provides a wider range of services tailored to meet the needs of HNWIs. From investment management to charitable giving advice, family offices offer a total financial solution to high net worth individuals. In addition, the family office can also handle non-financial issues such as private schooling, travel arrangements, and miscellaneous other household arrangements.
Family offices are typically either defined as single family offices or multi-family offices – sometimes referred to as MFOs. Single family offices serve just one ultra-affluent family while multi-family offices are more closely related to traditional private wealth management practices, seeking to build their business upon serving many clients. Multifamily offices are more prevalent due to economies of scale that allow for cost sharing among the clientele.
- Family offices are full-service private wealth management services that serve just one or a small number of ultra-high-net-worth families.
- Beyond basic financial services, family offices also provide concierge services, planning, charitable giving advice, and other comprehensive services.
- Single family offices serve just one individual and their family, while multi-family offices serve a small few and may benefit from economies of scale.
The Many Disciplines of a ‘Family Office’
Providing the advice and services for ultra-wealthy families under a comprehensive wealth management plan is far beyond the capacity of any one professional advisor. It requires a well-coordinated, collaborative effort by a team of professionals from the legal, insurance, investment, estate, business and tax disciplines to provide the scale of planning, advice and resources needed. Most family offices combine asset management, cash management, risk management, financial planning, lifestyle management and other services to provide each family with the essential elements for addressing the pivotal issues it faces as it navigates the complex world of wealth management.
Legacy Planning and Management
After a lifetime of accumulating wealth, high-net-worth families are confronted with several obstacles when trying to maximize their legacy, including confiscatory estate taxes, complex estate laws, and complicated family or business issues. A comprehensive wealth transfer plan must take into account all facets of the family’s wealth including the transfer or management of business interests, the disposition of the estate, management of family trusts, philanthropic desires and continuity of family governance. Family education is an important aspect of a family office; this includes educating family members on financial matters and instilling the family values to minimize intergenerational conflicts. Family offices work collaboratively with a team of advisors from each of the necessary disciplines to ensure the family’s wealth transfer plan is well-coordinated and optimized for its legacy desires.
Many family offices furthermore act as a personal concierge for families, handling their personal affairs and catering to their lifestyle needs. This could include conducting background checks on personal and business staff; providing personal security for home and travel; aircraft and yacht management; travel planning and fulfillment; and streamlining business affairs.
What is private wealth management?
BY EVAN TARVER Updated Dec 28, 2017
Private wealth management is an investment advisory practice that incorporatesfinancial planning, portfolio management and other aggregated financial services for individuals, as opposed to corporations,trusts, funds or other institutional investors. From the client’s perspective, private wealth management is the practice of solving or enhancing his or her financial situation and achieving short-, medium- and long-term financial goals with the help of a financial adviser. From the financial adviser’s perspective, private wealth management is the practice of delivering a full range of financial products and services to an affluent clientele, so that the clientele can achieve specific financial goals.
Who Needs Private Wealth Managers?
Many private individuals of means lack the time, effort or knowledge to manage their finances successfully. To make up for what may be lacking, they seek the consultation of wealth managers who specialize in managing the finances of private, often high-net-worth individuals (HNWI). HNWIs have unique financial situations that require greater diligence and a higher degree of active management. Further, HNWIs require a more holistic approach to investment management than many financial advisers are capable of providing. HNWIs can have issues with income taxes, estate planning, investment management and other legal issues that need more attention and specific expertise than traditional investment advisers are qualified to give.
Who are Private Wealth Managers?
Private wealth management services can be provided by banks and large brokerage houses, independent financial advisers or multi-licensed portfolio managers who focus on high-net-worth individuals, and family offices. (See “Top 3 Trends Affecting Private Wealth Management.”)
Many private wealth management firms are smaller groups within larger financial institutions that are focused on providing personalized service to their clients. Their main objective is to manage and grow the assets of their clients to provide for future generations. These groups often have a variety of advisers and expertise that provide guidance across a wide spectrum of investments including cash, fixed-income, equities and alternative investments. They can create a portfolio of assets that meets the investor’s risk tolerance while also offering the opportunity for growth.
Most private wealth management firms are fee-based. They charge their clients a percentage of the assets under management. HNWIs may believe that fee-based financial advisers have less conflicts of interest as opposed to traditional commission-based advisers. Commissioned advisers can push investors towards front-end and back-end load mutual funds that charge significant commissions (without offering any better performance than no-load funds in many cases).
Some HNWIs may want to consider opening a family office. A family office provides a wider range of services tailored to meet the needs of HNWIs. From investment management to charitable giving advice, family offices offer a total financial solution to high net worth individuals. There are two types of family offices: A single-family office supports one affluent individual or family, while the more common multifamily office supports multiple families and individuals. Multifamily offices are more prevalent due to economies of scale that allow for cost sharing among the clientele.
Technological advances have allowed many larger financial adviser companies to provide services online at reduced costs. Despite the gravitation of many investors to these types of services, however, many HNWIs want a more personalized approach to their finances, even with the additional cost.
WEALTH SERIES 7:5