It was the English philosopher and statesman Sir Francis Bacon who said riches are for spending. The most recent Capgemini “World Wealth Report” claims there are 85,400 individuals worldwide with a net worth in excess of $30 million. To service these ultra-affluent individuals and counsel them on spending wisely, the wealth management industry has developed the “family office” concept.
Family offices provide an array of services covering investment advice and money management, philanthropy, financial and tax planning, wealth transfer, due diligence, and increasingly, lifestyle services. It is a segment of the wealth management industry that is growing rapidly; by most accounts, there are between 3,000 and 4,000 family office operations serving the ultra-wealthy in the U.S. alone.
How are family offices organized and run? How do they serve their clients? Can aspiring wealth managers enter this coveted niche? For answers to these and other relevant questions, Wealth Manager asked contributing writer Bruce W. Fraser to moderate a discussion with four experts (see “Participants,” page 44) on family office planning.
Wealth Manager
: What constitutes a family office? Are there different types of family offices?
Grove: Based on research with over 650 family offices, we identified three different types of family office structures: The classic single-family office (SFO) is one wealthy family that handles all their affairs internally. Multi-family offices (MFOs) cater to more than one family—maybe five or six, and sometimes upwards of 35 to 40—that have pooled their assets. Usually, it’s to get economies of scale in terms of pricing and access to different types of investment. Sometimes it’s because they have shared values and goals with respect to long-term financial plans. The third type of structure is the commercial family office (CFO). That is essentially a wealth management firm or other type of financial services organization that has created a platform to provide family office types of services to families with considerably less overall private assets.
Natasha Pearl: There is a significant difference between what should constitute family offices and how that term is used in wealth management today. The tradition and original starting point was the single-family office. It was almost like the moat around the family castle.
It was designed to provide complete control and confidentiality and ensure that the family’s best interests were always being served through 100 percent dedicated staff. All services were provided internally. Today, unfortunately, firms of all types are using the term “family office” to describe their offerings, which makes it difficult for families to determine what services are actually provided. For some firms, this is simply putting a new label on the standard banking and wealth management offerings.