Sunday, 2 December 2007

Family offices: peace of mind and independence for the super wealthy

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The family and multi family office domain is a relatively small area of the private client world but it hides fortunes of breathtaking scale. With recommendations from family office experts that fortunes exceed £250m /$500m before setting up an office, providers have a pool of 946 billion and multi billionaires (according to Forbes 2007 list) to work with. Of course many will have inherited money and traditional family offices that have already worked through generations. But the biggest inter-generational hand over of wealth is now happening (a prime concern for uhnw is to offer a guiding hand when transferring a vast fortune to their families) and the need for continuity of personnel, (often not available in private banks) means the family office or multi family office environment looks set to continue its stronghold over the super rich purse strings.

The Family Office

The Times Rich list entry level is increasing year on year but when considering family office fortunes you are better referring to research material such as Forbes, who list more than 946 billionaires and multi billionaires, which is more likely the pool that the family office network is working with. Although some advisers says rich clients will consider the single family office (SFO) or multi family office (MFO) route at the £50/$100 million level.

The SFO/MFO (Alex Scott, SandAire explains the SFO/MFO meaning later) area would seem to be the golden egg of wealth, it has its detractors and there also seems a marked difference in how the USA and UK view the topic. It’s an area with entry level uncertainty: it seems if someone with a small fortune (in relative terms) of say £25/$50 million insists on taking this route, then advisers will help, but many would be reluctant and at worse would consider it a ‘vanity project’ i.e. keeping up with a peer social circle or ‘the Joneses’ as we say in the UK. All agree it is an expensive route to take and one that is best not considered unless at least a quarter of a million pounds or half a million dollars is being worked with.

Critics argue that finding best of breed (quality of expertise for ongoing advice) for wealthy clients can be an issue in an SFO arrangement. To set up a structure a lawyer or an accountant will headhunt to find a suitable ‘wealth head’ to build a team and be responsible for reporting to the family. But the role is not considered an aggressive career route nor is it suitable for those with lofty ambitions, who may be keen to use it as a stepping stone. It seems many would look for someone retiring from the wealth industry or someone with a keen sense of duty or staying power.

A multi family office arrangement doesn’t suffer from the same problems but it has other issues: for instance ongoing independency of advice. A stalwart reason super rich families work in family office arrangements (and this is the ‘sell’ from family offices) is that they offer impartiality without ‘product-pushing’ which is how large investment managers or private banks make money on wealthy clients. However more and more MFOs do have their own products (as they seek to add value to justify costs) which they develop over time and so the black and white independence issue may be moving into the grey. The other problem related to MFOs (this does not apply to the top tier family offices) is that although they save super rich families cost by sharing their office, they may also get diluted services that make the point of the family office less worthwhile (than perhaps an off the shelf banking service or trust structure).

A recent study that Daniel Martineau (Close Trustees Switzerland) and Hakan Hillerström (independent family office consultant) put together reviewed the offering and warned that super rich families should be wary of setting up a family office structure without serious thought: “Abandoning start-up MFOs happens regularly in Switzerland” said Daniel “they are usually set up by failed bankers, forced from employment by redundancy. SFO ‘failures’ are less likely as they are ‘sponsored’ by one family. We have a client who abandoned his three man office earlier this year when he realized that he could accomplish the same thing at less cost by giving most of the work to us, and then hiring a PA in London.”

But it isn’t all costs and trouble with staff, one family office adviser in New York says he effectively works as a private family office with his multi million and billionaire clients and is generally involved with all of their dealings globally (that require some sort of negotiation). He says many enjoy greater confidentiality choosing the family office route and a peace of mind not available elsewhere. He cites an example. “If you have a patriarch with sixteen businesses worldwide and he passes away, the complexity of the inheritance for children to take on would be difficult to comprehend, if not disastrous for the business. The family office enables simplicity in hand over.” He comments further, it also allows for group purchasing in investments – a family can reach minimum entry levels by pooling money together whereas separately they may struggle.” He adds “clients can also run all of their philanthropy or charitable projects through the family office.” He adds “clients choose to use me rather than set up a fully working family office because it saves them a long term commitment to people and premises.” He further comments “clients rarely want an office in an unpopular neighbourhood, which means property purchase is going to be in the millions from the start and you then have a lease to consider.”

Strangely in the USA, the family office set up had more detractors – mainly because hiring was perceived as problematic so most weren’t keen to recommend this route although all considered the traditional (and well known family offices) had performed well. In the USA also many accountants take the lead in running family offices but some thought this didn’t allow for a full compliment of skills to negotiate the terrain “you need to know about more than just money” one adviser said.”□

Industry comments about family offices

“Undoubtedly the single family office is a vanity project for some of the super rich, but the main motivation is frustration with banks who have been ‘product pushing.’ They think that having their own "trusted team" can help them navigate them through a sea of investment sharks.”

"I find it interesting that so much is made of the family office business. The truth is that it is a very small business, even the most visible, well known participants are quite small and very few multi-family offices are profitable, those that are will be marginally profitable. It is not the wave of popularity that is noted in the press or promoted on the conference circuit. Staffing an SFO is difficult. It often involves a family member and an accountant, banker or investment professional, it is very hard to pay (and therefore attract) top talent.”

Daniel Martineau, Close Trustees (Switzerland) works closely with many family offices to provide their structures. “Many trust structures have an element of "Family Office" in that we do the investment management monitoring, manager selection, bill paying or management of properties: the two work hand in hand. We manage a number of Private Trust Companies which all have an element of Family Office, usually in coordination with the dedicated single family office. “The single family offices tend to have more success and staying power as the services, by definition are exactly what the client family needs and wants. Its when they get the idea that they can take on other families to share the infrastructure costs that it starts to get more complicated. In the study that we conducted on Swiss Family Offices, it was clear that one of the key elements of a successful family office operation is to limit what they do, as they won’t be able to do it all themselves. Choosing expert outsourcing partners was seen as critical.”

Family office facts and contacts

The top five UK multi family offices (alphabetic).

FF&P (Family Fleming & Partners, part of James Bond money)
Won the Trust company of the year Europe with Citywealth Monte Carlo
See event pictures
See event write up

Lord North Street


Stanhope Capital


Profiles of UK family office experts

Caroline Garnham

Daniel Pinto (co founder)
Stanhope Capital

Guy Paterson
Unigestion (UK and Switzerland)
+44 (0) 207 529 4150

UK family office consultants Peritus James Day

Profiles of Channel Islands family office experts

Jersey, Channel Islands

Brian Clarke, Key Trust
Brian is a Citywealth Top 100 peer nominated adviser



Barclays Wealth, Jersey
Melvyn Kalman

Profiles of Swiss family office experts

Hakan Hillerstrom
Independent family consultant

Daniel Martineau, Close Trustees (Switzerland)
Daniel is a Citywealth top 100 peer nominated adviser

Swiss family offices

HSBC Private Bank (Suisse) SA

Julius Baer Family Office

Marcuard Family Office (The biggest family office in Switzerland)
Marcuard won the Family Office of the Year Europe with Citywealth
See the event programme
See the event pictures

Pictet & Cie Banquiers

Profiles of US family office experts

Patricia Angus is Managing Director and head of Wealth Advisory Services at Shelterwood Financial Services LLC, a multi-family office serving ultra high net worth families. She is a leader in the developing field of family governance, and assists families with estate and philanthropic planning and processes with a particular emphasis on human relations to foster long-term family stability and successful stewardship of family wealth.
Patricia attended the Citywealth California awards event

Mahoney Cohen
Managing Director
Mark Minker
165 clients. The average client is worth $40 million to $200 million and up to billions.

Highmont Capital
Steven Hoch

Overbrook Management Corporation
Alan Reef

Jim McCarthy
President, AMA
Was also at Wilmington Trust

Albert C. Bellas
Co Founder
Solaris Group

Citywealths next event for FAMILY OFFICES, WEALTH MANAGERS, INTERMEDIARIES, PHILANTHROPISTS and the SUPER STAR SUPER RICH is in London on May 8th 2008. FOLLOWED BY CITYWEALTH MIAMI, JULY 2008, THEN CITYWEALTH MONTE CARLO OCTOBER 2008. Invitation only. Sponsors get choice of attendees.

Article from Sand Aire

For the wealthiest: a Family Office

Alex Scott, Chairman and a member of the family who founded SandAire, a multi-family office in London, seeks to add clarity to professional advisers’ understanding of this important specialist sector in the range of options available to the wealthiest of families.

“Whilst family offices have been in existence for centuries, usually established to manage private estates for wealthy families, the contemporary interpretation tends to focus on investment and providing broader support for the family. There are two prime forms of family office, the Single Family Office and the Multi Family Office, the former serving one family and the latter several. The decision to employ one or other is complex and multi-layered, but it usually doesn’t make sense to create a family office for a liquid fortune of less than £250m. Multi family offices are either independent (formed by a founding family or investment professionals), or affiliated to financial institutions.

The changing investment landscape is the reason for the rise of the family office. As investment has become increasingly complex, families and entrepreneurs with sophisticated investment requirements recognise the need for an expert organisation to act on their behalf as a filter for the myriad choices that lie before them in the long term management of wealth.

Whereas in the past, families were content to rely on single financial institutions to respond to all their investment needs, the fragmentation of the financial services industry means that optimal solutions might now be available from a combination of investment houses, both large and small. Family offices help wealthy families capitalise on the multiple opportunities resulting from this fragmentation.

Wealthy families are concerned that the advice they receive is really tailored for their needs and not just a pitch for the latest product for sale. They recall the adage: “Never ask a barber if you need a haircut.” Independent family offices work for the families they serve, not for a public corporation with quarterly profit statements to achieve. Conflicts within financial corporations are hugely difficult to manage; by aligning the family’s interests with a Family Office, these conflicts can be largely removed.

Contemporary families look to their family office to deliver results derived from an asset allocation created to provide absolute returns on a risk-adjusted basis. At this end of the market, risk analysis has become a key driver in establishing and monitoring such portfolios.

Having created an asset allocation built upon client-specific risk and return parameters, the role of the family office is to seek out investment solutions that can deliver the required returns and the talented professionals who deliver the solutions. Good family offices spend much of their time seeking the best and brightest in the global financial market.

At best, the family office delivers the purest form of ‘open architecture’. Their people, often with institutional backgrounds, build custom-made, flexible solutions for families using skills not normally available to private clients. Services are delivered according to the precise needs of the family.

There are other compelling reasons for using the services of a family office. Families with significant wealth have the opportunity to plan strategically, looking forward through multiple generations. A team of advisers from multiple specialist firms can be assembled for this purpose to assess their needs (ranging from choice of residency through tax and ownership structures to investment strategies) and plan accordingly. Such strategies require skilled implementation and the family office’s remit can range from delivery of the investment aspects of such a plan to acting as overall coordinator.

Some family offices go further than investment. They also deliver a comprehensive, personal service that is designed to support every aspect of living with wealth as a family – a practical and human dimension to the service that large financial institutions struggle to match. This approach is based upon an understanding that independent thought and action is culturally ingrained in many wealthy families.

These complementary tasks help families achieve their non-financial objectives. They range from consolidated reporting (fundamental for integrating the results of multiple suppliers) through project management, family governance, philanthropic coordination and planning to concierge services. Well planned and well executed, these supporting services release families from the detailed management of their fortune, allowing them time to think strategically and pursue their own commercial or personal interests.

As wealthy families become more sophisticated and the financial and investment choices open to them become more complex, a significant number are employing the service of a Family Office.”□

Article about their family office services from Key Trust

The concept of the Family Office has evolved since John D Rockefeller invented it in 1882 to manage his family’s assets and sustain their wealth – an example soon followed by other ultra wealthy families.

Brian Clarke, Managing Director of Key Trust outlines how the Family Office has become the means not only of handling a family’s commercial and investment expertise, but also of providing structures for wealth preservation for future generations.

Few families today would find it cost-effective to maintain their own Family Office. Over time it has become increasingly difficult to recruit professional managers who combine outstanding financial expertise with ‘people management’ skills (of which more later). And so the Family Office has evolved into its 21st-century successor, the Multi Office Family Office, which is what we offer at Key Trust. For us this means delivering bespoke family office services to each family client – not only managing and administering the investment and preservation of significant wealth, but also looking after generational issues and family dynamics.

The family will want to gain maximum enjoyment from the wealth that has been created – with minimum difficulties. We help them to achieve this through careful contingency planning, financial education for the younger family members and creating structures that enable each individual to make their own lifestyle choices while enjoying the benefits of a well organised family wealth system.

The basic principle from which we start is: take care of the business and it will take care of the family. If you take care of the family only, the business may not ultimately benefit anybody. Giancarlo Di Risio, the non-family CEO of the Versace family business empire, expresses this idea in another way: ”Every company today should run itself as though it were a public company…with clarity and transparency.”

I describe Key Trust’s service as bespoke, and it is. Too many wealth management businesses offer products – whereas the family requires service. This is especially true of a wealthy→ →family, whose individual members will have a diverse range of expectations and objectives.

We deliver our service by appointing a director and a manager to look after each family. They will get to understand their requirements in detail and so provide a response that meets the best interests of everyone concerned.

Our independence and focus on service helps us to achieve this. Having no products to sell, we concentrate on selecting the best of the best investment managers, monitoring their performance on the family’s behalf.

We are also able to actively participate in family wealth matters, setting up formal family meetings each year at which we work through the logic of all the issues in a way that is plainly seen to be impartial.

Initially this approach may produce tensions. But as a plan for the future emerges and everyone feels more secure about his or her own position, the family meetings become more enjoyable and constructive, even relaxed and sociable.

To prepare a structured transparent and fair approach to a well planned succession, we ask each family member a number of questions (see below). Their answers give us real insights into their personal and emotional aims. They also enable us to put wider questions to the family as a whole – for example:

· What is the role of the family business?
· Is it purely economic?
· Is it to provide the family with a means of transferring wealth to future generations?
· How is the family to go about achieving their business goals?
· Are there social or charitable purposes that should also be kept in mind?

The controlling parties in the family business spend a tremendous amount of their time creating value and driving the business forward. Even if they have the right skills to develop a business that might have been started 3 or 4 decades earlier, at some point in time they have to leave it and receive their reward. At that point they need to transfer some of the value and the organisation they have created either to a family member or deserving employee.

It is most important that this exit strategy should not be left until the moment when it needs to be implemented. An exit strategy needs to be thought out well in advance, even during the building stages of the business itself. In the end, an exit strategy should produce a transaction that is an almost insignificant event, because it has been planned and prepared for long before it comes to execution. It is in the planning and preparation that true value can be created.
This is where the Multi Office Family Office can play a particularly valuable role. Historic issues within the family often require an outsider to help resolve the interpersonal tensions that can exist between family members and the in-laws.

This works best when the outsider is someone who, with little to prove to him or herself, is able to work to the family’s agenda rather than their own. It obviously takes somebody with facilitation skills, an open and impartial communicator whose emotional maturity enables them to cope with dissent without expending undue amounts of time on individual family obstacles. This sometimes can require a person who can live with ambiguity and who also has a thick skin!
Ultimately the outsider the family uses should enjoy building things and working with people, a person with compassion and empathy who can think strategically and not just tactically.

In the case of my own firm, Key Trust, we certainly adhere to these principles in working with wealthy families. When we first get to know a family, the issues that we try to address from the outset include establishing our engagement with a clear legal contract and a defined financial position.

We then seek to meet and understand all the key stakeholders and characters inside and outside the business. Typically we will draw a ‘genogram’ – a family tree that shows who is male, who is female, who is a controlling party and so on. We like to try and understand the role of the various parties involved and the extent of their power. This enables us to distinguish from the beginning the difference between ownership and management.

Would John D Rockefeller recognise the modern Multi Office Family Office? I think he would: even while he was giving away more than half of his $900 million fortune, succession planning and the interests of each future generation were as much part of his thinking as they are of ours.□

Note from Karen Jones author: Read my recent blog posting on Rockefeller philanthropy consultants

Citywealths next event for FAMILY OFFICES, WEALTH MANAGERS, INTERMEDIARIES, PHILANTHROPISTS and the SUPER STAR SUPER RICH is in London on May 8th 2008. FOLLOWED BY CITYWEALTH MIAMI, JULY 2008, THEN CITYWEALTH MONTE CARLO OCTOBER 2008. Invitation only. Sponsors get choice of attendees.

Read some articles from the super rich themselves

Monaco resident and chemicals multi millionaire

Tracy Mattes sports star

Percy Barnevik Swedish multi millionare

DK Matia, risk tech tycoon and philanthropist

The next generation of super wealthy. An Australian hotel entrepreneur

Stacy and Mouli Cohen - San Francisco billionaires

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