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Is A Family Office Approach Right For Your Situation?
Families With Complex Needs Deserve High-Touch Services
By Robert Legan
Learn more about Robert by visiting his bio page.
“Family offices” are often thought of as the domain of the ultra-affluent. When people think of a family office, they often envision a team of highly skilled people, such as lawyers, CPAs and investment advisors, serving a single prominent American family, such as the Rockefellers.
While this has been the common perception over the last several decades, a new trend is emerging. This trend is designed to serve a changing demographic. During the Baby Boomer and Gen X generations, the US witnessed a proliferation of wealth unlike ever before.
The wealth came from several sources including entrepreneurship, professional executives growing corporations and even inheritance. No matter the source, all of these families eventually encounter the same challenge. Complexity. Managing their wealth becomes very complicated and burdensome.
I believe that these families would be well-served by the family office touch. But because the term “family office” is typically associated with the ultra-affluent, some people who need the family office approach believe it is out of their reach. I want to change that perception.
So how can you know if a family office approach might be right for your situation? I believe there are two indicators. First, your wealth becomes more of a burden than a blessing, and second, you lose confidence that your current approach to managing your wealth will actually produce the outcomes you desire. If this sounds like your situation, family office services might be a great fit for your family.
Who Needs A Family Office Team?
Baby boomers are certainly the largest generation in US history. But that generation also, to this day, contains the greatest number of millionaires, even more than millennials. What’s more, many boomers and early gen Xers, those born between 1946 and 1970, have owned and run successful businesses for decades.
While business ownership accounts for much of the wealth created over the last 40 years, corporate executives and other professionals, such as doctors, dentists and lawyers, have also done very well. Many of these people own stock in public and private companies where they work.
Whether by being a business owner, a corporate executive or a professional, the creation of the wealth is often tied to work. And herein lies the challenge. Most affluent people are very good at creating wealth, but not so good at managing wealth. Why?
Wealth creation and wealth management are two very different mindsets and require very different skills. I have discovered that individuals who love growing businesses do not have the time or desire to manage their family wealth. They find it tedious and grinding and not the best and highest use of their time and energy.
Yet these individuals also recognize that the wealth will not manage itself. They know that key decisions need to be made and details need to be managed or their dreams for what they want their wealth to accomplish may not come true.
The common approach is typically reactive – handling important situations as they come up. This might include potential liquidity events, market downturns and life events such as births, deaths, marriages, divorces and graduations. Family leaders do the best that they can by seeking advice from family, friends and professional advisors to address the situation at hand. Oftentimes the results are not quite what the family hoped for and the process can be quite stressful.
Why Do These Families Need A Family Office Team?
In a word – complexity. These families need the family office approach because of how complex their lives have become. Usually, we see the complexity across four primary axes:
- Financial interests
- Critical decisions
When it comes to advisors, we find that affluent families often have:
- A CPA who watches over their business and personal finances, sometimes conducting audits and maintaining financial statements and records. The CPAs often also file personal and business tax returns.
- A financial advisor who handles investments.
- A business and personal banker, sometimes who are from the same institution.
- An estate attorney who helps keep the family’s will, estates, trust and other documents in order.
- Insurance specialists. Some families have a business insurance agent and a personal insurance agent. Other families choose to have one insurance advisor for both business and personal interests and property.
Oftentimes these advisors work independently as they are called upon by the family to handle a certain issue that has arisen, rather than working as a cohesive, proactive team. This means that family leaders have to do the hard work of trying to unify these advisors around the family’s vision and goals.
When it comes to financial interests, we find that affluent families often have:
- Ownership interests in a successful family business or a corporation where they work. Often their personal net-worth is directly tied to this, whether they’ve already had or will have a liquidity event. It is the business that creates their wealth.
- Real estate holdings. Some affluent families buy buildings, rental properties and other types of property. They also own a primary residence and often a vacation home.
- Investment accounts. Typically families have liquid investments spread across multiple accounts spanning multiple custodians, investment firms, and legal entities (Partnerships, Trusts, Charitable entities). It is often difficult for the family to assess how their assets are allocated, how their portfolios are performing, and if their goals and objectives are being accomplished.
- Other private valuable assets. Some successful families collect classic cars or stamps or gold or even guitars. The value of these assets can sometimes be measured in the hundreds of thousands of dollars, if not more.
When it comes to stakeholders, we find that successful families often have:
- Their own financial interests, especially as it relates to preserving and growing their wealth over time.
- Family members which can include children, grandchildren and in-laws. For business owners, children can also be business partners.
- Business partners, who often become extensions of the family. For family owned businesses with outside business partners, families must carefully consider how their decisions impact their business partners.
- Charitable organizations. Some families have come to feel a strong sense of connection to certain causes and charitable organizations that they want to see thrive.
When it comes to critical decisions, we find that affluent families with complex lives often have to answer questions such as:
- When should I sell my business interests? (if they haven’t done so already)
- Will my children have the ability or desire to take over the family business?
- How do I make my wealth a source of joy and comfort rather than a burden?
- How do I make my wealth do what I actually want it to do for me and my family?
- How do I streamline the management of my wealth so I have more time to do the things I enjoy in life?
- How do I make sure that I am making decisions that preserve and grow my wealth?
- How do I get all of my professional advisors on the same page so this doesn’t take so much time and effort?
- How do I track the outcomes of the decisions that I make with my wealth to ensure that the right things are happening?
- What tools do I use to track all of my accounts and assets and how can I know the data I am seeing is accurate and up-to-date?
- How do I ensure that the details that are critical to meeting my goals are actually getting done and at a high level?
- How do I get family members aligned around the values and goals that I’ve set for the wealth?
These are just some of the many questions that affluent families with complex financial lives struggle with.
Why Consider a Family Office Approach
Affluent families who face complexity in advisors, financial interests, stakeholders and critical decisions could benefit from pro-active family office services. A family office approach coordinates key family advisors, integrates disparate financial interests, and aligns key stakeholders to support critical family decisions.
This integrated approach helps relieve the burden on the family and provides the peace of mind that a cohesive plan is in place to help achieve family goals. I truly believe that a family office approach is within the reach of families who face this level of complexity. In fact, I believe they deserve it.
I am on a mission to help families whose wealth has become a burden to transform that wealth into a source of joy, blessing and freedom. After all, they worked incredibly hard to get to where they are in life. I want them to feel the reward and payoff for all their hard work.
The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.