Years ago, America's wealthiest families realized that they needed a better way to manage their financial affairs. They set up what became to be known as family offices. A family office was one central location that handled all of their financial affairs----investments, trust and estates, philanthropy, taxes, bill paying, etc. As years went by these family offices realized that they could offer their services to other wealthy families that didn't have the means or desire to set up their own family offices. This led to the creation of the multi-client family office and many of the trust companies we are now familiar with. Typically, to access one of these family offices you needed to have $50 million and up.
The Advisory Firm of the Future
Years went by without much change until 1999 when a well-respected financial industry consultant wrote a paper making predictions for the financial services industry. One of his predictions was that one day the semi-affluent, $1 million to $10 million net worth, would have access to family office type services from their advisors. His paper has been hotly contested for five years, with many prominent people in the industry vehemently disagreeing with his thesis. That being said, more and more firms have been jumping on the family office bandwagon. Once this becomes more common, the semi-affluent will begin to demand family office type services, making this a self-fulfilling prophecy.
The Benefits of a Family Office
In the traditional advisory model you would have one person take care of your investments, one person (perhaps the same person) take care of your insurance, one person does your taxes, one person does your legal documents and you do everything else. None of your advisors speaks to the other they only speak to you. You are in effect the head of your own family office, trying to make sure the work of your different advisors is coordinated.
In the family office model all of your advisors would work together as a team, with one being the main point of contact or team leader. You would be completely free to concentrate on things that are more important than money. Everybody would be on the same page, with the ultimate goal being the best plan to help you grow and protect your wealth.
This may seem like semantics but it isn't. Today, you might have a number of different advisors but you still need to do a lot of work coordinating everything. Your investment advisor may be making recommendations that increase your income taxes, while your CPA might be making recommendations that increase your estate taxes and your attorney might be making recommendations about re-titling your assets that your investment advisor needs to do for you. How can you possibly keep track of it all?
I am convinced that given the choice between today's model and the family office model, with it's one stop shopping, most of the semi-affluent will choose the family office.