As our initial article on the subject, this seems an appropriate question. What do people mean when they say “family office?” A better question might be: Why would anyone care? You care if “being wealthy” is getting more and more stressful and complex. That covers most everybody. We just don’t run across many high-net-worth families whose situations are truly simple.

A Brief History

Ultra wealthy families have had these things for decades, but they really weren’t called “family offices.” That term came about later, and family offices experienced a real rise in popularity throughout the ‘90s. Ultimately, many began to realize that a family office, done right, is a very expensive proposition. The Family Office Exchange is considered to be the leading organization in the field. It has indicated it typically takes a few hundred million dollars of investable assets to cost-justify a fully functional family office.

Classic Description

Consider the billionaire entrepreneur. He or she sells out and the money becomes the business. The family rents space, hires employees, purchases technology, engages various outside professionals, develops vendor relationships, puts processes and protocols in place, develops a mission, and much more. Envision a small business just to take care of the money and everything having to do with money.

The functions vary widely and might include:

• Investments — A family office might have investment professionals in house. They might work with an outside investment consultant along with the in-house people, or in lieu of them.
• Accounting — There are accountants who keep the books for the various entities and family members. They pay bills and deal with all matter of related issues. There is typically an outside CPA firm as well.
• Income tax — There may be internal income tax professionals. There will typically be outside tax accountants. This covers all of the tax return filings and tax planning. It’s a massive job as things tend to get more and more complicated.
• Estate planning — This may vary even more. Typically, the heavy lifting is left to the estate planning attorneys, CPAs, insurance professionals and others. However, the family office will have an active role in the planning and administration of the planning.
• Administration — There is a ton of filing and just every day “stuff.”The administrative staff keeps all of that humming.
• Lots more — This basic summary can only begin to paint a picture of a large, comprehensive family office. There are trusts, all matters of insurance, multiple homes, cars, planes, multi-generations, banking and financing needs, big things, little things.

Complexity is a Fact of Life

Highly successful families are all different, but also have many similarities. They want the most sophisticated and effective investment strategies. They want access to the best managers and structures. They have to file tax returns and desire—more than ever—to manage taxes to the lowest levels the law allows. They have children and grandchildren, trusts, and estate issues. I have long believed a family with $20 million has virtually the same needs as one with $200 million. Maybe the extra zero adds a few headaches; however, once we start talking about millions of dollars and all that goes with it, there are lots of moving parts.

So, what happens with a family with X million dollars and without a large family office? Who deals with all the pieces of their lives? The family office world consists of an external network (CPAs, attorneys, money managers, and others) and an internal network (the family office itself). With most high-networth families, it becomes a “hub and spoke” scenario. The external network is there. The outside advisors and other resources are all out at the end of the spokes. Mom and/or Dad sit in the hub.

Without the family office internal team, the family finds the burden of management, follow up, and just getting it all done, squarely on their shoulders. To be sure, they have lots of help— that external network. However, the real burden of responsibility rests with the family. Some are relatively comfortable with this scenario, while others are disturbed. Potential downsides include:

• Takes time away from whatever they would like to be doing
• More worries and headaches
• Time delays (e.g. estate planning is deferred)
• Things that should get done don’t (perhaps deferred indefinitely)
• Wealth is sub-optimized
• Life is sub-optimized

Accessing the Inaccessible

We believe all high-net-worth families deserve the sorts of resources and solutions available to the billionaires.Whether they have some level of internal family office or none at all, the answer may be to overlay an outsourced family office. Unfortunately, many firms call themselves “multi-family offices” which are in fact nothing more than wealth managers. Careful investigation is required. Families should seek and consider a solution that can provide the end results of the fully-staffed family office on a just-in-time basis.

Providing a family office that delivers the results clients need is a complex and labor intensive business. However, it can be life changing for those high-net-worth families who have been carrying the burdens of complexities on their own shoulders.

Speaking to the model we know best, the WOW Family Office essentially resides at the intersection of wealth and life. We provide clients with the personnel, technology, other resources, and management to optimize the impact of their wealth and simplify their lives. An effective investment strategy with unique access is a critical part of that solution.

Summary

A family with $10 million, $20 million or more has much of the same complexity, and certainly the same desire for the best solutions, as those with hundreds of millions. This article summarized the characteristics of the classic family office. It may take hundreds of millions in assets to justify a fully-staffed family office. However, clients can nonetheless have their own family office on an outsourced basis. It really can be life changing!

Don Scott, Chief Executive Officer Wanger OmniWealth, LLC