Affluent families often face a myriad of challenges that come with wealth, including:
- Wealth management
- Tax and estate planning
- Business succession issues
- Setting and funding philanthropic goals
- Finding the time to manage these activities themselves or identifying trusted advisors who can
Rather than managing their affairs on their own, some families hire a group of practicing professionals including lawyers, accountants, investment advisors, family coaches, and other consultants to do it for them.
Other families consolidate their wealth management needs with one organization or person, hiring them to manage everything. Closing the gaps that can be the result of hiring many professionals working in isolation can make life easier. However, the search for consolidation can be fraught with complexity, as many variations on the theme exist.
As you will see below, each of these ‘themes’ present its own challenges.
Your Family Office Options
This helps to address the need for the consolidation of wealth management-related activities – rather like one-stop shopping.
This approach puts the responsibility for staffing and supervision squarely on the family’s shoulders.
Job performance and the opportunities for a successful outcome are based solely on the individual or organization’s competency and the framework within which they work.
Some families find that the individuals in this role become self-protecting gatekeepers, restricting other professional advisors’ access to their closely held clients.
Many families with significant wealth form their own Single Family Offices to fulfill the majority of their wealth management needs.
These are usually managed and staffed by accountants and/or legal professionals. On rare occasions, they will also include an investment professional.
The success of the Single Family Office is based on the staff’s ability to meet unexpected or complex challenges, which requires experience and technical skills associated with best-in-class advisors.
The overall cost of operating a private family office can be prohibitive, and limits this option to families with a net worth of at least $100 million.
A Multi-Family Office (MFO) is formed when two or more families share the costs of operating a Family Office, thus reducing the cost borne by each family individually.
This alternative poses the same staffing and remuneration issues associated with maintaining a successful SFO.
Furthermore, getting participating families to agree on costs and staff selection as well as structuring the MFO to reflect the unique needs of each family can be problematic.
The most common option is the Commercial Family Office (CFO). Several professional practitioners join together in one enterprise to serve all the financial needs of several high net worth families.
A CFO maintains the families’ required objectivity. They are competent, capable, and experienced in meeting their clients’ needs.
Employing a CFO reduces costs while providing families with an integrated solution to address their array of complex needs.
The CFO professionals work together in an environment that supports their work on the families’ behalf maintaining their required objectivity.
Families need to ensure in advance that the CFO is not promoting proprietary products with little regard for the family’s specific goals.
The Virtual Family Office (VFO) harnesses the experience, dedication, and loyalty of a family’s established group of independent advisors.
The VFO professionals become the family’s trusted wealth stewards and look after their wealth management needs in a cohesive and consistent manner.
This is the option we recommend for most families due to its key benefits, including:
- Experience and competency: Families continue to harness the experience and competencies of the proven professionals who serve them.
- Variable cost structure: Families avoid the costs of setting up their own Family Office or sharing in the funding of an MFO. Instead, they pay each professional participating in the Family Stewardship Council based on their respective fee schedules.
- Objective advice: Families avoid any conflicts that might arise from using the services of a CFO and obtain a purely objective set of solutions to address their needs.
- Integrated advice: Families eliminate planning gaps or oversights through the collaborative efforts of their advisors.
- Confidence and comfort: Families achieve the peace of mind that only comes from knowing that there is a formal governance structure and set of processes in place to ensure that all the family’s stewardship needs are being met in the appropriate manner.
At HighView, we create a Family Stewardship Council for our clients, which is an entity that constitutes a VFO in its established structure and disciplined processes.
HighView is an experienced fiduciary investment counselling firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.
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