New chapters, particularly ones with newfound wealth, often require thoughtful, strategic planning to achieve both long-held and newly identified goals. And within a family, this process involves navigating a variety of viewpoints and relationship dynamics that come with managing potentially complex financial and legacy components. It’s an assignment few individuals or families can successfully take on themselves.
While many families have investment or wealth advisors in place, a dramatic increase in net worth and the accompanying complexity that includes relationships and long-term vision may prompt a change. When this happens, it’s critical to assess whether your current advisors have deep, comprehensive experience working with high-net-worth families or whether it’s time for a ramp-up in services and a bigger-picture perspective that meets current and future needs. That means considering options such as a family office.
What Makes A Family Office Different?
Simply put, a family office is a holistic approach to wealth management that considers broader needs and goals. Whether in the form of a single-family office or a multifamily office serving several families, a family office is more than a money manager. It’s a multifaceted team with the expertise and resources to plan, execute and guide family members toward their financial and nonfinancial goals, often serving as facilitator, guardian, confidant and counselor.
While some extremely wealthy families may opt to establish an SFO focused solely on their needs and are willing and able to take on that expense, others may find an MFO to be the sweet spot.
MFOs allow a family to access the expertise of a team of experts, such as accountants, attorneys, etc., while sharing the cost with others and avoiding the burden of essentially “owning” and managing an SFO. A 2022 Capgemini report estimates there are 10,000 family offices worldwide, both single- and multifamily, with compound annual revenue growth projections of 6% between 2021 and 2026. One-third of ultrahigh net worth individuals already use a family office, the report noted.
Interest in wealth management services, including MFOs, is expected to accelerate as older Americans, especially baby boomers, transfer $84 trillion to their millennial and Gen X heirs over the next 20 years, with $16 trillion of that likely to change hands in the next decade. In addition, while in 2022 women accounted for only 11% of the world’s ultra-wealthy population, by 2030 in the U.S. women are expected to control much of the wealth baby boomers possess, influenced by changing cultural and business attitudes, increased numbers of women in the C-suite and upper management, and expansion of female entrepreneurship.
In my experience, women’s wealth management philosophies often emphasize family collaboration and philanthropic legacy, making MFOs attractive.
How An MFO Can Meet A Family’s Needs
Let’s consider as an example a two-generation Midwestern family business that has carefully planned and executed a succession plan to maximize the value of what they’d worked hard to build. But once the business sale is complete, they confront the personal finance planning implications that come with acquiring significant wealth. They need to reevaluate their existing advisor relationships and build a strong financial team with varying skills and experience.
After thorough consideration, they choose an MFO to deliver comprehensive solutions covering investment management, tax planning, estate planning, risk management and philanthropic planning. Rather than a piecemeal approach with multiple specialized advisors, they now have a team that understands them and their holistic wealth management picture and can streamline their financial affairs and simplify their lives.
Their MFO assigns a dedicated team of professionals to cater to the family’s unique needs, which ensures they receive personalized advice and strategies meeting their specific financial goals, risk tolerance and time horizons.
Their MFO team also delivers guidance on family governance and comprehensive frameworks that reflect the family’s values, vision and mission. Through estate planning, succession planning and philanthropic planning, the MFO helps preserve the family’s wealth and manage its transfer.
Weighing The Options
As an UHNW family considers its wealth management options, they must weigh not only the advantages but also the potential drawbacks of each path. While providing a well-rounded approach to wealth management, an MFO also comes with bearing a share of the costs of maintaining a knowledgeable team with a full complement of skills, as well as the expense of office overhead. There’s also the difficult-to-define “culture” unique to any office staff that may or may not fit with a particular family’s style or values. And while an MFO delivers focused, one-stop support, it can also mean the risk of overreliance on a single entity.
For the very wealthy who are willing and able to bear the cost and supervisory role of their own SFO, there is an opportunity to optimize their specific financial situation. However, this choice comes with greater complexity and typically is best suited to those with extremely high wealth.
In addition, traditional wealth management offices, which typically focus on investments and financial planning for clients with lower net worth, remain an option. They can also be a good fit for those seeking less complexity or who have greater cost sensitivity.
Ask Yourself
Like any major life decision, choosing the right wealth management tool comes down to looking closely at your unique family situation and asking yourself candid questions:
• Is the complexity of the family’s finances starting to detract from other priorities?
• Are you concerned about your wealth management privacy due to too many advisors?
• Has or is your family growing and becoming more complex?
• Can your current wealth management advisor or team not only meet your changing needs but also counsel you and offer strategies to achieve both short- and long-term goals?
• Are you a cultural fit (interaction style, values and other shared beliefs) with your current wealth advisors or an organization you’re considering?
• Do you need a broader menu of financial options and support than you have today?
• Would a new wealth management strategy allow you to better focus on your family’s financial legacy?
Answering these questions will help guide you to the best wealth management choice for your family.
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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.