Family office insights this week:

• When starting a family office doesn’t make sense

• Are closed-door family office summits the way forward?

• Public speaking secrets of the world’s top minds

• A podcast on billionaires that’s well worth a listen

• Interesting results from our poll on direct investing

When you don’t need a family office

The case against family offices

Every week, I write about family offices – their benefits, their structures, and the opportunities they provide.

But family offices are not always the right choice for all ultra-high-net-worth-individuals.

Family offices have become a status symbol, but they can be expensive and unnecessary.

This week it’s a little different… it’s a look at the argument against family offices.

Financial Realities 📉

It’s the perennial question – how much is enough to form a family office?

I get a lot of DMs from people who have sold a business and are looking to establish a family office.

I have to be honest with some of them…

“Look, it’s a lot of money, but it’s not family office money”

Managing a family office involves significant administrative responsibilities, from HR to compliance. By opting out of a family office, UHNWIs can reduce this burden and focus on strategic decisions rather than day-to-day management.

In some cases, the individual circumstance of the individual or family simply means a family office does not make sense.

Alternative Structures 🏛️

Family offices provide personalized financial management, but alternatives can offer similar efficiencies without the need for a full-fledged family office.

• Private Banks and Investment Firms: These institutions offer bespoke services such as investment management, estate planning, and tax optimization.

• Trusted Financial Advisors: Long-standing relationships with reliable advisors can effectively manage wealth without an additional layer of costs associated with a family office.

Cost Efficiency 💸

Running a family office is costly, with Citi estimating that expenses range from 1% to 2% of AUM. UHNWIs can achieve similar outcomes at a fraction of the cost by leveraging existing financial institutions, which have the necessary infrastructure and expertise.

The downside here is that bankers - however client-focused they are - will have vested interests to sell their bank’s products. Even if your banker has the best intentions in the world, their incentives may be at odds with your best interests.

One way to mitigate this risk is to work with two or more banks, that way you can hear different ideas and opinions.

When you outsource investment management to third-parties, you will inevitably lose a degree of control and as one of many clients, there is a chance that you are not prioritized.

Technological Solutions 🤖

Financial technology has made independent wealth management easier for high-net-worth individuals. The trajectory of AI suggests this will only improve in the coming years.

• Sophisticated Planning Tools: Access to advanced financial planning tools, investment platforms, and risk management software is now increasingly possible without intermediaries.

• Automated Wealth Management: Robo-advisors and algorithm-driven services can handle routine investment decisions and portfolio rebalancing effectively. Automated systems can provide secure, real-time access to financial data and reducing the need for a family office to monitor and control investments.

With secure, real-time access to financial data, UHNWIs can increasingly monitor their investments, track performance, and make informed decisions on the go. This direct access reduces the dependency on a family office to provide regular updates and analyses.

Lifestyle Considerations 🛋️

Managing a family office can bring additional work. Family members may need to stay updated and involved in decision-making processes. It could be that establishing a family office is generating unnecessary work for a wealthy family.

• Index and Chill: Warren Buffett once bet that a low-cost S&P 500 index fund would outperform hedge funds over ten years – he was right. High fees can erode investment returns. Indexing and chilling may bring wealthy families better results.

• Minimalist Approach: Some wealthy individuals prefer fewer advisors and a streamlined financial setup. Trusted external advisors can be used on an as-needed basis. If your volume of trades is limited, a limited setup may be preferable.

Specialized Expertise and Niche Investments 🎯

Certain aspects of wealth management require specialized expertise that may not be available within a traditional family office.

Niche Investments: UHNWIs investing in areas like venture capital, hedge funds, or specific sectors often rely on specialized firms for targeted and sophisticated advice.

A generalist family office can sometimes be an unnecessary level of fees and administration sitting on top of outsourced activities.

Philanthropy and Social Impact 🌍

Philanthropy is significant for many wealthy families, sometimes structures other than a family office are better placed to deliver philanthropic goals.

Dedicated Foundations or Advisory Firms: These entities can manage philanthropic activities effectively, replacing the need for a philanthropy focused family office.

Ad Hoc Expertise 🧠

Rather than maintaining a permanent team, wealthy individuals can hire experts on a project by project basis. This approach allows for tailored advisory teams without the ongoing overhead of a family office. This can result in more agile and responsive decision-making.

Wealth Preservation Goals 🤔

Do you actually want to preserve your wealth?

A lot of people have (inexplicably) joined the die-with-nothing camp.

Others have no kids or plan to spend or give away their wealth.

Family offices are designed to protect and grow wealth... but if you plan spend your money or give it all away, then why bother with a family office?!

In Defense of Family Offices 🌟

Now that all said, there are excellent reasons to establish a family office:

• if your wealth can be described as “ultra”!

• if you want to grow and preserve that wealth for future generations

• if you want a comprehensive and personalized service

• if you want to maintain control and privacy

If these fit, then a family office could be right for you.

Citi Bank have suggested that those considering opening a family office should ask themselves four questions (more on this in What To Watch)

Forget family office as a status symbol – the decision to establish a family office should be driven by a clear understanding of your family’s financial goals and the goals around your family's legacy.

𝕏 highlights

On the topic of family offices as status symbols.

Not always, but often.

A closed-door family office conference oriented around peer-group learning - is this the way forward? More on conferences and APAC family offices coming soon!

 💼 where to work

Three family office job opportunities from around the world that may be of interest…

VP Client CIO, Family office, Endowments & Foundations - BlackRock (London / Service Provider)

Accountant - 1932 Capital Management (New Jersey / Single Family Office) 

Fund Operations Senior Associate - Alto Partners (Singapore / Multi-Family Office)

📚 what to read

This is an interesting one. I find that Ted Talks can sometimes be a little cliched and formulaic, but Talk Like Ted by Carmine Gallo is packed with useful ideas about public speaking such as weaving in storytelling with your subject.

📻 what to listen to

Good Bad Billionaire from the BBC profiles the world’s most prominent billionaires. From Charles Koch to Mark Zuckerberg, the show looks at the stories of a billionaire in each episode and tries to judge their positive and negative impact on the world.

📺 what to watch

An interesting primer on family offices from Citi Bank.

And finally…

Last week I asked about appetite for direct investing in family offices.. a pretty even spread although >35% of respondents reported more than 50% of AUM was devoted to direct investing!

I’d love to hear from you about your experiences with Family Office conferences.

It’s a mixed bag, hit reply and share your thoughts!

That’s all for today, Happy Friday to you all! 👨‍👩‍👧‍👦 ☀️ 🍹

Family Office Buzz will be back on Monday (here’s the last edition if you missed it) with more of the best content on family offices and beyond.

Until next week, see you on 𝕏 or LinkedIn.

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