• Mr Family Office
  • Posts
  • A Poor Man’s Family Office: Democratizing Wealth Management

A Poor Man’s Family Office: Democratizing Wealth Management

Author

Mr FamilyOffice
March 01, 2024

A Poor Man’s Family Office: Democratizing Wealth Management

A question on X got me thinking - is it possible to have a “poor man’s family office?”

After all, family offices are for the rich, the elite, the 0.01%. They are usually dealing with investible assets of hundreds of millions at a minimum

So is it possible to develop family office-like services for regular people?

Can we democratize family offices?

My first reaction was “well of course not”. The complexities that family offices deal with cannot be replicated for the masses

But on reflection, maybe that’s not quite true. After all, luxuries reserved for the wealthy have a tendency to become accessible to everyone over time. So why not family offices?

So this is a bit of a thought experiment, exploring the case for and against a “poor man’s family office”

The Traditional Family Office

I’ve covered the role of family offices before but for anyone new, let’s have a brief refresher

Family offices are private wealth management advisory firms that serve ultra-high-net-worth families. They offer a holistic approach to managing personal and financial affairs

The core tasks of family offices can include:

  1. Wealth preservation and growth

    Deal Sourcing

    Due Diligence and Deal Evaluation

    Risk Management

    Diversification Strategies

    Insurance Planning

  2. Financial Planning

    Investment Management and Strategies

    Tax Planning

    Cash Flow Management

    Estate Planning

    Financial Reporting

    Philanthropic Planning

  3. Succession Planning

    Plan the smooth transition of wealth from one generation to the next

  4. Administration

    Hiring and Firing Domestic Staff

    Paying Bills

    Scheduling Appointments

    Booking Travel and Vacations

    Shopping and Tickets

(We’ll come back to this list)

Everything a family office does is about growing and maintaining the wealth and legacy of the family they serve

The Case for a "Poor Man's Family Office"

Customized Services on a Budget

When wealthy families regard the cost of single family offices as excessive, they often turn to multi-family offices (MFOs) to achieve savings. MFOs are professional wealth management firms that serve multiple affluent families, pooling their resources and expertise to achieve economies of scale

MFOs offer a range of financial services, including investment management, tax planning, estate planning, and financial advisory, often providing cost-effective solutions and access to a broader range of investment opportunities through shared resources and expertise

While MFOs still usually require tens of millions of dollars of investible assets, they could be the model for democratizing family office services for the wider public

The keys to making it work are technology and automation

Tech could help deliver personalized financial advice and management services at a fraction of the cost. This model could leverage digital platforms to offer customized services tailored to the individual's financial situation, goals, and needs

Accessibility and Financial Empowerment

To make financial services more accessible and to empower individuals, tools would need to be developed to help people to manage their finances more effectively and to plan for the future

Robo-advisors to the rescue 🤖

AI could be the game-changer that bridges the gap between the super-wealthy and the masses. AI systems can offer a level of accessibility previously unattainable at lower income levels. By placing comprehensive financial advice within reach of those who would otherwise find it prohibitively expensive, robo-advisors can design personalized investment strategies, optimize savings, and support long-term financial planning

This could equip individuals with the resources to manage their financial affairs with more intentionality.  It would also help people deal with the complexities of investment, savings, tax planning, and retirement planning

In effect, AI robo-advisors hold the potential to dismantle the barriers to financial literacy and independence, enabling a broader swath of society to escape the paycheck-to-paycheck cycle

Holistic Approach to Financial Planning

A "poor man's family office" could offer a more holistic approach to personal finance, addressing not just investment or savings but also estate planning, financial education, and even philanthropic endeavors on a smaller scale

A one-stop-shop could be created that integrates people’s saving and investment activities with their estate planning

Where users need further understanding on particular areas of their financial well-being, educational resources could be made available

The Case Against a "Poor Man's Family Office"

Complexity and Cost

One of the main arguments against this model is the inherent complexity. It’s a well-worn adage that no two family offices are the same. But families are very different and trying to design a service that would serve millions of families with diverse needs and objectives is not going to be straightforward

Offering the breadth of services typical of a family office involves assembling a multidisciplinary team of professionals, such as financial advisors, lawyers, and accountants. The cost of maintaining such a specialized workforce could be financially daunting, making it challenging to sustain without a large number of clients to distribute the overheads

A democratized family office platform would undoubtedly be a regulatory and legal nightmare. Every jurisdiction would need its own rules and compliance measures

Overkill for Average Financial Needs

It could reasonably be argued that the average person's financial needs do not warrant the comprehensive services offered by a family office. Simple budgeting tools, retirement planning advice, and standard investment strategies may suffice for most, without the need for the intricate and personalized services of a family office

Ticket size

Family offices have access to deals that the general public does not. This is because family offices are usually designated “sophisticated investors” and minimum tickets for investments can be sizeable. Regulatory restrictions could prevent such investments being made available to the general public

 

Bridging the Gap: A Middle Ground

The concept of a "Poor Man's Family Office" need not be binary. There's potential for a middle ground that borrows elements from traditional family offices while remaining accessible and affordable

Indeed the component parts of a “poor man’s family office” are clearly already being developed

We already see

- Digital Financial Advisors

- Educational Platforms

- Financial Planning Tools

So let’s look at the list of family office tasks again and consider what could be effectively democratized:

Starting with Preservation and Growth, here technology is a game-changer. Advanced algorithms and AI can indeed open up investment opportunities and strategies. But let’s not kid ourselves. While tech can suggest deals and manage risks, it lacks the human insight that often makes the difference between a good and a great investment decision

And insurance planning? Digital advisors are helpful, but they can't replace the nuanced advice of a seasoned pro who understands your life’s ins and outs

On Financial Planning, automated platforms and software for investment, tax optimization, and cash flow management are indeed making high-level financial strategies more accessible. But there's a catch. These tools require a level of financial literacy that a lot of people simply don't have. And while online tools for estate planning are convenient, they often lack the personalized advice that can come from a face-to-face consultation

Tax software can help at a high level, but it might not spot every opportunity an accountant with a full understanding of a family’s position might

Philanthropy going digital is interesting, but matching with causes requires more than algorithms to ensure your money’s making a real impact

Succession Planning is one area where personal touch seriously matters. Tech can guide you, but navigating family dynamics and ensuring a fair wealth transition without causing World War III in your family? That's a tall order for software

When it comes to Administration, there are platforms for hiring domestic staff and managing your life’s logistics, from paying bills to booking travel. But I don’t see the value in wrapping these services up in a digital family office. Plus, the personal touch, understanding, and loyalty that come from long-term relationships with staff... An app can’t replicate that

__________

The idea of making family office services accessible to the average person is certainly interesting (and deserves more than a stream-of-consciousness newsletter)

While the traditional family office model may not be directly translatable to the needs and financial capabilities of the average individual, the principles of comprehensive, personalized financial management and planning can and should be developed

By leveraging technology, focusing on financial education, and exploring cooperative financial management models, a "Poor Man's Family Office" that empowers individuals and families to manage their finances more effectively could be possible

The rich get the good stuff first. It’s always been that way. But maybe there is potential for everyone to benefit from the knowledge and structures of family offices. Whether something is wrapped up as a “poor man’s family office” (need to work on the marketing there) or as a set of stand-alone tools, some of the benefits reserved for family offices could be made available for everyone

What do you think?

𝕏 highlights

Seven ways to lose generational wealth:

The Fall - the End of the Murdoch Empire by Michael Wolf is a fascinating read with some incredible stories of succession and family rivalry:

Who are the richest people outside the US:

📚 what to read

The Ministry of the Future by Kim Stanley Robinson is a dark sci-fi vision of the planet’s future but also echoes the innovative spirit of today's startups. It’s highly researched and on the reading list of several MBA courses

📻 what to listen to

Sam Parr has a new podcast, Moneywise. A good question in the first episode: What's your threshold number - at what point will more money not improve happiness? His take: $25mn

📺 what to watch

A fascinating Masterclass on family offices from Ron Diamond

📰 family offices news roundup

And finally…

I’ve been thinking and tweeting about empty nest plans this week

My kids are growing up and before I know it, they will leave home and embark on their own adventures

My solution to this pending gaping hole in my life is to think about ways to bring the family together

I’m thinking that memorable vacations and a family home they want to return to is the way forward

If you have adult kids, what is the best way forward?

A favor:

“Just signed up to your newsletter! One of our advisors highly recommended it”

I get a few of these emails/DMs every week and I sincerely appreciate it

So if you find this newsletter helpful, I’d be grateful if you could share it with others

And if you don’t find this newsletter helpful – what are you still doing here? But seriously, I’m always open to feedback, constructive criticism and ideas

And with that, it’s time to think about the weekend

Have a good one!

See you on 𝕏

X