Banks, wealth managers and trust companies are increasingly branding themselves as "family offices". but is it a mere marketing ploy, causing confusion for families looking for a more traditional model, or is something else going on?
There have traditionally been two types of family office to best manage, protect and expand wealth for current and future generations.
A single-family office, as its name suggests, is a privately owned company set up by the family itself, and dedicated to that one collection of mums, dads, children and occasional goldfish. The family recruits its own staff of experts in a wide range of financial services exactly suited to its needs.
It can be expensive, costing around $1 million a year to run, with Capgemini stating that it"s only really affordable for families with around $100 million or more of investable assets. Famous billionaires who created single-family offices include John D Rockefeller and Oprah Winfrey.
The other option is a multi-family office, which caters for a group of families with its own dedicated experts. It"s slightly cheaper than a single-family office and tends to be used by those for whom a single-family office might be seen as an extravagance.
The key duties of a single- or multi-family office vary, but most offer services including wealth planning, asset management, investment management, tax and legal affairs, trusteeship, philanthropy and concierge services - such as securing the best opera tickets.
In recent years, the rising number of ultra-high-net-worth individuals (UHNWIs) has slightly altered the scene. Between 2009 and 2013, the number of UHNWIs in the US rose 25.6 per cent to 39,378, and 25.5 per cent in the UK to 10,149, according to wealth-intelligence analysts WealthInsight. This has subsequently led to growing demand for family offices.
The US Family Office Club believes there are around 3,000 family offices, both single and multi, in the US, and about 1,000 in Europe. It says the numbers are growing in both regions and in Asia.
As a result of this burgeoning wealth, more banks, law firms, trusts and hedge funds are either offering family office services or rebranding themselves as family offices. Bloomberg"s most recent top 50 list of family offices, which excluded single-family offices, was dominated by firms such as HSBC Private Wealth Solutions and Silvercrest Asset Management.
What"s in a name?
Steffianna Claiden, CEO of Family Office Review, says: “A number of wealth advisers are choosing to enter the sector because there"s a lot of money there. Also, anyone is free to call themselves a family office, but the result is that families are very confused, and struggle to evaluate who"s best.”
She says families choosing these providers risk losing the specialised benefits of a traditional family office. “These firms have experience and knowledge in their fields, but many may not be able to do everything in-house. If so, who are they outsourcing to? And are these tax, estate planning or accounting firms all on the same page? Someone needs to be the family"s single point of contact - the person managing everything and analysing how one decision on tax may affect another area and lead to bad consequences. You need a very close team.”
Paul Douglas, Managing Director, Trust and Fiduciary at Salamanca Group in Jersey, says its private office offering includes trust and fiduciary, education advisory, property management, lifestyle management, security and marine services. He agrees that families are finding the sector increasingly confusing.
“I"ve seen an acceleration in the number of different financial firms rebranding themselves as family offices,” Douglas says. “Some are genuinely offering family office services but others aren"t offering anything different from their existing services. It"s really added to the confusion in the sector - ask 10 people what a family office is and you"ll get 11 answers.”
Douglas says many families are willing to be wooed by the new providers, saying it was now "in vogue" for UHNWIs to want to have access to a family office and say they are associated with one as a status symbol.
“Some of these people get a nasty surprise when they look into the significant costs of having a single-family office,” he says. “There are also issues with recruiting qualified and specialist staff and retaining them in a single-family office. That"s prompted them to shop around for the best solution.”
Douglas says Salamanca doesn"t offer families legal, tax or investment management advice, choosing to outsource these instead to "best of breed" specialists. “There are positives in a single-family office having these services in-house when it comes to confidentiality and communications between families and advisers. However, there can be conflicts of interest: will investment managers be willing to acknowledge any underperformance?”
Douglas says there are potential dangers from families using a range of different providers. But agrees with Claiden that communication is vital. “We have regular dialogue with our providers. We work in unison, putting the family at the centre,” he explains. “It"s really a partnership. You need to have open discussions between parties and regular transparent reporting.”
This is a point picked up by Lisa Vizia, Director at Saffery Champness. “We have a seat at the table of a family"s most senior advisers,” she explains. “We"re part of the inner circle raising flags, such as suggesting the need for an aviation lawyer to manage tax if the family wants to buy a plane. It"s about offering a bespoke service and a long-term build-up of trust. If you don"t need a dedicated service - say you just need investment advice - then one of the new providers might work. It"s horses for courses.”
“Having more providers has complicated things for families,” says Douglas. “It"s hard for them to recognise who"s good and who"s bad. But over time it will become easier because those firms who have simply rebranded as a family office will struggle. It needs to be a bespoke service tailored to the needs and demands of the family. It"s not a "stack "em high, sell "em cheap" approach - you have to recognise that each family is different.”
Horses for courses
When it comes down to it, however, doesn"t this all simply depend on what the family needs? They may have the money to start a single-family office; they may want a range of services but find that a multi-family office suits them best; or they may simply want wealth management services and decide to go to a firm that badges itself as a family office.
Christopher Scholefield, Partner at Jersey law firm Viberts, describes it as a building with a single-family office on the top floor with “dedicated staff who know your foibles, and a key code on the door”, a multi-family office on the middle, dealing with many families, and a traditional trust firm on the ground floor with “rows of files from different trusts and companies”.
“It"s possible that on the ground floor you"ll get a very close service to that on the top floor,” he says. “You"ll get fiscal, legal and accounting advice and trust administration. The investment management and concierge services to get petrol for the yacht may likely be outsourced. But they"ll use the family money to find a skilled investment manager, and have the manager"s performance benchmarked so they can be quick on the case if they are not achieving. On the top floor, they"re less likely to buy in expertise.”
He agrees with Claiden that some families like the aura of a family office without having the funds to pay for a single- or even a multi-family service. “There"s an aspirational edge to a family office. It"s good for the ego to bandy the phrase around,” he says. “There"s been a measure of dilution in the family office message. In the past you had to have hundreds of millions to have one, so yes the magic has diluted, but I doubt the quality of service has.”
The increase in providers may be a positive for families. “They have a range of options, and money will decide which one they choose,” he says. “The single office is a Rolls-Royce. Ultimately it comes down to supply and demand.”
But where is this family office money coming from? Camilla Stowell, Managing Director of Coutts Private Office, says 80 per cent of its 350 clients are UK domiciled. “There"s plenty of M&A going on in the UK. There are still new wealthy clients with a big lump of cash not knowing where to start managing their family wealth,” she says. The remaining 20 per cent are UK non-domiciled or international, such as Middle Eastern families who may have family offices back at home.
Coutts offers investment advice, while tax and legal advice is outsourced. Stowell points out that 10 years ago this may not have been so easy. “There used to be more conflict between different clients, now there"s collaboration. It"s about clear expectations and clear accountability,” she says. “We love what we do. The only thing we stop short of is walking the family dog!”
What constitutes a family office seems to be constantly changing, and it looks like that trend will continue - especially with growing wealth in regions, such as Asia, where the family office concept is relatively new. Family life, it appears, is never dull.
The professional view
Karen Jones, CEO, Citywealth
“Ten years ago everyone wanted to be a family office, and private banks eagerly carved out family office divisions with specialists for a few select families. They offered anything from advice on schools to how to get the latest Chanel handbag, along with investment advice. With a few years" hindsight, pretty much all private banks and multi-family offices found this unworkable and unprofitable, mainly because the demands from clients were too great. Multi-family offices in the last five years have been rebranded "private investment offices" and just stick to the business of investment. Many family offices have also disappeared into other organisations, generally because market conditions were tight. However, the credit crunch has shaken down the wealth industry, and new players either wish to attach to a bigger organisation for economies of scale, or are emerging along with the private equity money as a hybrid in a merchant banking model or an expanded trustee model which is now being hailed as a "family office".”
Paul Douglas, Managing Director, Trust and Fiduciary at Salamanca Group
“Those firms who have simply rebranded as a family office will struggle. It needs to be a bespoke service tailored to the needs and demands of the family. It"s not a "stack "em high, sell "em cheap" approach - you have to recognise that each family is different.”
Steffianna Claiden, CEO, Family Office Review
“A number of wealth advisers are choosing to enter the sector because there"s a lot of money there. Also, anyone is free to call themselves a family office, but the result is that families are very confused, and struggle to evaluate who"s best.”
Christopher Scholefield, Partner, Viberts
“There"s an aspirational edge to a family office. It"s good for the ego to bandy the phrase around. There"s been a measure of dilution in the family office message. In the past you had to have hundreds of millions to have one, so yes the magic has diluted, but I doubt the quality of service has.”