Family Wealth and Estate Planning News You Can Use

A Burden of Wealth: Family-Office Hunting

The Rich Face Increasingly Confusing Choices

As They Seek Help in Managing
Their Fortunes; Need Your Dog Walked?

By RACHEL EMMA SILVERMAN
January 3, 2008; Page B7

Family offices are supposed to make life easier for the very wealthy. But these days, choosing a family office is anything but easy.

A family office traditionally was a small company built solely to manage the fortunes of a super-rich family, like the Rockefellers. A dedicated staff not only managed money, it also typically provided a variety of softer services, such as arranging vacations and personal security, and educating family members about their wealth.

But in recent years, as investment firms scramble to serve the growing ranks of very wealthy people, the family-office landscape has gotten crowded. Rich families now face a confusing array of options, ranging from banking behemoths to tiny boutiques and technology startups that are all hoping to cash in on the family-office cachet. Meanwhile, small single-family offices have banded together into multifamily operations to get access to more sophisticated investments and services.

"A lot of people call themselves the same thing, but there's quite a broad spectrum of what it really means," says Bill Lyons of Springfield, Mass., who was approached by a swarm of self-proclaimed family-office firms eager to manage his money after his family sold its medical-technology company in 2006. "There were firms that could get involved in everything, including scheduling someone to walk your dog at one end," while others "did nothing but run money for high-net-worth individuals," says Mr. Lyons, 51 years old, who spent more than a year sorting through the options.

An advantage to having more players in the field is that family-office services are increasingly accessible to the merely rich, rather than just the super rich. While single-family offices generally don't make sense for those with less than $100 million, some multifamily offices have lower minimums of $25 million or even $10 million. Most multifamily offices charge a percentage of "assets under advisement" that can range widely from about 0.25% to 1.50%.

To help make sense of it all, a small but growing group of consultants, such as the Family Wealth Alliance, in Wheaton, Ill, and the Family Office Exchange, in Chicago, help families sort through the thicket and the marketing hype. Prices for such family-office searches often range from $15,000 to about $80,000.

Among the latest entrants crowding the family-office field are large financial services companies -- even though family offices have traditionally operated independently of large banks or investment firms. In recent months UBS AG and Morgan Stanley have made plans to expand family-office or "family wealth" divisions, while Wilmington Trust Corp. and Citigroup Inc., among others, also have family-office services divisions to cater to some of their richest clients.

Some large banks, such as Wachovia Corp., BMO Financial Group and SunTrust Banks Inc., have developed family-office units in recent years, in part by acquiring interests in smaller family-office firms.

Boutique money-management firms have also entered the multifamily office fray. And accounting firms, lawyers' offices and even technology firms are now putting up shingles as "virtual family offices," offering a variety of services, including coordinating your other advisers, providing back-office services, or offering technology that essentially consolidates all of your assets.

It is a tall order to choose among all the options. Large financial services companies tend to offer a global reach and a wide variety of services that can include traditional banking, tax planning, philanthropy consulting and even art advice. But they are sometimes criticized for providing impersonal service or for pushing their own financial products.

Boutique firms say they provide more personalized services and fewer conflicts of interest. In many cases, the firms may not even hold custody of assets, but purely serve in an advisory role. However, they generally don't have balance sheets as deep as those of the larger players and may have trouble having access to top hedge funds or other alternative investments.

But with increased consolidation and merger activity in the financial-services industry, the lines between boutique family-office firms and large financial players is blurring, making the offerings even tougher to distinguish. Some boutiques outsource to larger institutions to broaden their offerings, while some large banks have standalone multifamily offices within their empires. For instance, SunTrust Banks partly owns GenSpring, a multifamily office based in Palm Beach Gardens, Fla.

After selling the family's medical-technology company, Mr. Lyons winnowed down a long list of various family-office operations. "I wanted to find a firm whose only interest was my interest," he says. He consulted with members of the Institute for Private Investors (www.memberlink.net), a networking group for high-net-worth individuals. And he created a spreadsheet that listed the characteristics of his finalist firms, checked their references and conducted interviews.

Mr. Lyons says his family recently chose Ballentine, Finn & Company. The wealth-management firm provides the Lyons family with investment advice and oversees its pre-existing financial relationships with brokerages, accountants, lawyers and other firms. "They consult with us on all things financial, but they are not interested in finding someone to walk the dog," Mr. Lyons says.

Jeff Miller, a Diablo, Calif., technology executive, wanted a multifamily office to simplify his financial affairs, which included a hodgepodge of advisers and about 20 different brokerage accounts. "We had a wide variety of people looking at our financial situation, but the only people on earth that looked at our entire holistic financial situation was us, and we're not experts at that," Mr. Miller says.

After a chance meeting at a cocktail party, the Millers settled on Kochis Fitz/Quintile. Mr. Miller, 56, says he was impressed that the firm gave him a tax-savings tip regarding some stock options that he says saved him from a hefty tax bill, before he was even a client. Although the firm doesn't invest money in-house, it helps the Millers pick new money managers, and handles other needs such as philanthropy, estate-planning and choosing health insurance. "They are a one-stop shop for anything we do in our financial lives," Mr. Miller says.

The expansion in family-office offerings comes as the ranks of the super-rich have grown. The number of ultra-high-net-worth individuals in the U.S. -- those with at least $30 million in investment assets, excluding the houses they live in -- increased 11% in 2006 to about 37,100, according to a report compiled by Merrill Lynch & Co. and Capgemini Group. Meanwhile, a survey of 80 multifamily offices by the Family Wealth Alliance shows assets jumped by more than 20% to an estimated $305.2 billion.

There are many different models for how family offices are structured. But family-office consultants say investment and other advice generally should be kept separate from the sale of financial products, to reduce conflicts of interest. It is also important to nail down beforehand exactly what the family's needs are -- whether, say, they want a full range of services in-house, or are only concerned with top investment performance, says Barbara Hauser, of Stanford Group (Suisse) AG, who helps very wealthy families sort through family-office options.

Families should look carefully at a firm's independence and whether it offers a wide range of outside investments and services, rather than proprietary investments and services. In addition, look at the ownership structure and plans for the future succession of the firm, adds Kathryn McCarthy, a family-office consultant in New York. Ask how long they have been offering family-office services and the background and experience level of the team. And make sure to ask for other client families in similar situations as yours to interview. Wealthy families say that using formal or informal peer networks is very helpful in vetting providers.

Fee structures vary widely. Most multifamily offices charge for assets under advisement, which may include assets that they directly manage, as well as other assets, such as hedge funds, for which they provide indirect oversight or advice. Other firms charge flat annual retainer fees, or set fees for specific services or projects, such as arranging personal security or staffing a yacht. The fee for assets under advisement depends on the level of wealth, how sophisticated the asset allocation is and what services the firms provide. Most families pay additional fees for alternative investments, such as hedge funds.

Some firms even charge by the hour. Several years ago, when Robert Lansing, a co-founder of a Lake Forest, Ill., real-estate investment-management company, was searching for a firm to manage his family's wealth, he didn't want to pay a percentage of assets under advisement. After interviewing a number of firms, he chose Vogel Consulting. Mr. Lansing, 60, says he liked that the multifamily-office firm charged an hourly rate, which ranges from about $100 to $385 depending on the type of service. "You pay for what you need," he says.

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