Win Big: An Ultimate Guide To Family Office (Not Only For Beginners)

In the last two years, the words "family office" have been on the front cover in the Wall Street Journal and more mainstream publications like The Economist. 

 This was unheard of even just five years ago. So, it seems that those who work in finance are starting to be familiar with the term while the general public still has no idea what it means.

 The Innovator

 A few months back I interviewed Richard C. Wilson, CEO of Centimillionaire Advisors, LLC & Family Office Club, which we published in the Billionaire Chronicle April issue: 

• Twelve years ago, Richard believed in his mission and laid down the foundations for a distinctive, exceptional – in fact, unique- business model. This led to global recognition and was a springboard for the advancement and increase of "Family Office."
• Richard is a pioneer, who is recognised globally but is genuinely humble, with the energising momentum of building a vast network through helping people to accomplish more. His affirming and inclusive leadership, approachable demeanour, and generous outlook delivers results.
• Richard always provides lots of insights as he runs a single family office with $500M in assets that he started from scratch. He was also hired to build an advisory council for a $100M+ single family office.

The 6 Principals

 I have learnt six fundamental principles from Richard, and I want to share these with you. 

 #1 Clear directions

 It is vital is to know exactly where you want to go. There are hundreds of questions you need to ask before you spend a single dollar on hiring consultants, wealth managers, staff, or getting office space. You should create a compass or charter for your family stating your mission, goals, values, priorities, ethics, governance, and family story. This should be what everything else is built upon.

 #2 Trust

 The next thing to keep in mind is that most people giving you advice on family office topics are biased. They usually want you to hire them because they offer a multi-family office solution. Or they want you to employ them as your outsourced CIO, or they want you to show you some hot real estate investments. So they talk about direct investments into apartments or hotels. Be very careful about how much you trust. Take action after speaking to someone with an agenda. It doesn't mean you can't work with these individuals and take their advice but be aware of their angles and don't work with anyone who doesn't disclose how they are genuinely getting paid at the end of the day.

 #3 Outsourcing 

 Another essential point is considering what type of family office you may want. You could create a virtual family office that relies heavily upon outsourcing, or a traditional or an endowment-like single family office that many billionaires use. You may want to hire a multi-family office or outsourced CIO. 

 #4 Integrity 

When people think about integrity, usually, they think about being the right person. However, the definition of integrity can be much broader to encompass the integration of all of the pieces. Everything in your business- yourself, your habits, who you spend time with, your company values, your team members, what you invest your money in- has to be aligned. Otherwise, you are just restraining yourself or confusing other people on what you want to be doing.

When someone does diverse independent ventures at random, energy is dissipated, and alignment and conviction decline.

#5 Family Values

The family values must be aligned with who you hire, and your investments must be aligned with the reality you want to possess. When raising capital, you should be prepared to put your own money in and pay attention to building a strong team and being well located. The assets you buy must be aligned with experience, expertise, and track record. 

#6 Consistency

The most successful people, who have great trust and faith in what they do, are the ones who have been doing something for a very long period. There is great consistency. They are the ones who are most effective at making progress in the world because they have all their pieces aligned and pointed in the same direction.

To follow Richard on LinkedIn, if not already, just put his name in the search box. 

Family Office Q&A

Image source centurywealth.com

The following segment below will really inspire you.

To understand family offices better, I will feature six of the most wanted questions I have seen on various online resources with expert answers: 

• What exactly is a 'family office"?
• What is the difference between a family office and a regular investment management firm?
• What is it like to work for a family office?
• What is enough to set up a 'family office' to manage personal investments?
• How do family offices perform due diligence?
• How do I get access to family offices and HNWI?

The WHAT Questions

What exactly is a 'family office"?

 A Family Office is a wealth management company which invests the private assets of a wealthy individual or groups of wealthy individuals. There are two types of family offices: (1) Single-family offices, focused on managing the wealth of a single individual or family. (2) Multi-family offices, which control the wealth of multiple families that have pooled their investable capital together for a more formal/institutional investment arrangement and to reap cost economies of scale.

Family offices began investing in early-stage ventures centuries ago. In the 15th century Florence, the Medici family actively supported young artists by investing in their works (venture capital of its day), patronage which provided the start for some of the greatest masters of all time from Leonardo Da Vinci and Michelangelo to Galileo and Botticelli. That said, John D. Rockefeller pioneered the formal "family office" format. An asset class that has since mushroomed due to the deluge of wealth created by both tech and capital markets investing over the last two decades.

There are more than 10,000 family offices worldwide and $5.1 trillion of ultra high net worth wealth, according to Ernst and Young's family office guide. Family offices are based in a few key cities which satisfy a raft of requirements for the globally-mobile and asset-rich families. This includes strong governance institutions and practices, a private/secretive banking system, and political stability. Luxembourg, Hong Kong, London, and Switzerland have long been hot favorites, with Dubai not too far behind.

Rajeev Jeyakumar. Entrepreneur and Executive in the Talent Technology space

What is the difference between a family office and a regular investment management firm?

 A family office is essentially a micro asset management firm, a hedge fund focuses on just one aspect, generating 15%-20% returns per year from capital. A fund is a subset of a family office, although it can often have more capital under management, more investors. A family office will usually have longer timelines to return on investment, generations, lifetimes, whereas a hedge fund will be subsets such as 1–2yrs, 3–5yrs and exceptionally 7–10yrs.

Although we've only been concentrating on the fund aspect, in the background, the wealth management side is my heritage. However, until I unwound the entire financial framework, there wasn't much point in dealing with wealth management. The net result is that we have everything UBS or Credit Suisse has from wealth management and family office side, technology, processes, structures, short/medium/long term trends.

You see, I've had to help unwind extended heritage families who were signed up to unlimited liabilities. Those who everything due to some creative accounting of prestigious companies. Given that the first accounting these days has been taken to a whole new level, I see the companies who deal with wealth management and wonder what they are doing. Look at the Panama papers, what was everyone thinking, seriously, Deutsche has a revenue per employee the same as Walmart, Quintessentially who tried to get me to sign up with them have $100mm revenue, with 1,000 employees.

For Deutsche, it means their median employee has experience of $250,000 revenue per year, Quintessentially who perform all the travel arrangements, concierge, have $100,000 revenue per employee basis. I was involved with a family, and their summer parties were epic, whose Uncle was given a painting by Picasso from Picasso. These are the types of things that I would expect wealth management, family office, hedge funds, and their consultants to provide as advisory. They couldn't even get my travel correct, actually it was Quintessentially's peer, but that's semantics.

The main problem is this, and when economies unwind, it gets downright dirty. You can't use standard wealth management techniques because the nano and micro-events can. If there's enough of them, overwhelm the longer-term goals, financial drone swarms except in this case they use people. Everyone assumes that if you have wealth, run or are part of a family office, a wealth management firm, that you can take the long term view and that is that. For the most part, it is correct. However, and I've seen the direct numbers when that capital is "required" unless you knew how to take it back to a micro level, while still having a medium and long term goal. That capital can and often will be "appropriated."

 A family office goal is across an entire asset suite for generational timelines, and above, a fund is for one single asset group, market investments, which should be 20% of net worth, across shorter timeframes. This leaves the other 80% to be managed in the family office structure. Oddly this is precisely what I have, Corporate, Estate, Investment, Lifestyle, Travel. 

Matt Awd A Lifetime of Understanding Financial Market Dynamics

 What is it like to work for a family office?

Working for a family office can be a challenging yet dynamic position that allows one to take on a wide range of duties. If you are working for a single family office, you will become intricately involved with the family's business and personal affairs. This can be a bit of a mix of responsibilities and requires a great deal of managerial and people skills. For multi-family offices, the challenge is in juggling the diverse needs of each family you work with and knowing what the most advantageous strategy for each family and their affairs is. I work for KCB Management, a multi-family office in London, and we specialise in offering comprehensive business, financial, and philanthropy planning for high net-worth families globally. I find the job extremely rewarding, albeit sometimes stressful, as these families depend on our services and quality of wealth management. If you are looking at a career in family offices, make sure you have a passion for dealing with both the financial, business and personal aspects of wealthy families.

Jan Mueller

Governance Constellations to Manage Family Wealth https://www.researchgate.net  Nadine Kammerlander

What is enough to set up a 'family office' to manage personal investments?

Typically, family offices have a minimum threshold of $50M in AUM (assets under management) - however, most are $100M and higher. The fees would eat you up rather quickly. You would undoubtedly be better served to join an already established multi family office to handle your needs. This would allow you to leverage the infrastructure already in place at a much lower cost structure.

Keep compounding that capital!

Russ D'Argento Founder and CEO of FINTRX, a family office data + research platform which provides comprehensive investor intelligence & technology designed to simplify the capital-raising process.

The HOW Questions 

How do family offices perform due diligence?

 Family businesses, if they are smart, should do background checks on all their employees, even if they are family! The key to any good employment background check program is consistency. Setting a precedent from the beginning of screening all new and advancing employees makes good business sense and will help promote a safer and more productive workplace.

However, there are family businesses that don't feel the need to do employment background checks. They believe that since they are hiring family, or people they know, screening them is not necessary. The problem with this way of thinking is that there could very well be a time when they find themselves ready to expand and hire outside their circle of family and friends. Doing employment background checks on these types of new hires may suddenly have an appeal. While it is true that it would be better late than never, the company has now opened themselves up to the possibility of being seen as discriminatory in their hiring practices.

That is why it is best for all new companies, even family businesses, to do background checks on all their employees. It is only good for business!

Kim Kline Background Screening and Due Diligence Professional

How do I get access to family offices and HNWI?

You can attend family office conferences, use LinkedIn to meet with local family offices, search the top 3 cities you travel to often on Google plus the keywords "single family office" "family office" "multifamily office" or "holding company" and see what comes up. 

You can also identify industry titans, people with foundations or top shareholders at publicly traded companies who are wealthy enough to have a family office. 

 Richard C. Wilson, CEO of Centimillionaire Advisors, LLC & Family Office

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