By Mark Barnicutt on February 23, 2022
The Big Challenge With Traditional Family Offices:
As mentioned above, the costs to operate a traditional family office are material. Some industry organizations have estimated that the total cost to operate a family office can be upwards of 2% of the family assets. Furthermore, as many of these operating costs are fixed in nature (ie: mostly people costs), this means that entry levels for traditional family offices requires that families typically has net worths of $100-$200 Million.
For this reason, affluent families with net worths lower than $100 Million (ie: typically between $10 – $100 Million) – who typically have the same types of wealth needs as the ultra wealthy families beyond $100 Million – have in recent years sought alternative family office services that are priced at a more affordable level.
One such family office approach has been the Commercial Family Office and more recently a Virtual Family Office. Both are briefly explained below.
The Historical Approach: Commercial Family Offices (CFO):
The most common option is the Commercial Family Office (CFO) in which several professional practitioners join together in one enterprise to serve all the financial needs of several high net worth families. Unlike the traditional family offices, a Commercial Family Office is a business (ie: Fee For Service), and as such is operated for a profit. This means that the family is a ‘client’ and not the ‘owner’.
The big advantage for affluent families is that they can get access to the suite of services historically reserved for traditional family offices, at an affordable rate, and without the responsibilities of managing a business.
The one potential disadvantage for families that their advice resources ‘may’ be limited depending upon how much a given CFO internalizes its professional people resources & collaborates with external professionals. Clearly, a CFO who has a highly internalized professional services team with limited external professional collaboration will run the risk of limiting the quality of their advice, especially in a growing & complex global financial world.
A New Approach: The Virtual Family Office (VFO)?
A Virtual Family Office (VFO) is a family office model that HighView has used successfully for more than a decade by harnessing the experience, dedication, and loyalty of our clients’ established group of professional advisors, such as accountants, lawyers, etc, to provide the comprehensive wealth stewardship that our affluent families require.
In other words, HighView delivers our core professional competencies in the areas of wealth planning, investments & insurance, in collaboration with our clients’ existing professionals such as accountants and lawyers as well as other professionals that may be required in stewarding a family client’s wealth.
One potential disadvantage for clients seeking advice from multiple professional advisors is the lack of fully integrated advice, combined with the opportunity for conflicting advice. Through a client’s ‘Family Stewardship Council’, HighView solves this matter by bringing together each client’s group of key professional advisors to make important financial decisions and work together to create integrated solutions.
As a result, the key advantages of this VFO approach beyond the Integration of Advice includes the Objectivity (ie: Conflicts are mitigated), Transparency (ie: advice & fees are openly reported & reviewed), Affordability (ie: a variable priced set of professional services vs the fixed price of traditional family offices) and Quality (ie: an open professional advice business model for top talent) of advice.
As the global wealth market continues to grow, the Family Office segment will continue to evolve. Fortunately, as outlined above, there are now family office solutions available to affluent families with net worths between $10 Million and $100 million, which historically had only been reserved for the ultra wealthy families with net worths above $100 Million.