“WHEN YOU’VE SEEN
ONE FAMILY OFFICE. .
.”
WSU ACCOUNTING & AUDITING
CONFERENCE
MAY 19-20, 2014
David Krauss, Managing Director
Commerce Family Office
“YOU’VE SEEN ONE
FAMILY OFFICE.”
2
WEALTH MAP
Who are the “High Net Worth Individuals?”
$1MM-$5MM
“Millionaire Net Door”
$5MM-$30MM
“High Net Worth”
> $30MM
“Ultra High Net Worth”
3
WHERE ARE THE ULTRA HIGH NET WORTH INDIVIDUALS?
167,000 UHNWIs
per The Wealth Report (2014)
199,000 UHNWIs
per Wealth-X/World Ultra Wealth Report (2013)
4
THE UNITED STATES WEALTH MAP
Total US UHNW Population
UNITED STATES UHNW
65,500
2013
2013
UHNW POPULATION
TOTAL WEALTH (USD in billions)
$1 billion
515
2,064
$750 million to $999 million
285
270
$500 million to $749 million
925
656
$250 million to $499 million
1,945
945
$200 million to $249 million
3,830
890
$100 million to $199 million
5,080
995
$50 million to $99 million
20,605
1,890
$30 million to $49 million
32,320
1,375
65,505
9,085
NET WORTH
TOTAL
Source: Wealth-X Report (2013)
5
THE UNITED STATES WEALTH MAP
Distribution of UHNWIs by State
California
#1
(12,500)
New York
#2
(8,900)
Texas
#3
(6,300)
Florida
#4
(4,200)
Oklahoma
#23
(890)
Missouri
#24
(800)
Kansas
#25
(550)
Arkansas
#26
(550)
Source: Wealth-X Report (2013)
6
THE UNITED STATES WEALTH MAP
States such as Arkansas, Kansas and Texas are also well placed to benefit. “Arkansas is a
massive beneficiary of the booming agribusiness and the return of manufacturing,” says Sr.
Mamgren. “Nationwide, transport networks and the cheap energy/fracking story are going well.
When people get priced out of major cities like New York and San Francisco, they move to
cities like Kansas City and Houston. The middle of America is where the economic action
is now.” The number of UHNWIs in Houston, for example, is expected to rise by 57%
by 2023, far outstripping the overall US growth rate of 21%.
Source: Wealth-X Report (2013)
7
WHAT IS THE ONE THING
THAT WE KNOW ABOUT ALL OF
THESE AFFLUENT
INDIVIDUALS?
8
CHALLENGES OF SIGNIFICANT FAMILY WEALTH
FAMILY
Family Trusts
9
WHAT HAS EVOLVED FROM THE “CHAOS OF FINANCIAL SUCCESS?”
The Family Wants…
Family Trusts
Special
Projects
Business
Succession
Family
Education
Family
Governance
Continuity of
Family Legacy
Investment
Planning &
Analysis
Philanthropic
Activities
Lifestyle
Management
Accounting,
Reporting &
Compliance
Family
Communication
FAMILY
Management of
Administration
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CONCEPT OF A FAMILY OFFICE
An integrated and coordinated service delivery model:
— Objective and personalized advice
— Centralization of risk & other services
— Support system for meeting the challenges faced in managing wealth and trust administration
— Governance/Management infrastructure
— Assistance in the accomplishment of long-term goals
— Bifurcation of family vs. family business
—
Highly-sophisticated investment consulting
— High investment returns
— Collaboration among financial disciplines
— A reliable resource to handle day-to-day demands
11
CONCEPT OF A FAMILY OFFICE
The advisor sees:
— Relationship building with family
— Revenue growth
— Next generation relationships
— Expanding the closely held business CFO role
— Job opportunities
OVERALL OBJECTIVE:
To maximize opportunities for managing and growing wealth while preserving
the family’s legacy, values and continuity
12
FAMILY OFFICE MODELS
Single Family Office
Multi-Family Office
•
Totally controlled by 1 family
•
Shared operating costs
•
Governance varies
•
Sometimes shared philosophies investment principles
•
Generally “outsiders” serve as COO & lesser position
•
Ability to alternate talent
•
Increased privacy
•
Ability to alternate outside resources
•
Increased confidentiality
•
Tendency to spread too thin
•
Enhanced business models
•
Diseconomies of scale?
13
FAMILY OFFICE MODELS
Either model requires decisions:
— In-house v. outsourcing
– Allocation/Diversification
– Record retention
– Philanthropy
– Risk management
– Financial controls vs. budgeting
– Financial literacy
– Business succession
– Legacy planning
– Everyday activities
— Family involvement
— Specialized activities
— Experts
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FAMILY OFFICE SERVICES
Family offices generally provide the following broad category of services:
Family Wealth
Stewardship/
Governance
Risk
Management/
Advisory
Services
Investments
Family “CFO”
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FAMILY WEALTH STEWARDSHIP
— Long-term objectives
– Family mission statement
— Family governance
—
Family wealth education
— Philanthropic planning
— Family business consulting
– Succession planning
— Family communication
– Information dissemination
– Family meetings
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RISK MANAGEMENT
Assessment and mitigation of risks aligned to key family objectives:
— Life cycle events
— Tax compliance
— Estate and legacy planning
— Life insurance review
— Property and casualty insurance review
— Executive benefits
—
Retirement planning
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FAMILY CFO
— Family balance sheet and income statement
— Cash flow planning
— Income tax projections and preparation
— Real and personal property management/oversight
— Collaboration with all family advisors
— Foundation management
— Bill pay
— Other daily services
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INVESTMENTS
— Develop investment policy statement
— Asset allocation advice
— Investment consulting and manager selection
— Investment management
— Monitor advisor performance
— Consolidated performance reporting
SETTING YOUR INVESTMENT POLICY
Meet with Client to
Discuss Needs
& Objectives
Perform an Asset
Allocation Study
Work with Client
to Determine
Investment Policy
IMPLEMENTING YOUR PORTFOLIO
Finalize Asset
Allocation
Select Managers
Implement &
Monitor
19
WHAT DIFFERENTIATES THE
FAMILY OFFICE FROM
“REGULAR” PRIVATE CLIENT
SERVICES?
20
BENCHMARKS OF FAMILY OFFICE SERVICES
Broader role in strategic planning for the family & oversight of
progress toward goals—with multi-generational focus
Assistance with family communications & coordination of activities
based on the needs & desires of individual family members
More responsibility for coordination among other
key advisors & outside services providers
Highly-tailored solutions to meet the unique needs of each family
A “deeply engaged”/”highly intensive” service model
21
FAMILY OFFICE STAFFING
Team Lineup
Managing Director/
Relationship Manager
Wealth Advisor
Portfolio Manager
•
Stewardship
•
Financial planner
•
Investment policy statement
•
Education
•
Technology skills
•
Portfolio construction
•
Strategic planning
•
Day-to-day resource
•
Investment reviews
•
Liaison with outside advisors
•
Coordination the team
•
Business development
Private Banker
Trust Administrator
Tax Planner
•
Credit
•
Administration
•
Tax returns
•
Lending
•
Trust interpretation
•
Estimated tax projections
22
FAMILY OFFICE STAFFING
Team Lineup
Insurance Advisor
Estate Planner
Business Consultant
•
Property/casualty insurance
•
Documents
•
•
Life insurance
•
Estate tax strategies
•
Coordination with estate
•
Valuation
planners
•
Succession
Real Property & Personal
Property Manager
Oversight of closely held
business ties within family
Additional Staff
•
Property management
•
Technology Consultant
•
Property services
•
Support staff
•
Household staff
•
Legal
23
FAMILY OFFICE STAFFING
Challenges
— Ideal combination of technical skills & soft side personality
— Career path
—
Succession planning
— Transition
Skills
— Personality
— Technical
— Language
— Detail
24
COSTS OF OPERATING A
FAMILY OFFICE
25
COMPONENTS OF COSTS
— Internal family office costs
– Staff
— Allocations of costs
– Investment management
– Training
– Internal office costs
–
–
Technology
– Operations
— Outside advisors
– Professional fees
– Accounting
– Compliance
— Investment costs
– Consulting
External advisory costs
— Staff compensation
– Costs for highly-qualified professionals
— Complexity drives costs
— Communications
– Client service agreement
– Survey
– Research
– Custody
– Manager fees
26
PRICING OF A FAMILY
OFFICE
27
PRICING MODELS
FLEXIBLE
MODELS
Fixed fee
% of AUM
28
BEST PRACTICES
29
HOW CAN A FAMILY OFFICE DISTINGUISH ITSELF?
— Clearly-defined value proposition
— Reliable referral partners
— Commitment to the long-term needs of the family
— Knowledge of target market
— Confidentiality
— Regular and timely communications
— Risk management oversight
— Good clients
— Prudent growth rate
— Goals-based investing
— Ongoing assessment
— Talent development
—
—
Consistent/flexible pricing
Technology upgrades
30