In a series of research studies over the last five years, the wealthy—defined as having a net worth of US $10 million or more—strongly prefer working with multi-family offices over other types of advisors including financial planners, wealth managers, and private bankers. This is a worldwide phenomenon. Moreover, the appeal of multi-family offices exponentially increases as the wealth levels arithmetically increase.
The caveat is that the multi-family office is high-performing, which can be independently and objectively verified. With so many financial professionals jumping on the family office bandwagon, most of them fall short of being able to replicate the superior results that characterize high-performing single-family offices.
There are several reasons the wealthy prefer multi-family offices, and we will address a few of them here…
Focusing On What Really Matters To Wealthy Families
Mark Fujiwara, President of Fujiwara Family Office and co-author of Superior Results: Maximizing the Value of Your Family Office Just Like the Super-Rich, “Foundational to single-family offices being able to consistently deliver superior results is the fact senior management deeply understands the goals and aspirations and the concerns and limitations of the family as a whole as well as individual family members. There are specific methodologies the very best single-family office senior executive employs to develop this deep level of understanding, and they couple their perspectives and insights with the appropriate resources to optimize the lives of family members.”
The best professionals working in high-performing multi-family offices regularly use the same methodologies to develop comparable understandings of their wealthy clients. According to Homer Smith, Director of the DK Family Office Practice, Founder of Konvergent Wealth Partners, and co-author of Optimizing the Financial Lives of Clients: Harness the Power of an Accounting Firm’s Elite Wealth Management Practice, “Core to understanding clients is the discovery process. When we engage in discovery, we’re not limiting the conversations to risk profiles, investment preferences, or anything of the sort. We’re looking for ways to make a meaningful difference in their lives. Not only do we very strongly feel this is the right way to work with clients because it’s so uncommon in the industry filled with product pushers, but it also gives us a competitive advantage.”
Even when other types of advisors can develop a deep understanding of the wealthy, many times they are incapable of delivering superior results.
Able To Provide High-Impact Solutions Not Products And Services
It is all too common for professionals of all stripes to focus primarily if not only on the expertise they provide. Such an approach conflicts with the approach of high-performing single-family offices. The ability to deliver integrated wealth management solutions by blending both investment management and elite wealth planning is characteristic of high-performing multi-family offices and very aligned with the agenda of the wealthy.
P.J. DiNuzzo, Founder and Lead Consultant of DiNuzzo Middle-Market Family Office and Wall Street Journal bestselling author, The DiNuzzo Middle-Market Family Office™ Breakthrough: Creating Strategic Tax, Risk Cash-Flow and Lifestyle Options for Successful Privately-Held Business Owners and Affluent Families, “Our intent is always to deliver integrated, high-impact solutions to our clients. The key word here is ‘solutions,’ not services or products. When it comes to wealth management for seriously affluent individuals and families, it’s essential to be able to deliver synergistic combinations of financial expertise. It’s never about the financial services or products, it’s always about getting the results clients need and want.”
Access To Sophisticated High-Impact Solutions
“The ability of high-performing multi-family offices to meet the diverse and often complex needs of their clients is predicated on being able to provide the appropriate financial solutions,” says Vince Annable, CEO and Founder of VFO Advisory Group and co-author of Your High-Performing Virtual Family Office: Maximizing Your Financial and Personal Lives. “This ranges from the basics, which apply to most everyone, to the extremely sophisticated, which only might make sense for a small cohort of wealthy families. For example, there are wealth planning strategies that tend to be limited to billionaires such as the floating island strategy.”
While a large percentage of advisors can deliver the basics, relatively few of them are proficient when it comes to the more advanced financial solutions. This is commonly the case when it comes to when wealthy entrepreneurs selling their companies. According to Anthony Glomski, Principle and Founder of AG Asset Advisory Family Office and author of Liquidity and You: A Personal Guide for Tech and Business Entrepreneurs Approaching an Exit, “We repeatedly find the majority of successful entrepreneurs fail to adequately address minimizing the personal taxes when they sell their companies. Even when they have a team of professionals to help them, they usually aren’t shown what they can do often because the people they’re working with don’t know, or the professionals are in silos. Founders are focused on keeping the business on track and getting the deal done with what can feel like 24/7 demands. They don’t have the time to coordinate this team and break the silos, which can result in millions more in taxes. This is what we do.”
Of Course, The Wealthy Prefer High-Performing Multi-Family Offices
What wealthy family, for instance, would not want many of the same advantages available to the super-rich (net worth = US $500 million or more) if they were available to them? Not surprisingly, the answer—empirically determined—is less than 5%. The answer for a large percentage of these families is a high-performing multi-family office.
Furthermore, in several exploratory studies of the wealthy and the value they derive from various types of providers, the value high-performing multi-family offices deliver to their wealthy clients is dramatically greater than other types of providers. Value differentials of great than 12X to 19X are fairly common.
In conclusion: of course, the wealthy prefer high-performing multi-family offices.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.