The information in this e-letter is not intended to be an exhaustive listing of all accounting, portfolio management and information management solutions for the family office. But I am providing some key examples of technical resources at various levels that may assist those families that are thinking about forming a family office or those family offices that are considering technological enhancement of an existing family office.
A family office may be designed to serve the needs of a single family or may be part of an outsourced multi-family configuration. See "The Multi-Family Office Mania" by Sara Hamilton (Trusts & Estates online exclusive, Dec 19 2002) at www.trustsandestates.com/ar/estate_multifamily_office_mania_2/ for a description of the structure and functions of an office serving a number of families. "Working with a Family Office" by Lynn Wintriss (ACTEC Journal -- Fall 2000) suggests that by hiring non-family members to administer a family's affairs, a high level of professionalism can be achieved at a relatively reasonable cost, reviews the advantages of a family office and discusses formation of a private trust company as an alternative to using public trust services.
As to single-family offices: "Debunking the myths about family offices -- Even if you're not a Rockefeller, these structures can help your family to acquire financial expertise," by François M. de Visscher at www.devisscher.com/articles/article20040601.htm
argues that size doesn't necessarily determine a family office's viability, that the family office concept can be tailored to variety of family situations, and that the size of the family matters more than the size of the family business.
Explanatory diagrams by Cymric Family Services of Costa Mesa, California charting the typical functions of family offices may be found at www.cymricfamilyoffice.com/html/functions.html.
Similar diagrams by SunGard can be found here.
PowerPoint presentations on family offices by Cymric are available at www.cymricfamilyoffice.com/articles.html (scroll down to Presentations).
The reasons for a family to consider forming a single-family office (SFO), or joining a multi-family office (MFO), adapted from the list prepared Cymric Family Services, are:
- sale of business generates substantial liquid assets;
- the family's financial assets grow to a level that requires full time professional management;
- the time required by family member(s) to manage family's personal assets is detracting from effective running of the business -- and the business may suffer;
- family member(s) wants to separate management of personal financial assets from those of the business for purposes of confidentiality.
- the family has become multi-generational; the expertise/involvement of founding patriarch/matriarch is no longer available; the next generation not willing/capable of taking on asset management responsibility; and
- the needs of a growing number of family members, requiring increasingly diverse asset management services, can no longer be effectively met by family's existing resources.
Appropriate questions to ask when considering the formation of a family office (adapted from Cymric) are:
- Which families should form their own office and which should join an MFO?
- What are the specific advantages of an independent MFO vs. an SFO?
- What is the primary function of this family office; Is it full-service?
- How does the family office charge for its services?
- What fees and services do I get for those charges?
- How can I ensure investment objectivity?
- How do I ensure my information is kept confidential?
- Does this family office employ investing techniques that are unique to an individual investor vs. an institution?
A useful analysis of family objectives and key subjects to address at a family meeting considering the mutual handling of family financial matters is supplied by Cymric at www.cymricfamilyoffice.com/html/familyissues.html.
"Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy," by Russ Alan Prince and Hannah Shaw Grove (as reviewed in the Journal of Financial Planning) at:
www.fpanet.org/journal/BetweenTheIssues/Books/081505B.cfm provides interesting insights on when a family office is appropriate, including extensive empirical analysis of data relating to family offices. Strategic issues in considering the formation of a family office as developed by Family Office Exchange (FOX) are listed at www.foxexchange.com/public/fox/family/index.asp
Family Office Exchange (FOX) -- provides a place for finding information and exchanging views on the possibilities and benefits of family offices and serves as a resource for families of exceptional wealth to help develop their understanding of wealth management issues. See
Family Enterprise Center -- Family Office Forum (created through the University of Pittsburgh's Family Enterprise Center) at 18.104.22.168/fec/officeforum.php provides a venue for Family Office and Family Foundation Executives to discuss and learn about issues of mutual concern. In facilitating these discussions, the Family Office Forum examines pivotal issues and presents leading-edge knowledge about family offices. It conducts programs focusing on key issues faced by family office and foundation executives. Tentative program topics include asset allocation, charitable giving, compensation, family limited partnerships, and education for the next generation. Membership in the Family Office Forum is limited to non-family executives of family offices and foundations. The current Family Office Forum is at www.nmsmanagement.com/wealth-2006.html?altassets.
Institute for Private Investors at www.memberlink.net/memberlinkpublic/ supplies educational and networking resources to families with substantial assets, and their advisors, to assists investors in working with their advisors.
Jon Carroll, "Tech-savvy Family Offices," Trusts & Estates, Aug. 2005, pp. 44-5, discusses the methodology of applying technology solutions to both MFOs and SFOs. Carroll suggests: "An investment in technology can improve the productivity of labor in the family office that improves the quality of service and profitability."
Bristlecone Aristata, described at: bristleconeadvisors.com/family/aristata.asp, is a proprietary-information management system for family office managers and advisors distributed through a web interface and designed to:
- manage information to ensure efficient access to the disparate information associated with comprehensive wealth management;
- facilitate effective and efficient communication between all individuals involved in the management process; and
- establish business processes to ensure efficient, consistent, and accurate service delivery.
Financial Navigator supplies products described at: www.finnav.com/products/products.html. Navigator provides a general ledger and portfolio management solution designed to track investment and non-investment assets (such as real estate, private equity and venture capital investments) as components of net worth. Additional add ons provide reporting and check printing applications that may be of use to family offices not outsourcing these functions.
The Delta Data -- Trust Accountant program at www.deltadatatrust.com is reviewed in Trusts & Estates' December 2005 Wealth Technology Newsletter. This program provides comprehensive accounting for trusts and managed investment accounts. It also assists in trust management and generates investment reports. The genre of programs illustrated by Trust Accountant are appropriate for family offices doing their own accounting and asset management.
Family Office Metrics at: www.fametrics.com/services/technology.html analyzes and implements the technology to support family office reporting, operations and risk control objectives on a consulting basis.
Advent(R) for Family Offices is an example of family office services on a larger scale. Its Advent Axys (trading and portfolio management) at www.advent.com/Solutions/Family_Offices is designed provide tools to address the investment management and reporting requirements of both SFOs and MFOs.
Family Office Services -- State Street provides consultation and outsourcing for family offices through its proprietary technology. Click here for more information.
Geller Family Office Services at: www.gellerco.com/family-office.html offers a comprehensive suite of finance, accounting, tax and family office services to high-net-worth individuals.
Cymric Family Office Services at: www.cymricfamilyoffice.com/ offers MFO services. For families with substantial assets who do not wish to maintain their own family office, Cymric offers access to the essential financial coordination benefits of a dedicated family office through a combination of in-office skills and outside professional consultants that may be suitable for SFO.
Legg Mason Trust at www.leggmason.com/trust/individuals/family_office.asp offers services that include resources and support to enable a family to manage the business of its wealth. Legg Mason Trust supplies investment advisory and trust administration services. It also coordinates with tax and estate-planning advisors, provides philanthropic consulting and offers educations programs appropriate for family members at various ages and stages-in-life..
Mellon Family Office at: www.mellon.com/privatewealthmanagement/familyoffice.html is an example of banking services for family offices. Its services include investment, trust and custody services in the management of family wealth. There's also advice on tax matters, intergenerational wealth transfer, private philanthropy, asset-specific strategies and investment information management technology specific to the individual family office mission, stage of development and future goals.
Northern Trust Family Office at:
www.northerntrust.com/pws/jsp/display.jsp?XML=0402/45790422_3688.xml describes its custom wealth management solutions for families who wish to implement sophisticated, multiple manager investment programs, do consolidated reporting of family financial activity and employ a family office. The virtual family office structure, as formulated by Northern Trust, is discussed in "Family Matters" by Maria Wakem ( Wall Street & Technology, March 22, 2005) at: www.wallstreetandtech.com/showArticle.jhtml?articleID=159904336.
U S Trust Family Office Services provides coordinated support services for family offices, including the handling of expenses, collection of income, and maintainance of financial statements as well as related reporting, security and accounting and recordkeeping. All are described here.
UBS Wealth Management for Clients outside the US -- provides worldwide wealth management, including those in the United States. See www.ubs.com/1/e/wealth_mgmt_ww/germany/family_office.html
As it does on many issues, the Internet offers a plethora of resources to help families make decisions regarding the initiation, organization and administration of family offices. No matter what stage of formation or operation a family office may be, the resources cited and linked to in this newsletter should help increase a family's understanding of the possibilities.
Trusts & Estates magazine is pleased to present the monthly Technology Review by Donald H. Kelley -- a respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.
Kelley is a lawyer living in Highlands Ranch, Colo. and is of counsel to the law firm of Kelley, Scritsmier & Byrne, P.C. of North Platte, Nebr. He is the co-author of the Intuitive Estate Planner Software, (Thomson-West 2004). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent and past chair of the Committee on Technology in the Practice of the American College of Trust and Estate Counsel.
Trusts & Estates has asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him at firstname.lastname@example.org
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