By John Drachman
While investment portfolios bulge and individuals acclimate to higher categories of wealth, the perennial family office is re-emerging for many as the next logical step to take on the road to financial independence and security.
Among all generational cohorts, Millennials in particular stand out as the greatest generational beneficiary of newly transferred wealth. One study showed that Millennials will hold five times as much wealth as they have today and the group is anticipated to inherit over $68 trillion from their Baby Boomer parents by the year 2030.
This phenomenon will represent one of the greatest wealth transfers in the modern times; and will add to the numbers already present in these categories of wealth:
- High net worth: Although there is no precise definition for how rich someone must be to fit into this category, the most commonly quoted figure for membership in this club is around $1 million in liquid financial assets.
- Very high net worth (VHNWI): These individuals typically have a net worth of at least $5 million.
- Ultra-high-net-worth individuals (UHNWI): These lucky few have investable assets of at least $30 million. They comprise the wealthiest people in the world and control a tremendous amount of global wealth. This group of people is small, but continues to grow.
Just as their investments grow in complexity, the newly wealthy look to bring their access to advice to a more sophisticated level. The growth of family offices are approaching a forecasted record increase of a 4.62% between 2020-2028 due to burgeoning numbers of families and individuals searching for family office professionals to oversee their finances.
Family offices deconstructed
The cornerstone of most family offices is a robust array of dedicated wealth management functions; such as the centralized management or oversight of investments, tax planning, estate planning, and philanthropic planning. However, if that is all an organization is doing for the families it serves, it might be more appropriate to call the firm a wealth manager instead.
At its simplest, a family office assumes the day-to-day administration and management of a family’s affairs including tax compliance work, access to private banking and private trust services, document management and recordkeeping services, expense management, bill paying, bookkeeping services, family member financial education, family support services, and family governance.
The advice needs of wealth families can rapidly increase in complexity too. Witness the growing demand for family support services or “lifestyle management.” A family office might be asked to arrange for travel, assist with household employee selection, or aid a family member with personal assistance.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.