Do You Need a Family Office? | AWM Insights #123

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Episode Summary

Family office is the buzzword in the industry these days. The problem is not everyone is staying true to what a family office does and many are not keeping clients at the center of what’s important.

Anyone with sports or business experience understands the value of the team. The integration, independence, and individualization of you advisory team provides you the opportunity to maximize your wealth. Each family is different and deserves a truly customized plan. Not the cookie-cutter solution most of the industry offers.

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Episode Highlights

  • (0:40) If you worked hard and made a lot of money, do you even need an advisor?

  • (1:00) Athletes and business owners understand the value of the team more than anyone.

  • (1:23) Should I have a single family office, multi family office, or hire a broker?

  • (2:04) Integrated, Independent, and Individualized are the 3 I’s that you should demand from your team of advisors.

  • (2:25) Integrations means your investment plan and advisor is integrated with your tax plan and your tax advisor. The left hand must be talking to the right hand.

  • (3:14) If you are not integrated then you are not optimized and missing out on maximizing opportunities to build wealth.

  • (3:40) It is tough to argue against having taxes done in house. Anyone arguing against this doesn’t get it. Anyone saying you should keep everything separate everything to have checks and balances doesn’t get what a tax CPA actually really does.

  • (4:03) An audit CPA will check to make sure your investments are legit and money is accounted for properly. Someone filing your taxes isn’t doing this.

  • (4:40) A team of professionals within a multi-family office will have superior knowledge over a single family office because of the multitude of different situations that will arise and the problem solving to find solutions. This learning is limited in a single family office.

  • (5:05) Independent multi-family offices are vanishing each day with private equity buying many firms over the last year. Rockefeller and wirehouses have hijacked the multi family office name and are not independent.

  • (5:46) Independents have the ability to go find the best solution. This is in investments, taxes, estate planning. It is an open playing field with no restrictions on finding solutions.

  • (6:42) Large institutions become restrictive due to compliance requirements and you can only select things from an approved platform.

  • (7:20) These big firms are so afraid of liability they are not able to give best in class advice that is the truly best solution.

  • (7:55) Private equity money coming into the independent RIA space removes the alignment of doing whats best for client to doing whats best for the returns of the private equity. Lines get blurred and you are not really independent when you serve shareholders first.

  • (9:20) Taking capital from outside equity changes the duty of loyalty to the private equity investors. Ask yourself if your advisory firm is keeping you at the center what’s important.

  • (11:23) No two clients are the same. Individualization and customization is incredibly important for everyone but especially for Ultra High Net Worth.

  • (11:40) The downside of the single family office is their is only one situation that keeps coming up. You never see different things or new perspectives. In a multi-family office you get a vast amount of experiences you train you problem solving skills and gather experience.

  • (12:30) One example of individualization is charitable intent. Some people have none, some people want to give everything away. Some just want to benefit their kids and grandkids. Individualization in just this area is necessary and a cookie-cutter solution isn’t going to cut it here.

  • (14:00) One size fits all solutions aren’t the best solution and most of the industry still operates in this way. A true multi-family office does not. It’s entirely customized to your family.

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Justin Dyer: LinkedIn
Brandon Averill: LinkedIn

+ Read the Transcript

Brandon Averill (00:07): Well, Justin, we're back and we've got another episode here. We obviously wrapped up a series not too long ago. Last week we introduced a new question to the fold. And that's, if you got all the money in the world, you're one of these people who worked obviously extremely hard to difficultly build your wealth, or maybe won the lottery and just got lucky. But at the end of the day, the big question becomes, if you've got all the money in the world, you have all these resources, presumably, you're pretty smart with business, do you even need an advisory team at all? And the quick answer to that is of course. We are a little biased, but I think we'll lay out the case for it, certainly, that if you really look at the facts on what you're trying to accomplish, it always makes sense to have a team around yourself. Many people listening to this, athletes, business owners, I think everybody really understands the value of the team. But when we start to look at this is, I think it would be fun to set the stage for some of the topics we're going to cover is what does that team actually look like? And how do I assemble the right team to be able to take care of my priorities, my family, et cetera? If I've got so much money, should I have a single family office? Should I have a multi-family office? Should I just go hire the turkey at the brokerage house? What are we really talking about? Is there a big difference? No secret, family office is the buzzword right now in the industry. Lots of people calling themselves family offices. So maybe, Justin, jump in. When we think about calling ourselves a family office, which we've been doing for a long period of time and really what we've been building, where would you say, what were some of the key elements that you say we focus on as we've built our solution and why we think they're so important?

Justin Dyer (01:58): Sure. So it can boil down to three words, three I's, we call it. And we'll focus on probably the first one initially, but integrated, independent, and individualized. What you were alluding to, Brandon, in the team aspect of all of this really speaks to that integrated team. That's what the team is. That's how you want the team to look. You want your tax professional to be integrated with your taxes and your tax professional to be integrated with your investment manager, investment manager to be integrated with your estate planning attorney, et cetera, et cetera. And then on down the line. The integration, the left hand talking to the right hand, and we've hit on this throughout various different topics here, but it is such an integral part, really foundational to a family office, so to speak, because it allows you to optimize your wealth to really make sure the left hand is talking to the right hand. Everyone's rowing in the same direction, whatever little anecdote or whatnot you want to highlight. The integrated nature of it is there to make sure you're maximizing all assets, if you will, or all aspects of your wealth to accomplish the same goal.

Brandon Averill (03:18): And I think that's funny, because we obviously see that as a huge benefit. If we're looking at a family situation, we know, especially if you're in this high net worth or ultra high net worth being defined, at least industry wide, 30 million or more in assets or net worth, taxes are absolutely critical to your situation. And so having that in house makes a tremendous amount of sense. I think it's tough to argue against that. People do try. We hear it all the time. The common argument against it is checks and balances. Obviously anybody making that comment doesn't really have a good handle on what a tax CPA actually does. What they're probably looking for more is an audit type CPA, right? By all means we suggest going and doing that if that's something of a concern to you, go hire an audit CPA. But if you're really thinking about optimizing your tax structure, having that team really integrated is going to always provide such a bang for your buck. And I think this one interesting aspect, as we think about those families that do have hundreds of millions of dollars probably could go hire some of the individual people to come work for their quote unquote single family office. But this is where efficiency starts to get lost. Knowledge transfer starts to get lost. I would much rather, if I was in that position, rely upon a team that has a handful of CPAs, at least, that are able to speak into my situation than maybe hiring just one or two that might be in an echo chamber and not learning from other situations. So I think that really integrated piece of a family office or a wealth solution, if you want to start taking the nomenclature off of it, is critical. And then beyond that, right, independent, because we're starting to see that the waters get really muddied. We've got the wirehouses right, clearly not independent, but have that family office terminology there. You got the new players, Rockefeller buying an old name and just coming out and throwing lipstick on the pig, the new modern day really brokerage house, but they are positioning themselves as a family office. Then we have really awesome solutions out there, Crescent Capital being one of them, even iconic. You have these really good firms that are true family offices. So maybe talk a little bit about the differences there and maybe what that independent piece actually means to these families' wealth.

Justin Dyer (05:45): So independence quite simply is the ability to go and find the best solution out there, whether it's from an investment standpoint, whether it's from a tax planning standpoint or tax software standpoint, the best estate planning attorney, whatever the case may be, you are not beholden to some other piece of an organization to dictate where the best solution can be found. It is a completely open playing field to be able to seek out the best solution. That is missing specifically on the wirehouse side of things. But it's also starting to bleed in, as you were kind alluding to, into what we call the independent channel. This is independent, what are called registered investment advisors, which is what we are. But you mentioned Rockefeller, it's starting to bleed into firms like that, where these are such large institutions where the compliance side of it, which can be a very, very good thing and positive thing, but it can also be very restrictive, starts to look and smell and feel very similar to the traditional wirehouse, big bank type solution where the platforms have to go through, or the products and solutions and advice has to go through a very rigorous and onerous compliance approval process to actually be able to be used. In some cases, it's purely a risk mitigation question where, "Hey, we're not going to touch advice on a specific area because there's too much risk or liability that a client could come back to us for bad advice." All of these things start to play a role and start to counteract this idea of independence and best in class advice. And so it's really important to be thoughtful around the structure, right? Independence makes a lot of sense, but like you said, you were alluding to, and I've mentioned, the industry, our side of the industry, the independence side of the industry is changing quite a bit and independence, this idea of independence is blurring a little bit. One other item I would say as well is on the onset of private equity coming into the RIA side of the business, again, the independent channel as we call it. And why I bring that up is again, it's all kind of a spectrum here where lines start to get blurred. The private equity money coming in, it removes the actual equity holder from the direct contact with the client. It's the old Goldman as a partnership before they went public. Goldman's Sachs, for those of you who don't know or a while back, not too long ago, but used to be a privately traded partnership. And that is where the Goldman name and reputation truly comes from because the partners, the equity holders were directly involved with the client experience and the deals that they were doing. And that all gets a little bit blurred as you remove, you take a step back, if you will, from the direct client interaction, the equity holders and direct client interaction and that relationship and things start to get blurred and fuzzy and not necessarily in the best interest of the client at the end of the day.

Brandon Averill (09:01): Yeah. I'm glad you brought that up, Justin, because at the end of the day, I think it's so second nature to me, but when I think about independent, that's such a critical piece of the definition. It's actually having an independent ownership body, really employee owned at the end of the day. You start to serve another master.When you start to take in capital from outside sources, right? You have all this private equity money come in. You've got to produce a return. It changes your decision making. There is absolutely no doubt about it. You no longer... It's publicly traded companies. It's them reporting, right? Their duty of loyalty is to the shareholders, not to the end client, whereas if you continue to maintain this independence, you maintain private ownership amongst your employees. It makes it a lot easier to continue to put that client at the very center. I think we've talked about this before. We were fortunate enough to have a conversation with a CEO of a very large independent financial group. And he was in a study group with 12 other very large US-based financial groups. And I think he said 18 months ago, all 12 were independently owned and he's the last one standing. It was some timeframe like that, but it's actually kind of sad just to see where our industry's going. And not all of it's bad. I don't want to put that out there. Sometimes there is really good reasons for it. But at the end of the day, you do have to ask yourself, "Am I as the client at the center of this? Is this firm pouring back in the resources to make sure that everything is going towards my priorities, my financial structure?" And I think that brings us to this last point, right? Individualized. If you are, I would argue anybody, but certainly if you are a high net worth, ultra high net worth type person, I mean, you trigger my brain when you said private, but you think about the individual nature of this. Now you start to bring in private investment opportunities. The tax planning goes above and beyond. Not to even, I mean the estate planning is absolutely critical in this piece. So maybe this is somewhat of an introduction of the weeks to come, but speak to that a little bit and what you see, even when you're building investment portfolios for some of these ultra high net worth clients.

Justin Dyer (11:22): Short answer's no two clients are the same. And that speaks directly to the individualization and customization that needs to happen within a family office. But it also speaks to something you mentioned earlier, which is the diversity of thought. And that's an argument against having a single family office, where the downside of a single family office is there's one situation that's consistently coming up. And so you're not seeing different things and being able to look at a question from a different angle or a problem from a different angle, whereas with a true multi-family office, the individualized aspect of it gives you this really interesting breadth of experience and training and ability to look at a problem from a number of different angles, and really at the end of the day, come up with what's the best solution, an individualized solution, but drawing on interesting experiences across the overall client base. And so going back to individualization specifically, I mean, everyone has different charitable intent. Some people don't have charitable intent at all, and that's totally fine. Some people think about charitable and leaving money to their next generation and that's their impact. Other people have the desire to give everything away and thoughtfully planning around that, making sure liquidity of their wealth actually is structured in a way that will allow them to give away their wealth when they want to give it away. I mean, that piece of it ties into the multi-generational transfer of wealth and it also ties into their own funding of their day to day lifestyle as well. Everything is so unique, especially as wealth levels start to increase, that the flexibility and creativeness, if you will, becomes paramount. It becomes so important within a wealth solution, like you said, to use a more generic term here. And a lot of what happens in the industry is taking some sort of more cookie cutter based approach because they want to build a much more scalable business. Again, there are good solutions out there. We're not trying to just disparage you all the whole industry and say, "Hey, we're the best." We think we are. But to be fair, there are some good solutions out there, but there's a pretty powerful difference between true individualization and customization and kind of a, let's say a one size fits all type solution that is, "Hey, we're going to go through your goals. We're going to tailor it to your unique situation." There's a big difference between those, and a lot of the industry falls into that ladder bucket, really.

Brandon Averill (14:16): Yeah, I think that's a great point. And hopefully some of this has resonated with you guys that are listening. We're going to take a little deeper dive, like I mentioned, over the next few weeks and get a little more technical in these different ways, maybe, how tax planning is different for a person in this ultra high net worth space. How's the estate planning different? Maybe even granularly, how do we think about building portfolios? How do we think about the private side? And I think there's lessons for anybody of any wealth throughout this, but if this conversation resonates with you, you really think, "Hey, this sounds like something that I'm really interested in, maybe I'm missing from my situation," or maybe you're a client, and you just want to hear a little bit more about how we think about things, I think this next little series is going to be pretty insightful and hopefully just something that will bring a lot of value to you on a daily basis. But before we close out, again, I keep saying the text number. So hopefully some texts keep flowing in here. That tax number is 6027045574. We'd love to get in touch with you, kind of go back and forth, answer questions as we dig into this series. But until next time, own your wealth, make an impact, and always be a pro.