By Russ Alan Prince and Hannah Shaw Grove
Reviewed by Albert Keith Whitaker
How much money does it take to establish that ultimate pedigree of wealth, a "family office"? $100 million? $25 million? Or as "little" as $5 million, as suggest the authors of this book, the first to analyze this rarified corner of the world of financial services?
The question reminds me of one that a top wealth manager I know likes to address in front of prospective clients: "How do you know when you're wealthy? When you find yourself comfortably talking about 'the money' over meals, or on vacation, or wherever—as though it were an old friend." When you find "the money" sitting down with you at dinner, maybe that's when you need a family office.
As announced in its foreword, Prince and Grove break new ground in this book by providing "the most extensive empirical analysis of family offices ever conducted." Over nine months they surveyed the executive directors of 653 family offices, having a total of 34,499 clients with a combined net worth north of $2 trillion ($1.2 trillion in investable assets).
Such clients seek out a family office for several reasons, according to Prince and Grove: their finances are exceedingly complex, they want connections to industry movers and shakers, and they want to grow their capital and their charity. But above all they want control over their finances and their fates. For these reasons, while every family office customizes itself to its clients, they generally put a heavy premium on superior investment management, while also offering a "holistic perspective" that includes other financial and lifestyle services.
Prince and Grove's strength is the breadth of data they produce from their surveys. Their book presents charts on worldwide aggregate wealth amounts among the exceptionally wealthy, average net worth of family office clients, motivations for creating a family office, qualifications for family office directors (and how they got their jobs), types of services offered by family offices (from coordinating other advisors, managing money, filing tax returns, to paying bills, and even setting up family hedge funds). Prince and Grove even detail family office forays into providing family security, household employees, and health care plans.
Finally, using numbers from the World Wealth Report and their own analytic model, they predict a growth in the number of families worldwide with $10 million or more from 1.1 million today to 1.9 million in 2008—a prospect ripe for the creation of new family offices and mergers of existing players.
As a first pass at describing this field, Prince and Grove do an excellent service. But their typology could be improved. For example, modifying the industry's custom, they divide family offices into single-family, multi-family (meaning that one family holds over 30 percent of the office's capital), and commercial. This division follows from the fact that in some cases single families have admitted other, smaller families into "their" office in order to reduce costs. But it doesn't do much else to capture the varied intentions of family offices today.
A more fruitful classification would, in my view, address the different purposes of family offices, and especially their different attitudes toward time. Some are oriented toward the past: they exist to preserve a hallowed possession ("the stock"), or a system of trusts, or even a web of family squabbles and grievances. (Many "single-family offices" operate this way.) Some look mainly at the present: organizing, coordinating, and consolidating a busy family's affairs, and making wealthy life more livable. What Prince and Grove call "commercial family offices" often act this way, because these quality of life services improve with economies of scale.
But the best family office focuses on the future, and serves to help a family identify itself through (rather than against or because of) its wealth. Family offices do this by focusing on wealth education, philanthropy, and even advising family members on developing new businesses. An organization that does all this—while respecting a family's past and helping care for its present—offers clients not only a family office but also a true family endowment.
As Prince and Grove reveal, because the field is still defining itself, many family offices do some mixture of all these things. Whatever happens in the near future, it's an exciting area for financial professionals, for, as one of the founders of Calibre likes to say, at a family office, our focus is not products, or projects—it's families.
Albert Keith Whitaker is a research fellow at Boston College's Center on Wealth and Philanthropy, a director of Financial and Estate Planning with Calibre, and director and president of the Morton Foundation.
Wealth Management Press, 2004