The family office advisor’s role involves integrating a whole ecosystem of providers, including accountants, insurance providers and trust and estate lawyers.Adrien Veczan/The Canadian Press
When Tom McCullough founded Northwood Family Office more than 20 years ago, many people didn’t know what a family office was.
“Some people asked me if it was birth control and family counselling. I assured them it was not,” said Mr. McCullough, who recently stepped down as chief executive of Northwood, which is now part of Corient Private Wealth LLC, at which he’s a partner. He spoke on a webinar panel the CFA Institute hosted on Wednesday.
“Now, everybody claims to be a family office,” added Mr. McCullough, who is also head of thought leadership and strategy at the UHNW Institute.
So, what sets a family office apart from an advisory practice serving high-net-worth families? Much of it comes down to complexity and time horizon.
“You’re dealing with multiple individuals, often different generations – different needs, objectives, values, time horizons and, of course, levels of involvement,” he said.
But as more of wealth management is commoditized, many advisors are moving into a role orchestrating various professionals, borrowing from the family office playbook.
Speaking on the same CFA webinar, Michael Zeuner, managing partner at Coral Gables, Fla.-based We Family Offices, described the family office advisor’s role as the integrator of various investment managers.
Ultra-high-net-worth families may work with 30 providers covering a range of strategies across public and private markets and hedge funds, he said. “The question for the advisor is: Who’s making sense of all that? How does it all fit together?”
He added: “Can you show the family, on one piece of paper, their entire financial portfolio?”
Mr. McCullough gave the example of a family with $200-million of total wealth: $80-million in an operating business, $30-million in real estate and $90-million in financial investments. Someone who’s only looking at the financial investments might develop a portfolio with lots of private equity and other illiquid investments without realizing the rest of the family’s wealth is illiquid.
Helena Eaton, head of investment advisory at Corient, said advisors need to understand the goals of all family members before using illiquid assets. In addition to real estate investments, she said many family offices allocate 20 to 30 per cent of a client family’s investment portfolio to private assets, but there are important factors to consider.
A family with a founder still active in the business would likely shy away from more illiquid investments, she said, judging there’s enough risk and wealth tied up in the operational business.
On the other hand, after exiting the business, she said some former owners may be keen on large private equity allocations, including co-investments, as they’re comfortable with the risks and have seen first-hand the returns such businesses can generate.
The family office advisor’s role as integrator goes beyond the portfolio. There’s a whole ecosystem of providers – from accountants, insurance providers and trust and estate lawyers to household staff and private aviation crews – that advisors should be co-ordinating, Mr. Zeuner said.
Whether the family is making decisions about investments, taxes, governance or wealth transfers, the family office’s role is to help them make decisions with confidence, he said.
The key to doing that, Mr. McCullough said, is helping families discover their needs.
“One of the questions we have asked over the years is, ‘What are the best three things you’ve done for yourself and your family in the past 12 months?’” he said.
“And then we wait an uncomfortably long period of time until each [member] answers that question.”
The answer is always something personal or family-oriented, he said.
“Then, we would ask: ‘How do you want to answer that question 12 months from now?’”
– Mark Burgess, Globe Advisor assistant editor
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