Our approach to managing your financial affairs is similar to that used by the ultra-wealthy, such as the Rockefellers and Vanderbilts. They use what is referred to as a family office approach, which goes far beyond typical wealth management. A traditional family office is a business that is wholly owned by a wealthy family and whose sole purpose is to administer and coordinate the financial affairs of that family. We seek to accomplish the same results as a traditional family office. But whereas their services are rendered in-house, we outsource most of our services. As a result of our outsourcing, our services become economical for families or individuals with a net worth that would normally not qualify them for family office services. The illustration below reflects the levels of sophistication in differing approaches to managing wealth.
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Most investors pick their investments themselves. This approach requires a lot of time and tends to generate stress and sleepless nights. The average investor significantly underperforms the major market indexes.
A typical financial planner prepares a financial plan and charges a fee for such a plan. Once the plan is presented, the client is usually on his or her own in trying to implement the plan.
A broker may make recommendations, but primarily implements the directions of the investor, and gets compensated through trading commissions. There is an inherent conflict of interest--the more activity there is in the account, the higher the broker’s compensation.
Unlike a broker, a money manager is not compensated through commissions, but through a fee based on assets under management. This approach removes the concern for a conflict of interest. A typical money manager focuses on investing in a specific asset class, such as stocks or bonds.
An investment advisor will allocate a client's investments across several different money managers. This approach provides a significant benefit to the client by removing the concern of having the entire portfolio with one manager. However, the investments are still generally limited to a traditional approach of stocks and bonds. Although this incurs another layer of fees to the client, the peace of mind that comes with diversification of managers is generally well worth the additional fee.
A wealth manager’s approach is more comprehensive than that of a typical investment advisor. The investment portfolio will be managed similarly to the investment advisor, but the wealth manager will also coordinate the non-investment aspects of a client’s financial affairs. The wealth manager will interface with other professional advisors, such as CPAs, attorneys, investment specialists, bankers etc.
The services of a family office are much more comprehensive than typical wealth management. The income and estate tax strategies as well as the creative use of insurance instruments are often times more sophisticated. In addition, the investment portfolio is significantly more sophisticated and diversified. Access to private investments not generally available to the public are typical for family offices. The traditional family office focuses its services on one ultra-wealthy family or individual and handles all financial affairs in-house through experienced professionals like attorneys and CPAs. This approach is generally reserved for individuals with a net worth in excess of several hundred million dollars. By outsourcing such services, a family office approach can be delivered economically to families or individuals with a net worth that would otherwise not qualify them for such services. Because a typical family office is independent and not affiliated with a wirehouse, it is able to minimize conflicts of interest.