Increasingly over the last decade (and probably longer) the distinction between banks (including private banks), and
trust companies on the one hand, and family offices, on the other hand, is becoming blurred. As far back as 2002, Sara Hamilton, CEO of the Family Office Exchange, wrote: “The Multi-family Office model is rapidly becoming the most sought-after platform for serving the ultra-affluent. . . . Today [i.e., 2002] more than 50 organizations claim to offer interdisciplinary wealth advisory services through an MFO platform.” (“The Multi-Family Office Mania” Sara Hamilton, 2002)

Bessemer Trust is one such example:
The bank’s web site tells prospective UHNW clients that they are capable of “enhancing private wealth for generations” and offers them “The experience to meet your family’s complex needs—”

“We help you develop an integrated long-term wealth plan that considers multiple aspects of your life.”
[This includes:] “Developing Developing an Investment Plan; Defining Your Legacy; Preparing the Next Generation; Engaging in Philanthropy; Managing a Family Business; Uncovering Tax-Planning Opportunities; Owning Property; Structuring and Protecting Assets; Analyzing Concentrated Holdings;Accessing Hedge Funds & Private Equity.”

I do not think it is going too far to say that the family-office model has been coopted by these large institutions.

What is going on here? According to recent article in Bloomberg TV, “‘It was fairly demonstrably clear that there was a very significant problem of alignment of interests by private banks and their founders,’ said the 47-year-old founder of Vulpes Investment Management, whose Singapore-based family office has invested in hotels in Japan and farms in Uruguay. ‘They ceased to be custodians of people’s money and are becoming salesmen.’” (Bloomberg TV, September 22, 2011)

If this concern is warranted, then the growing trend of banks and other types of financial institutions advertising themselves as capable and trustworthy managers of UHNW family wealth is a worrisome trend. Even in North America, some well-known banks and trust companies now have family-office types of management services: Bessemer Trust, the Wells Fargo Private Bank, Northern Trust, RBC (Canada), just to name a few.

It also appears that some smaller institutions are getting in on the act—in one case, in a manner that appears misleading. The “Wilmington Family Office” in Wilmington, Delaware is a unit of the Wilmington Trust, which is owned by the M & T Bank in Wilmington. It has the feel of a set of Chinese boxes. (By the way, I found this institution by chance when I googled two groups of words: inherited wealth and family offices.)

There appear to be a number of intersecting issues here. I do not have the experience or the time to explore these issues in depth, but anyone who is “ultra-affluent” and who is considering signing on with a “family office” managed by a bank or a trust company would be well-served by keeping these questions in mind as they make their plans.

What is the size of the financial institution that is offering family-office services? How many employees are working in their “family office” division? How would you know for how long those who are assigned to look after your family’s interests will remain in their current roles?

What is the complexity of the functions they offer? Take another look at the list of functions that Bessemer names, for example. How much overlapping of functions (or services) is there with other institutions or other professionals, such as tax planners, investment managers, attorneys, et cetera?

Other than fees for services provided, will the institution profit on the financial advice they give to your family?

Most important of all, I believe, where is their loyalty? How can the bank or trust company demonstrate its loyalty to you, the UHNW family? How can you determine to what extent you can trust them with your wealth? Is there any potential conflict of interest? These bank (or trust company) officers (and other staff) work for their institution, not for you, unlike the family-office model. This single fact is too important to forget.

This is Part Five of a series by The Inheritance Project about the role of a variety of institutions and other organizations created to serve the financial—and sometimes also social—needs of UHNW (Ultra-high net worth) individuals and families. I thought a quick review would be useful: Part 1 was an introduction; Part 2 was devoted to banks, private banks, and trust companies; Part 3 describes the role of family offices; and Part 4 is about multi-family offices.

Part Five—networking groups—is related to family offices and multi-family offices but with the distinction that these groups groups do not manage money or give any financial advice. Joseph Reilly, founder and president of one such group, the Family Office Association (FOA), describes networking groups like this:

“UHNW (ultra-high-net-worth) networking groups began as a way of getting families together to share ideas and strategies for managing private wealth. At a certain point [i.e., a certain level of wealth], the managing of personal or family wealth becomes very complicated, and the need to keep your life private makes it very difficult to find peers to discuss these issues. Groups like the Family Office Association are helpful in providing a safe place to meet other families and family-office executives, while also hearing the best speakers and thought leaders talk about hedge funds, family governance issues, and philanthropic issues.”

Needless to say, membership in these groups and as their meetings is totally confidential. Each networking group has its own particular style and flavor. Some are truly global in scope (FOA, for example); others are—at least so far—just North American. For example, Tiger 21 is a U.S.-based organization founded in 1991, with offices in 5 cities, which is now interested in forming groups in Canada’s largest cities. Tiger 21 describes itself as a “premier peer-to-peer learning group for high-net-worth investors. . . . Members meet monthly to harness the varied expertise and collective intelligence of their peers in high-energy, day-long sessions.”

The Institute for Private Investors, (IPI) also founded in 1991, is another networking group which, like Tiger 21, describes itself as a “discreet peer-to-peer networking [group], … a safe harbor for families with substantial wealth to learn from each other and leading experts while fostering lifelong relationships with like-minded peers.”

Still another is the CCC Alliance, described as “a group of successful families and individuals that collaborate regularly on wealth management and family office matters.” CCC Alliance, founded in 1995, holds quarterly meetings.

Despite my attempts to describe the role and activities of family offices, multi-family offices, and networking groups, I have found the fruit of my efforts fairly unsatisfying. My apologies for the dryness of these last few blog posts. I feel like I am standing outside an opaque window with my nose pressed against the glass; my curiosity remains unsatisfied. Nevertheless, I think it is useful even to have a somewhat vague idea of the existence of these organizations, to which the 99 % (myself included) will always remain outsiders.

The last blog post in this series will consist of a few final comments.