New standards for multi-family offices

Thomas Coyle

7 September 2005

Family Wealth Alliance wants to get wealth managers talking. Family Wealth Alliance, an Oak Brook, Ill.-based consultancy to high-net-worth families, has come out with a set of criteria for assessing multi-family offices. Though created to provide a framework for performing due diligence on behalf of its clients, Family Wealth Alliance says it published its multi-family office "standards" in a deliberate bid to spark debate among wealth professionals.

"We developed the standards with our advisory council to help us benchmark strategic alternatives for families," says Family Wealth Alliance CEO Thomas Livergood. "But after we'd done the work, we decided to share them there are no standards for out there - and almost every other industry and profession has standards in place."

The criteria delineate four standards covering the type of clients multi-family offices serve, the services they offer, their methods of service delivery, and their origins and qualifications.

Core values

Some of the points are straightforward. A multi-family office should, for example, "demonstrate a client-centered philosophy for mission and purpose" - surely a given for any firm that hopes to serve as primary advisor to ultra-high-net-worth families. The points about providing "full transparency and disclosure for all services, activities and arrangements with vendors and intermediaries" and customizing "services to fit clients needs" might be stretch financial advisors on product-oriented retail platforms, but among high-end wealth managers that kind of clarity and flexibility is supposed to par for the course.

Other criteria have more potential for controversy. A multi-family office is supposed to have at least "10 distinct, unrelated client family relationships to whom family-office services are delivered," according to the Family Wealth Alliance. And it must have "responsibility for investment advice for total assets of not less than $500 million."

But 17 of the 69 firms that made it into Bloomberg Wealth Manager magazine's 2005 report on multi-family offices had less than $500 million in assets under advisory at the end of 2004 - and the Family Wealth Alliance's Livergood helps Bloomberg evaluate those firms in his role as CEO of Family Wealth Management, a consultancy to firms targeting the high-net-worth marketplace. . It's not hard to imagine that some firms with less than $500 million in assets under advisory - and some with more than that - are also serving fewer than 10 unrelated families.

Such anomalies are inevitable, says Susan Colpitts, executive v.p. of Signature Financial, a Norfolk, Va.-based multi-family office and a member of the Family Wealth Alliance's advisory council. "The firms that helped develop these standards don't even meet all the points we included," she says. But that, she adds, does nothing to diminish the standards. "It's more about the values we bring to the table," she says. "And in getting down in writing the values that we share with a number of - mainly objectivity and loyalty to our clients' interests - helps us explain what it is we do."

Eight flavors

In any case, says Livergood, the standards will change over time. "We set standards for our own internal purposes," he says. "Now they're for others to debate."

Livergood adds that multi-family offices aren't in his view the end-all and be-all in wealth management. In fact, he says, the multi-family office is just one of eight approaches to wealth management, which he designates as: Enhanced financial planner External chief investment office Virtual family office Multi-family office Private trust company External family office Closed family office Single-family office

"It's not a bad thing that qualify as a multi-family office in our view," says Livergood. "One family may need a multi-family office, another may need a closed family office, another may need a single-family office. It's all about best fit." -FWR

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