Recently, I had a potential client that was frustrated with their financial situation. They had a financial advisor for their stock and bond investments, a CPA doing their bookkeeping for their business, an attorney handling their estate planning, wills and trusts, and an insurance agent doing their life insurance.
In large part, their frustration was trying to coordinate with these parties and get them all on the same page to formulate a cohesive plan that takes care of their needs today, tomorrow, and for future generations.
There are financial companies that claim to be a one-stop shop and can consolidate the financial planning process. After doing some research, what I found was that the family office concept has been around for 100 to 200 years in the United States. Originally, the concept of a family office was developed for the ultra-wealthy, like the Carnegies, Rockefellers, and so on.
But the success of the stock market, the economy, and real estate over the last 34 years has created more multi-millionaires than ever. The challenge for many of these successful businessmen and women is that they have been extremely successful at building their businesses but lack the expertise in diversifying their portfolios and expanding into separate wealth creation and wealth preservation vehicles.
The traditional stockbroker/client relationship for the wealthy was somewhat successful in the 1980s through the early 2000s. However, the management and maintenance of wealth has become more and more complex over the last decade. Significant income tax and estate tax changes along with market and economic challenges have left DIY families shaking their heads. “How do I continue to run or oversee my business and manage my family’s money?” Unfortunately, there isn’t an easy answer, since most family offices require clients to have a net worth of $20 million or higher. And most of us do not fall into that category.
Today, there is a rapidly growing number of families with a net worth between $2 and $20 million who are looking for the one-stop shop or family office option.
I recently heard an interesting statistic that stated 85% of wealthy families lose their fortunes by the third generation. The reason behind this loss of wealth? Families fail to communicate and can’t/don’t make decisions.
The family office is designed to bridge the gap for families — to help families maintain what they’ve have built, conservatively grow assets, use those assets in retirement, and pass the wealth on to future generations in the most tax efficient manner possible.
A comprehensive team that can work together, strategize, and implement wealth creation and preservation is critical for the $2 to $20 million-net-worth family. However, traditional family offices only cater to the $20 million+ family, thus leaving the wealthy yet not ultra-wealthy clients scrambling to find the same service and get the same results. A strategy that includes tax, estate, and retirement planning takes a concerted effort on all parts to make it work. Traditional brokerage firm models have attempted to tackle this market, but many clients are dissatisfied with the service and are focusing on a wealth creation approach, neglecting everything else.
The high-net-worth family is searching for someone with answers — someone who can provide help with complex financial issues like tax efficiency, retirement income, and estate planning. This is what families want and need: a true team that focuses on the client’s overall picture. The traditional stockbroker is becoming a dinosaur. The future of wealth management for high-net-worth families will consist of family offices that work together to formulate strategies that solve the complicated financial issues.
Insurance products offered through Licensed Insurance Professional Matt Redding Sr. License #1434801.
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