Since the first half of the last century, the preferred model for ultra-wealthy investors to manage their financial lives has been the “family office”—a dedicated, multi-disciplinary team of specialists that deliver expertise in investment management, financial planning, estate planning, tax advice, law services and even business consulting to develop and implement a cohesive, focused financial strategy for clients and their heirs.
But while the family office space has remained relatively static in focusing only on the very highest echelons of our society, significant new wealth creation since the 1990s has spawned a comparatively new class of “overlooked millionaires” with $2 million to $20 million in net worth.
The Overlooked Millionaires, And What They Need
This segment of wealth holders has struggled to find a wealth advisory model that truly works for them. Although their planning needs are more complex than what mass affluent-focused advisory businesses can handle, these overlooked millionaires continue to fly under the radar of large Wall Street firms and traditional private family offices.
This translates into a potentially enormous opportunity for advisors who can offer a scalable version of the traditional ultra-wealthy family office model—or, as I like to call it, the “democratized” family office.
While this may seem daunting, focusing on certain key initial building blocks of the democratized family office model can significantly accelerate the ability of advisors to deliver such an experience to their clients.
Assemble A Dream Team
Many overlooked millionaires are business owners, or hold illiquid assets such as commercial real estate, farmland or timberland that have a significant bearing on their financial picture. Put simply, an advisor who can only provide guidance on traditional portfolios will not be able to serve such clients capably.
That’s why it’s necessary to assemble an in-house team of professionals that specifically has experience dealing with non-traditional asset classes, and appreciates how to incorporate them into a client’s broader financial plan.
If a business owner’s company is his or her primary growth asset, for example, such a team will be able to identify smart ways for the client to reduce investment portfolio risk, or risk in other areas of the client’s personal financial picture. The goal here would be to ensure that clients aren’t facing a potential “double bottom line” of risk—with both their business as well as their portfolio—that hasn’t been fully recognized and carefully considered up front.
Along these same lines, advisors’ teams should also offer complementary skill sets—for example, integrating comprehensive financial planning specialists with sophisticated portfolio management professionals.
Perhaps most importantly, adding in-house business consulting specialists can offer significant value for business owner clients. Being able to provide a seamless level of advice to such clients on how to best think through their business financial plans—and align them with personal financial and legacy planning goals—is front and center to success in serving many overlooked millionaires.
Don’t Internalize Every Role—Be ‘Coordinator-In-Chief’
Of course, advisors seeking to serve the overlooked millionaire segment also need to recognize that there are a number of roles that don’t need to be—or shouldn’t be—brought on board as in-house staff members.
CPAs or tax advisors, estate attorneys, corporate attorneys and private bankers all potentially fall into this category. The costs for bringing such professionals into an advisor’s in-house team are generally high, which immediately reduces the advisor’s ability to target the bottom quartiles of the high-net-worth segment on a cost-effective basis. At the same time, each of these roles fill an important part of the checks and balances that ideally prevent certain conflicts from happening.
The solution for advisors committed to the democratized family office model, therefore is to become a “coordinator-in-chief,” who can interface with these various professionals on a seamless basis, while remaining separate businesses.
One central practice in making this work is to share a copy of each client’s full financial plan with every member of the extended team, and make sure that they receive an updated copy and briefing each time the plan is modified.
Additionally, advisors should anticipate and provide the information each team member will need any time a significant financial event happens in the client’s life, or when the client passes certain milestones.
In working with estate planning attorneys, for example, advisors should make sure each client’s estate plan is reviewed every five years, and should update the attorney if the client purchases real estate and titles it differently or expands his or her company in new directions.
Shift Your Perspective
Once the right team is assembled, running a successful democratized family office means shifting the gauge of an advisor’s value away from myopic measures like performance, conventional “share of wallet” concepts or even the frequency of their client contacts.
Instead, advisors should be consistently asking themselves, “Have I done everything I can today to get my clients closer to their goals?” This broader perspective can help advisors identify potential pitfalls such as unexpected impacts from changing tax laws; gaps in insurance coverage that could arise under various “what if” scenarios; or even unforeseen factors that could impact the valuation of a client’s business.
This shift in an advisor’s mentality should extend to the next generation of the client’s family, as well. For example, if a client hopes to turn his or her business over to the children when they reach adulthood, what should the advisor do to not only facilitate that transition, but to help the children prepare to run the business?
The Democratized Family Office Model’s Future
Put simply, the traditional family office and Wall Street institutions space hasn’t kept up with the burgeoning segments of comparatively new wealth holders and other overlooked millionaires across the country.
By building the right teams, cultivating the ability to seamlessly interface with appropriate specialists and shifting their perspective, financial advisors can become part of a democratized family office movement, based on the delivery of a service experience that can forge lasting client relationships that span many decades to come.
Greg Powell is president and CEO of Fi Plan Partners, a wealth management and financial planning firm based in Birmingham, Ala.
