A former cottage industry is transforming into a well-oiled machine. Single-family offices are embracing proven best practices with outstanding results.
The explosive growth in extreme wealth is fueling the growth of single-family offices. Clients with a net worth of $500 million or more, as well as those with less affluence, are increasingly inclined to establish their own family offices.
A growing number of single-family offices and the ultra-wealthy clients served by them are providing the opportunity to identify proven best practices. “Verifiable best practices are in incredible high demand by the people running single-family offices and the wealthy families considering setting up their own family office," said Angelo Robles, founder and CEO of the Family Office Association and author of "Effective Family Office." "What’s important to recognize is that this interest is for proven best practices, not just what’s often referred to as acknowledged best practices.”
There are many "acknowledged best practices" in the world of single-family offices. For example, it is common sense to, when possible, integrate investment management and wealth planning to mitigate the tax drag on portfolio performances.
“The use of private placement life insurance, otherwise known as PPLI, is a very effective way to make certain investments much more tax efficient," said Peter Sasaki, managing member of SDS Family Office. “That’s why we’re seeing many more single-family offices embrace PPLI, especially since they can now easily designate the money manager. It also enables them to smartly include types of investments, such as private capital, that might not make tax-sense in a managed portfolio.”
While best practices have value, those responsible for the success of single-family offices are looking beyond these “truisms” and beyond benchmarking to verifiable mindsets, processes and methodologies that deliver differential and exceptional results. The ability to identify best practices is now possible because of the size of the single-family office universe.
“Today, best practices take a number of forms,” said Robles. “For example, behavioral best practices are essential for single-family offices to be maximally effective. These high-functioning single-family offices are regularly exceeding the expectations of the ultra-wealthy across the board, from providing superior investment results to significantly mitigating taxes to delivering various in demand administrative and lifestyle services.”
The following are examples of behavioral best practices:
• Results-driven goals and objectives: This usually takes the form of setting high expectations and ensuring accountability.
• Thoughtful decision-making: This refers to decision making that takes into account diverse priorities.
• Purposefully connecting: Finding the person, the information or the tools to get wealthy clients one step closer to the results they desire.
While only a relatively small segment of the single-family office universe is intently focusing on adopting proven best practices, the implementation of such practices is going to become the norm. This is part of the accelerating professionalization of the single-family office industry.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
