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“WHEN YOU’VE SEEN ONE FAMILY OFFICE. . .”. WSU ACCOUNTING & AUDITING CONFERENCE MAY 19-20, 2014. David Krauss, Managing Director Commerce Family Office. “YOU’VE SEEN ONE FAMILY OFFICE.”. WEALTH MAP. Who are the “High Net Worth Individuals?”. WHERE ARE THE ULTRA HIGH NET WORTH INDIVIDUALS?.

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When you ve seen one family office

“WHEN YOU’VE SEEN ONE FAMILY OFFICE. . .”

WSU ACCOUNTING & AUDITING CONFERENCE

MAY 19-20, 2014

David Krauss, Managing Director

Commerce Family Office


You ve seen one family office

“YOU’VE SEEN ONEFAMILY OFFICE.”


Wealth map
WEALTH MAP

Who are the “High Net Worth Individuals?”


Where are the ultra high net worth individuals
WHERE ARE THE ULTRA HIGH NET WORTH INDIVIDUALS?

167,000 UHNWIsper The Wealth Report (2014)

199,000 UHNWIsper Wealth-X/World Ultra Wealth Report (2013)


The united states wealth map
THE UNITED STATES WEALTH MAP

Total US UHNW Population 65,500

Source: Wealth-X Report (2013)


The united states wealth map1
THE UNITED STATES WEALTH MAP

California #1 (12,500)

NewYork #2 (8,900)

Texas #3 (6,300)

Florida #4 (4,200)

Oklahoma #23 (890)

Missouri #24 (800)

Kansas #25 (550)

Arkansas #26 (550)

Distribution of UHNWIs by State

Source: Wealth-X Report (2013)


The united states wealth map2
THE UNITED STATES WEALTH MAP

States such as Arkansas, Kansas and Texas are also well placed to benefit. “Arkansas is amassive beneficiary of the booming agribusiness and the return of manufacturing,” says Sr. Mamgren. “Nationwide, transport networks and the cheap energy/fracking story are going well.When people get priced out of major cities like New York and San Francisco, they move to cities like Kansas City and Houston. The middle of America is where the economic actionis now.” The number of UHNWIs in Houston, for example, is expected to rise by 57% by 2023, far outstripping the overall US growth rate of 21%.

Source: Wealth-X Report (2013)



Challenges of significant family wealth
CHALLENGES OF SIGNIFICANT FAMILY WEALTH AFFLUENT INDIVIDUALS?

ACCOUNTING, REPORTING

& COMPLIANCE 

LIFESTYLE

MANAGEMENT

Investment Planning & Analysis

MANAGEMENT OF ADMINISTRATIVE /

DAY-TO-DAY RESPONSIBILITIES

FAMILY

FAMILY GOVERNANCE

Family Communication

BUSINESS SUCCESSION

PHILANTHROPIC ACTIVITIES 

Family Trusts

Family Education

CONTINUITY OF

FAMILY LEGACY

SPECIAL PROJECTS


What has evolved from the chaos of financial success
WHAT HAS EVOLVED FROM THE “CHAOS OF FINANCIAL SUCCESS?” AFFLUENT INDIVIDUALS?

The Family Wants…


Concept of a family office
CONCEPT OF AFFLUENT INDIVIDUALS?A FAMILY OFFICE

An integrated and coordinated service delivery model:

  • Objective and personalized advice

  • Centralization of risk & other services

  • Support system for meeting the challenges faced in managing wealth and trust administration

  • Governance/Management infrastructure

  • Assistance in the accomplishment of long-term goals

  • Bifurcation of family vs. family business

  • Highly-sophisticated investment consulting

  • High investment returns

  • Collaboration among financial disciplines

  • A reliable resource to handle day-to-day demands


Concept of a family office1
CONCEPT OF AFFLUENT INDIVIDUALS?A FAMILY OFFICE

The advisor sees:

  • Relationship building with family

  • Revenue growth

  • Next generation relationships

  • Expanding the closely held business CFO role

  • Job opportunities

  • OVERALL OBJECTIVE:

  • To maximize opportunities for managing and growing wealth while preservingthe family’s legacy, values and continuity


Family office models
FAMILY OFFICE MODELS AFFLUENT INDIVIDUALS?


Family office models1
FAMILY OFFICE MODELS AFFLUENT INDIVIDUALS?

Either model requires decisions:

  • In-house v. outsourcing

    • Allocation/Diversification

    • Record retention

    • Philanthropy

    • Risk management

    • Financial controls vs. budgeting

    • Financial literacy

    • Business succession

    • Legacy planning

    • Everyday activities

  • Family involvement

  • Specialized activities

  • Experts


  • Family office services
    FAMILY OFFICE SERVICES AFFLUENT INDIVIDUALS?

    Family offices generally provide the following broad category of services:


    Family wealth stewardship
    FAMILY WEALTH STEWARDSHIP AFFLUENT INDIVIDUALS?

    • Long-term objectives

      • Family mission statement

  • Family governance

  • Family wealth education

  • Philanthropic planning

  • Family business consulting

    • Succession planning

  • Family communication

    • Information dissemination

    • Family meetings


  • Risk management
    RISK MANAGEMENT AFFLUENT INDIVIDUALS?

    Assessment and mitigation of risks aligned to key family objectives:

    • Life cycle events

    • Tax compliance

    • Estate and legacy planning

    • Life insurance review

    • Property and casualty insurance review

    • Executive benefits

    • Retirement planning


    Family cfo
    FAMILY CFO AFFLUENT INDIVIDUALS?

    • Family balance sheet and income statement

    • Cash flow planning

    • Income tax projections and preparation

    • Real and personal property management/oversight

    • Collaboration with all family advisors

    • Foundation management

    • Bill pay

    • Other daily services


    Investments
    INVESTMENTS AFFLUENT INDIVIDUALS?

    • Develop investment policy statement

    • Asset allocation advice

    • Investment consulting and manager selection

    • Investment management

    • Monitor advisor performance

    • Consolidated performance reporting

    IMPLEMENTING YOUR PORTFOLIO

    SETTING YOUR INVESTMENT POLICY



    Benchmarks of family office services
    BENCHMARKS OF FAMILY OFFICE SERVICES PRIVATE CLIENT SERVICES?


    Family office staffing
    FAMILY OFFICE STAFFING PRIVATE CLIENT SERVICES?

    Team Lineup


    Family office staffing1
    FAMILY OFFICE STAFFING PRIVATE CLIENT SERVICES?

    Team Lineup


    Family office staffing2
    FAMILY OFFICE STAFFING PRIVATE CLIENT SERVICES?

    • Ideal combination of technical skills & soft side personality

    • Career path

    • Succession planning

    • Transition

    • Personality

    • Technical

    • Language

    • Detail

    Challenges

    Skills


    Costs of operating a family office

    COSTS OF OPERATING A FAMILY OFFICE PRIVATE CLIENT SERVICES?


    Components of costs
    COMPONENTS OF COSTS PRIVATE CLIENT SERVICES?

    • Internal family office costs

      • Staff

      • Training

      • Technology

      • Operations

  • Outside advisors

    • Professional fees

    • Accounting

    • Compliance

  • Investment costs

    • Consulting

    • Research

    • Custody

    • Manager fees

  • Allocations of costs

    • Investment management

    • Internal office costs

    • External advisory costs

  • Staff compensation

    • Costs for highly-qualified professionals

  • Complexity drives costs

  • Communications

    • Client service agreement

    • Survey


  • Pricing of a family office

    PRICING OF A FAMILY OFFICE PRIVATE CLIENT SERVICES?


    Pricing models
    PRICING MODELS PRIVATE CLIENT SERVICES?


    Best practices

    BEST PRACTICES PRIVATE CLIENT SERVICES?


    How can a family office distinguish itself
    HOW CAN A FAMILY OFFICE DISTINGUISH ITSELF? PRIVATE CLIENT SERVICES?

    • Clearly-defined value proposition

    • Commitment to the long-term needs of the family

    • Confidentiality

    • Risk management oversight

    • Prudent growth rate

    • Ongoing assessment

    • Consistent/flexible pricing

    • Reliable referral partners

    • Knowledge of target market

    • Regular and timely communications

    • Good clients

    • Goals-based investing

    • Talent development

    • Technology upgrades


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