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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. . .”


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    1. “WHEN YOU’VE SEEN ONE FAMILY OFFICE. . .” WSU ACCOUNTING & AUDITING CONFERENCE MAY 19-20, 2014 David Krauss, Managing Director Commerce Family Office

    2. “YOU’VE SEEN ONEFAMILY OFFICE.”

    3. WEALTH MAP Who are the “High Net Worth Individuals?”

    4. 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)

    5. THE UNITED STATES WEALTH MAP Total US UHNW Population 65,500 Source: Wealth-X Report (2013)

    6. 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)

    7. 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)

    8. WHAT IS THE ONE THING THAT WE KNOW ABOUT ALL OF THESE AFFLUENT INDIVIDUALS?

    9. CHALLENGES OF SIGNIFICANT FAMILY WEALTH 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

    10. WHAT HAS EVOLVED FROM THE “CHAOS OF FINANCIAL SUCCESS?” The Family Wants…

    11. CONCEPT OF 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

    12. CONCEPT OF 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

    13. FAMILY OFFICE MODELS

    14. FAMILY OFFICE MODELS 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

    15. FAMILY OFFICE SERVICES Family offices generally provide the following broad category of services:

    16. FAMILY WEALTH STEWARDSHIP • Long-term objectives • Family mission statement • Family governance • Family wealth education • Philanthropic planning • Family business consulting • Succession planning • Family communication • Information dissemination • Family meetings

    17. RISK MANAGEMENT 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

    18. FAMILY CFO • 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

    19. INVESTMENTS • 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

    20. WHAT DIFFERENTIATES THE FAMILY OFFICE FROM “REGULAR” PRIVATE CLIENT SERVICES?

    21. BENCHMARKS OF FAMILY OFFICE SERVICES

    22. FAMILY OFFICE STAFFING Team Lineup

    23. FAMILY OFFICE STAFFING Team Lineup

    24. FAMILY OFFICE STAFFING • Ideal combination of technical skills & soft side personality • Career path • Succession planning • Transition • Personality • Technical • Language • Detail Challenges Skills

    25. COSTS OF OPERATING A FAMILY OFFICE

    26. COMPONENTS OF COSTS • 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

    27. PRICING OF A FAMILY OFFICE

    28. PRICING MODELS

    29. BEST PRACTICES

    30. HOW CAN A FAMILY OFFICE DISTINGUISH ITSELF? • 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