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Re-defining the Family Office

Look to the West Coast for innovation in the family office space.

By Austin Philbin

The concept of a family office is a trending topic in the wealth management field today. Many financial advisors describe their practice as a family office—a centralized hub of solutions across the entire client-need spectrum from tax planning to investment management. As with most wealth management institutions, the confluence of technology, source of wealth, and general client preference have had a dramatic impact upon the expression of this structure in today’s world.

The traditional brick and mortar offices, filled with professionals dedicated to a single family, have transformed into a tech-enabled organism able to draw upon various tools dedicated to performing specific functions in a more efficient manner than in the past.

From a geographic perspective, the West Coast is an area in the United States that is experiencing a tremendous amount of wealth creation, and as a by-product is at the forefront of innovation.

Historically, the family office was structured to reflect the specific needs of each ultra-high-net-worth family. Given the complexities of the tax code in the United States and the limited ability to shelter wealth (due to the legacy federal estate tax system), individuals with tax, legal, or both degrees were often chosen to lead the efforts of the family office. In addition, information and access to resources were not as prevalent as they are today. Technology and shifts in funding mechanisms for privately held companies have altered the importance of certain personnel.

What remains the same for the family office of today and the UHNW clients that provide the capital to fund them is the desire to work with professionals they trust. Studies indicate that trust and communication are critically important to the UHNW client. Once a trusted advisor is identified, UHNW clients look for an advisor that will help them utilize their wealth to pursue their objectives. These may look very similar to other client types—to care for their family, to preserve and prudently growth their wealth, to enjoy their life, and to provide for others. 

The major shift and specifically the West Coast-specific tilt centers around communication and deliverables. For example, typically younger constituents of a family office want to “visit” with their assets 24/7 using a variety of devices—from a mobile phone to a tablet. They also want to have the ability to aggregate all of their assets on a regularly updated balance sheet and/or performance report. 

David La Placa, CEO of Intellectus, a registered investment advisor in San Francisco that caters to individuals in the tech space, explains the impact of innovation on the family office: “Technology is simply applied intelligence. By its very nature, it is adopted by those that are younger (i.e., millennials and Generation Z) because they tend to be more open-minded. They are the risk takers. They are the ones with fewer habitual behaviors, and they are the ones interacting with a more diverse circle of people. So, tech adoption grows from the ground up in that manner. Wall Street is getting older not younger and thus, their speed to innovation is failing. However, it is the world of RIAs that is innovating, taking risks (as evidenced by leaving the big banks) and is generally more focused on serving the true needs of their clients. All of this means that innovation and deployment of new technologies happens and always will happen faster and more broadly within an RIA structure.”

Age demographics are also changing. The U.S. lumber barons and railroad tycoons have been replaced by the 20-something programmers, who design applications to disrupt dated business models. Younger individuals grew up in a period in which massive amounts of wealth was dissipated due to the financial crisis. Much of that blame (rightly or wrongly) was placed on Wall Street. These individuals have been educated, entertained and trained using some sort of technology. 

Matt Celenza, who runs Boulevard Family Wealth in Beverly Hills, explains the changes to the family office space in the following way: “Being a true family office advisor means that this not a hobby but a practice. You can’t have a few UHNW clients where you act in this capacity, then many retail accounts simply to drive revenue. The network of similar clients across your business shows your dedication to this model and also acts as a platform for all clients to take advantage of everyone’s structures. Seeing who does what offers real ‘best practice.’”

For the advisor hoping to service this space, there will be the need to combine the elements of trust and competence with the innovations that occur each and every day. It will become more challenging if the advisor doesn’t have the ability to modulate their deliverables with a relatively high level of frequency.  

Austin Philbin is director of the western division at Dynasty Financial Partners.

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