How to set up a Private Wealth & Family Office Practice in 9 steps!

By Ayoob Rawat & Kabir Rawat

Setting up a private wealth and/or family office practice can be challenging,

It requires a deep profound interest and dedication to ongoing learning in an increasingly complex (data) world and really putting the interests of your clients before anything else.

However, setting up a practice or indeed just working (in a job) in wealth service can also be incredibly rewarding and satisfying.

Having practiced in the field of private banking, financial, wealth management and accounting for over 30 years, we set up our firm in 2001.

Initially, it was a standard accounting practice providing consulting and data management solutions to private banks, trusts, funds, and others.

After a few months, we acquired our first major private client! who was an ultra-high net worth owner of a private bank who wanted us to set up a control-driven (not investment) single-family office?

Afterwards, we grew and understood what the family office world was all about and how the wealth management and private banking sectors impacted the economy and families around the world.

The Private Wealth & Family Office Association has now developed into a professional body that supports & encourages professionals to explore and add to their professional expertise, a sector that many banks and large organizations exploit.

It has to be the professionals of this world that protect end clients!

This article will disclose the 9 steps (or decisions) that we took to create a fiduciary multi-family office safeguarding assets of over $20 billion.  

Step 1. Decide What Type of Family Office You Wish To Become

There are three primary considerations here, which are:

1. Financial or Non-Financial.
2. Investment v Non-Investment or CFO v CIO
3. The Single or Multi-Family Office.

1. Financial or Non-Financial:

As the name suggests, a family office is an office for a family and deals principally with the private wealth of an individual or their family.

According to History, the royal and noble community were the first who could afford a "butler"; they trusted them to take care of private affairs and, ultimately, the family wealth.

In the 19th century, wealthy families like J.P Morgan and the Rockefellers set up their family offices.

As private wealth grew, more excellent professional assistance was required, and hence the costs associated with running these offices increased.

Moreover, as new wealth was created and distributed, the model started taking different forms; household duties (Conciergerie privee) began to split from wealth management.

While nothing prevents you from providing financial and non-financial, the critical point is expertise; a value that a family office should look to provide. Hence delivering both services may inadvertently weaken your brand.

Over time, the emphasis has moved from non-financial (butler or concierge service) to financial; many family offices outsource a wide range of non-financial benefits to specialist firms, often called Lifestyle Companies.

Some Of These Services Include:

• Concierge Services
• Relocation
• Home and personal security
• Finding domestic staff (nannies, chefs, chauffeurs, private tutors, and other household staff) for the client as per their request.
• Management of household employees
• Travel arrangements: Ticketing: events, clubs, and societies
• International Services
• Private event organization (weddings, celebrations, birthday parties, etc.)
• Schooling – supporting children
• Private Secretarial

2. Decide What Model Of Family Office You Would Prefer To Run? (Investment V Non-Investment or CFO V CIO).

Would you like to work with figures and financial data? Maybe they are not just your thing. If you do, then quite possibly the most important (and critical) decision to make is whether you would like to give investment advice or not.

Your decision will have a lot to do with your experience and qualifications and will be linked to regulations, approvals, designations, locations, and relevant licenses.

Providing investment advice can be tremendously rewarding; however, we believe that it goes against ensuring the end clients' needs and wealth are put first.

Investment advisers receive commissions or fees based on the assets under management; hence, it is a race to increase assets under management (AUM).

This race for AUM to sell more products is completely alien to providing the best services and goes against everything private wealth (and private banking) is about.

We underline that investment advice is a professional discipline that all family offices should at least understand. However, it should not define the family office!

Through the Swiss based family office practice, a new professional occupation (known as a Private Wealth & Family Office (PWFO) Practitioner) was introduced and developed.

A Private Wealth & Family Office (PWFO) Practitioner is a fiduciary professional who provides, among other services:

• Independent holistic wealth checks (a bit like a health check)).
• Recording, controlling, and monitoring services.
• Data management and data custodian duties.
• Due diligence on investment managers, investment products, and other service providers.
• Monitoring costs and performance as negotiated in the agreed mandate. (e.g., Service providers can be obliged to get their "costs" and "risk-return performance" certified by the client PWFO practitioner).
• Risk/return performance analysis

Earning potential depends on whether you want to run a lifestyle business or a valued business. Appropriately structured, your earnings can be significantly improved.

3. Will You Be In A Single Or Multi-Family Office?

In most jurisdictions today (including Switzerland and the UK), you can call yourself a "Family Office" without any real qualifications. Many do!

The reason is that setting up an office for your family is just good family planning, a bit like a family budget.

Now, where it gets a little more complicated is when we start looking at what the family office does, your jurisdiction, and the definition of a family within the space. That leads us into the world of single v multi-family office.

The key consideration is whether you would provide services for one (maybe your own) family or more families.

For a single-family office, you need to be sure that there is enough work for you to do or enough value-added to the family's wealth for you to be paid.

Your bills are not going to pay themselves. If not, what additional or other services could you provide the single-family or maybe to other families or organizations (private banks, asset managers, wealth managers, etc.)?

To acquire multi-family office clients, ultimately, you would need to have a unique selling proposition, some form of value that you could provide to families that they would not be able to get from others ordinarily.

Like a fantastic deal such as the next Uber or Facebook or subscription to a software system that allows you to present information in a particular way, you can then offer access to other families.

The focus of the multi-family office should be to provide trusted, professional and independent services that are in the best interest of the family only, and hence providing multi-family office services should be a careful consideration.

As mentioned previously, our practice evolved from providing professional support to a single-family office into a non-investment (CFO-led) multi-family office, providing cutting-edge control and monitoring activities that our clients loved and paid us well.

A new professional occupation was developed known as a Private Wealth & Family Office (PWFO) Practitioner.

Step 2. Develop Your Business (Or Lifestyle) Model.

The business model canvas (Google Business Model Canvas – Strategyzer) is a great way to model your family office.

The business model canvas will give you a great visual representation to describe, connect and potentially test the key elements.

Step 3. Create Your Legal Structure.

There are various options (sole trader, partnership, limited liability partnership, association, trust, corporation, limited company, network, social media groups, etc.).

If you are a qualified professional; then it is likely that you are a member of a professional body. Hence, you would be required to comply with that body membership's standard guidelines and regulations.

That is likely to include data protection and anti-money laundering regulations. If it is a recognized body, then there should be no issues acquiring professional indemnity.

Step 4. Acquire Insurance & Indemnity.

You will be dealing with numbers and calculations and primarily representing positions, performance, and making projections; mistakes can likely happen.

Your key business cover will therefore be Professional indemnity covering professional advice.

Besides covering mistakes, you must consider claims such as professional negligence. If you have teams working for you, there can also be unintentional breaches of confidentiality clauses; even copyright documents may be misplaced.

Your insurance broker will guide you on the other cover you will need when in public practice:

Employer's liability, building insurance, equipment, loss of data, and public liability are some to think about.

Step 5. Add On To Your Existing Practice:

You may already be involved with a Law Practice, an Accounting Practice, or an Independent Asset Manager:

It is likely that you already know all the things you have to put in place to set up in business.

Your key decision is whether it is integrated as just an additional service or intends to develop it as a business in its own right with its specific business plan.

Whichever way you choose, you must plan how the business will grow to succeed.

Step 6. Differentiate Your Firm—[Branding].

You need to carve out a niche and create a unique selling proposition, particularly for your selected niche.

There is no right or wrong way.

When we started many years ago, we were fortunate to be in a community with connections with private bankers. So we focused on providing services to the Ultra High Net Worth because we had access and had developed a reputation in that sector.

It could have been the affluent, entrepreneurs, or SME owners. Our specialities were costs, control, aggregation, and data, and the range of services is vast. What's your speciality?

Step 7. Get The Right Software Solution

There are many benefits to using a turnkey software solution. Applying and using software will give you the developers' experience, and that's because these people haven't sat in a garage and just developed something and say, "Maybe a family office, investment manager, or HNWI will find it useful."

No, they have spoken to independent advisors, end clients, banks, and family offices. They would have developed the systems to make the whole data collection process very simple, complimented with some cosmetically reporting packs.

Therefore, you do not need to re-invent the new software, even if you are a programmer. The already made software is easier to use.

Step 8. Invest In Marketing

One of the advantages of practicing as a family office (particularly a Private Wealth & Family Office Practitioner (PWFO) (as described above)) is that clients are acquired for life and across generations.

However, the problem is the time to sign up clients usually takes a lot of time because trust-building takes time. You will spend long hours, meetings, discussion, making presentations for which you will not earn anything apart from maybe your travel and hotel stay. Therefore, marketing to your current network could save you all of these stresses.

A client gained will lead to others following as long as you demonstrate your profession with confidence. The range of services that clients will ask for will also be valuable for you and your firm.

Setting up your Family Office is not a short-term assignment. The challenges are significant, but the rewards are enormous and could secure reliable financial security for you and your firm.

Step 9. Get A Salesperson.

This is different from the marketing (or branding) activity. The salesperson is responsible for getting you appointments, finding sales opportunities, closing sales. And have always been a great help to businesses all across the world.

Conclusion:

The most important thing to remember when setting up or working in private wealth or a family office is to always put the needs of the family (or individual) first.

Remember, your competitors will try to discredit you. They will use all kinds of techniques from entertaining clients in plush offices to providing what they call the most sophisticated products and services that really only they can do!! This is not true and you must persevere because the client will need you.