The Biggest Family Offices

Here is an interesting article on the largest family offices globally. Are one of these your family office? I often wonder how these groups can effectively and efficiently service their clients. Let's have a look at some aspects of their services. I am only going to look at the top five. It's likely that the others will pretty much offer the same services:

1. HSBC Private Wealth Solutions - here is the HSBC Private Banking service offering. As you can see, there is no mention of the backoffice function. It's a little hard to understand who is doing the actual financial reporting for their clients. There seems to be no mention of that here;

2. Northern Trust - the company provides a host of services directly and indirrectly to high net worth individuals and family offices. Further details are provided in this "portrait of a family office" where there is some discussion around the "back office". The reasons they offer for utilizing their service platform supports the contention that this needs to be unbundled-complexity;

3. Citi Private Bank - there is little mention of the private bank services here. I guess that they would prefer that you contact them directly to find out exactly what they will do for you;

4. Bessemer Trust - there is no mention here of the backoffice. I guess that the presumption is that it's taken care of elsewhere. As is often the case, the focus is on asset management. Understandably so as that is where they earn their fees;

5. BNY Mellon - very little discussion of what the family office platform provides or the individuals involved. It would seem that BNY Mellon is pretty successful at this with a very modest online presence.

It's interesting to note that there are compelling reasons to look beyond the wealth management services offered by the five largest firms when it comes to the back office.

The needs of ultra high net worth families or individuals are complex. This in and of itself stems from the complexity of the activities that they are involved in. Investments often have complicated structures (partnerships, joint ventures, holding companies),that create both bookkeeping and accounting challanges. In addition, there is a great need for an integrated financial and management reporting systems.

This would also provide the opportunity for integrated asset management (aircraft, boats, multiple residences) to ensure that assets do not go astray but their exclusion in the accounting books and records).

Major expenses need to be properly documents and properly recorded. Appropriate subledgers created. Reconciliations done regularly. Physical counts and inspection of assets on an annual basis. All of these procedures are designed for each individual situation. One size does not fit all.

The goal is to avoid the use of many different types of software and excel spreadsheets. Although insome instances this cannot be avoided, the accounting system should be within the domain of one provider who is separate and apart from all the asset managers and other service providers. There are a number of compelling reasons for this but most important is any embedded conflict of interest.

Accounting is an art and not a science. Generally accepted accounting principles offer the opportunity based on the use of professional judgment to record transactions in a number of different ways. The advisors should avoid being involved is this potential conflict of interest that can occur even when it comes to day to day transactions. Decisions are regularly made on how to record even the simplest transactions. That's why internal accountants need to be independent.

You need to include someone in the team that has an independent position and whose interests are aligned with the client when it comes to record keeping. Much like the relationship you would expect your accounting firm to have with your advisor, the record keeping should be integrated, all inclusive and outside any potential conflicts of interest. The value added and costs should be transparent and not rolled into one fee. Unbundling may arguably cost a bit more, but it's well worth it when millions are potentially involved. Independent in appearance and independent in fact.

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