Welcome everyone and thank you for joining. Today's webinar. I'm David Shaw the publishing director for family business magazine and I'll be your host today for today's webinar. We're gonna be looking at the best practices for creating and running a single family office the family office concept provides structure around a family's wealth management and the business itself and there are a number of ways that you can use this approach to develop a yeah a family office that works for you. So we're gonna examine each of those ways today starting with a definition of the family office itself and then focusing on what families should consider well setting up an office. Will then examine the common needs families have and how these can be addressed through the family office. And finally we'll be looking at some key questions that a family should ask about family. Office so we'll be making time today during and after the webinar for your questions and comments. If you've joined us before you know that you ask a question button sits on the bottom of your screen under the video area where you see me, please use that and typing your questions and comments as they occur to you. We would really like to have this be as interactive as possible. We'll go for no more than 60 minutes today probably less and we'll get to as many of your questions as we can. And of course the slides you see will be emailed to you following the webinar a replay will be available as well. And I'd like to point your attention to the event resources tab, which is right under. Where the ask a question tab is there are two family office reports that you can download at your Genius. So to dive deeply in today, I am pleased to introduce our three speakers. I'll start with Valerie Valerie Wong Fountain is head of Morgan Stanley's signature access platform, which includes responsibility for single-family office advisory and lifestyle advisory. She personally leads the single family office advisory team which provides consultative services to clients who maintain or are considering establishing single-family offices Valerie also oversees lifestyle advisory which delivers an extensive range of specialized resources to address the unique needs and aspirations of ultra high net worth families. Mark Richmond is a managing director and private wealth advisor for Morgan Stanley private wealth management where he leads a team that provides investment and wealth planning services to ultra high net worth clients. Mark doing Morgan Stanley in 2012 from Deutsche Bank private wealth management where he was also a managing director. And last but not least Brian Bernard is senior vice president Morgan Stanley wealth management and provides Strategic investment advice and sophisticated financial planning services to alter High net worth families. He often works with his clients and their other trusted advisors to deliver family office resources, including estate plans focused on strategic asset placement wealth transfer philanthropic giving and tax mitigation strategies. So with that to start us off today, I'm going to turn the stage over to Mark Mark. Thank you, David. Thank you everybody for taking the time to join us today. And thank you to family business magazine for giving us this opportunity to spend some time with you. Last time. We hosted one of these discussions. We were joined by Glenn curlander and Andrea Sands from Morgan Stanley's Family Resource Center. We discussed the importance of developing a family structure to help the wealthy family better communicate as they grow involve together. We also discussed how to reflect and Implement these thoughts in your trust and estate plans. Today we'd like to continue this theme of identifying moments of Family transition and the questions that wealthy families should be asking themselves at these times. This afternoon, we'll discuss that moment when your family starts to talk about the needs to form a family office the questions, you should ask and the structures you can should consider as David said I'm being joined by my partner Brian Bernhardt and my Valerie Wong Town also from the family office Resource Center. Valerie's core expertise is the formation of the family office and how you can go about making your decision. You'll be our major speaker today. But Brian, let me give it to you. Okay. Thanks Mark and let me add my thanks to David and everybody a family business magazine for having us here with you today and everybody who's joining us this afternoon. As you heard Valerie's here with us. She's really the the person and the star of the show today. She she's the head of our single family office Advisory Group and Mark and I along with a lot of the other advisors really leverage her expertise on a regular basis to help us guide families that we work with as they're thinking about how best to create some structure around the wealth that they've built and that they've created As you're gonna hear today there really is no one model for a family office. I would even say that there's almost every different type of family office out there. They all have different goals different family Dynamics different needs and so on. However, there are many common questions and considerations and that's really what we're going to try to focus on for you today as part of the family office resources team Valerie not only advises family but families, but she also sources and publishes a number of studies and white papers and as David mentioned, I believe you'll have access to two of those studies on the portal that you're on today. We're also try to make them available to you directly after this webinar. The best practice is for single family offices is one and the other is the governance and compensation guide for single family offices. Both of which provide details many details on the costs of structuring family offices and a whole host of other questions that we're going to try to cover today. We'll get into a lot of the detail but really our focus is going to be on the key considerations and challenges that families face both at the outset when they're putting a family office together as Mark mentioned and even along that Continuum even mature established family offices can come back and ask questions as family circumstances change over time. So for today Mark and I are going to ask Valor some questions that we think are top of mind. But as David said at the beginning we really would like this to be interactive. So please don't hesitate to ask questions along the way your questions are the ones that we want to have answered and make this as a value as possible for everybody who's participating so Valerie. Let me just start with you with the very basic question in your role. And in your experience, how would you define what a single family office is? Sure, it's great to be with you Mark and Brian. So in terms of a family office, we think of a single family office as an entity that manages the personal and financial affairs of one single family. They're estimated to be over 10,000 family offices globally their private Enterprises and they typically provide one or more pillars of services to a single family. So those pillars of services are one asset management. Sometimes it's also known as Investment Management. This is really the management of the money and the capital the second pillars Financial Administration oftentimes you can think of that is paying the bills the bookkeeping the third piece is wealth advisory which includes things such as tax dress in a state planning risk management philanthropy family governance wealth education and the last pillars lifestyle and concierge. So everything from the everyday to the extraordinary in terms of how the family lives Well, I I guess the natural question from there becomes what's the difference between a single family office and a multifamily office? Sure, Mark. That's a really common question. So family offices is a really common term used in financial services now and so when I think about a single family office, it serves just one family a multifamily office serves more than one family. And so the reason why it's relevant to you into the audience is because as you think about the structure that you may want to provide services to your family, they are both two different options in terms of services or structures that you can utilize. So in terms of multi-family offices, sometimes they also take the form of registered investment advisors rias. Sometimes you have alternative investment managers calling themselves family offices. Sometimes they're trust companies marketing themselves as a multi-family office. So we bring up that term because I think it's important to understand the difference between single family office and a multi-family office. When you think about what structure May best serve your family? I think we'll come back to some of those differences Valerie when we get into governance and stuff. But but I guess a natural question further to this is why does why do families consider setting these up in the first place? What are some common reasons for looking to add structure around their wealth? And if I could even add a further question that when in the Continuum of a family's wealth creation, are they making these types of decisions? Sure, absolutely. So let me start with a couple of the catalysts for why families think about setting up a single family office or move forward with setting up a single family office. So one reason is a liquidity event. So sometimes family-owned businesses will sell to a private Equity Firm or they may seek liquidity through additional public offering and the capital markets and oftentimes a private operating business will perform some personal matters on behalf of the family. And when the new key shareholders are taking over that business, they're going to no longer want to fund those activities and so that can become the Catalyst of thinking about setting up a family office or simply an entity that can start to serve and dedicate its efforts to the personal needs of the Family itself. Another reason could be an opportunity career create employment for key family members or Advisors for the family so that may be another reason why a family seeks to set up a family office. Sometimes a family may find that third party service providers aren't meeting some unique needs that they may have and so they set up a small business called a family office that's specifically dedicated in customized to the needs that they have and the services are all tailored to exactly what the family wants. So those are a few catalysts for why families May seek a single family office in terms of common Tasks or priorities for a family office one is simply wealth probation two could be setting up the entity to facilitate multigenerational wealth transfer. Another reason could be going back to that employment reason to give future generations of the family something to do to give them a profession. These are all reasons why families may speak to set up a family office in addition to that sometimes families are looking for privacy and control and so they set up a family office facilitate that sometimes family offices are set up to Warehouse the best employees. So sometimes families have complex personal lives owning multiple homes having multiple staff members that can be a reason why they may set up a family office entity. Another reason is you know families are in another top priority is families are looking to add governance structure their family into Life and so they can do that through the establishment of a family office. Could you talk a little more? Value a little bit more about the governance side of it. I know that the document that's uploaded is on the governess compensation study. But what are different governance models? I guess that that you see and what are maybe some pros and cons of them the different ways that they can govern themselves great question Brian, so we recently published study on single-family office governance and compensation. I think that will be available to all of you after the webcast. So when we think of governance we think about it on two different levels one is on the family level and the second is on the family office level. So in terms of governance at the family level we think of trying to capture some of the families vision and Legacy in documents. So one could be a family mission statement which captures the families Vision how they want to think about their legacy their values and Is just for for capturing this for not only the current generation but either Generations as well, and it's really important to think about governance. family level and then ates at the my office level because the family office is really a reflection of the Family itself what the family's values are what it's priorities are and through family governance structures at the family office level. It can provide Clarity around information sharing and decisions. So hopefully that gives you a few insights into that Brian. We think family governance is incredibly important. So important that one of my colleagues I think you heard from him last year when kurlander is specifically focuses all of his time and attention on helping families with this. He's the head of our family governance practice has been doing this for over 30 years and we think it's really fundamental the setting up families for long terms. Well, one of the one of the common needs that that families have you know, what are some of the common services that they look for? Sure, absolutely. So in terms of the common Services, I'll break it down into those those four pillows of services that I mentioned that family offices might provide. So one is the asset management piece. The second is financial Administration. The third Is wealth advisory in the fourth is lifestyle in concierge. And as family's get more complex as they perhaps grow in size as perhaps some other activities increase in breath and soap as well that creates complexity within the family and often times. They'll look to third-party providers or professionals healthy and services. So one common need that they have is is simply the preservation or a capital or capital appreciation. So this is the asset management piece of what family offices are looking for. I think in terms of best. Says it's great to have what we call an investment policy statement, which captures many of the characteristics that help inform the investment plan for the family. In addition to that. It's best practice to think about in asset allocation portfolio construction manager selection how the portfolio's managed. So these are some very common needs that than across all ultra high net worth families as well as family office clients beyond that. I think some of the common needs that we see on the wealth advisory front in terms of the planning. I think people don't necessarily like to think about the transfer of wealth, but it's something that can be inevitable that people are born and at some point will pass away and so estate planning is planning for that future. I think another common need that every Network and family office has is around risk management. It so this is the protection of one's assets are limiting liabilities. You can think about it as property and casually insurance as an example. And that's something that we commonly help clients with is the identification of various risks that they may have and how to mitigate some of those risks. I think beyond that just touching on the other pillars we can think about. Central ministration so sometimes families have a number of family members a number of bills that need to be addressed. How do you keep trackable that how to keep track of the cash flows? How do you organize that that's all under the fan Financial Administration tell our the record keeping the accounting the reporting piece of it and last but not least I would talk about the lifestyle component, which is very simply how do we help and think about ultra high net worth clients living their daily lives. Sometimes they can be complex requests. So for instance, one of the number one things that we help clients with is on the health care front. So maybe surprised that to hear that clients ask us about Private health advisory needs. And it can span things such as a critical diagnosis looking to get access to a medical specialist, but I'll try enough clients have a wide range of needs. And so this is something that a family office structure can help with or various Financial Services providers. Couple of quick questions from the audience gallery that are related here. I'll list both questions because I think they're they're relevant when you talk governance. Is it a good practice to have a family member head or be a senior executive in a family office or not and also in terms of some of those documents you were talking about How do you communicate to your family? What a family office is when you have different levels of experience knowledge skills and understanding within the family. Great questions David. So let me let me make sure I heard those correctly. So the first question from the audience is whether it's a good practice to have a family member serve as an executive in the family office. So we see this much more often with smaller family offices versus larger family offices as defined by assets under management. So the larger family office tends to be tend to see more professionalization and the inclusion of professional employees. So those that are in fact not family members, but it is common to have family members in full but the family office structures whether it's from an oversight perspective or actually at the family office itself, I think regardless of whether family member serves as an executive within the family office or serves perhaps on a board of directors, which can be Very common. I think it's really important to have transparency around who's included how decisions are being made and how the family is is judging success of the family office. So hopefully that answers your question and then you had a second question as well David. Can you just this one is really communicating. What a family office actually is to family members who have maybe different levels of experience or knowledge or skills, you know explaining why such a thing might be needed. And what the advantages are? Sure, absolutely. So we're big proponents of wealth education. And so I think this falls under the wealth Education topic and to your point different family members may have different levels of financial literacy sophistication around financial services and and an understanding what a family office does. So I do we do think it's important that family members understand foundational knowledge have input into whether or not they want to participate in a family office structure. I think that's important for the long term success and sustainability and longevity of any service structure that maybe implemented on behalf of the family. So so we do have educational material. I think that's a good starting point. But I think another thing that oftentimes we do for Ultron with clients is rather than using off the shelf materials. We do have customized wealth education process such that we can understand where a single client is or family is in terms of their knowledge level and then we can create a customized agenda to go through Serious topics in terms make sure that all family members feel comfortable with where they are and we have help them in terms of where they want to go in terms of their level of financial sophistication or financial literacy. Thank you. It related to that Valerie. You mentioned this earlier as the family mission statement that you and Glenn spend a lot of time talking to families about Maybe just take a minute or two more on just the power of a family mission team because I think it's directly related to this idea of getting family members on board making them feel like they're all rolling in the same direction. If you will and it often from a high level can get to buy in that's important so that the family is united in their mission and what they're trying to accomplish. Sure. Absolutely. Oh just in terms of the family mission statement. It is this concept of an aspirational document capturing the vision of the family. I think if Glenn were here who's head of our family governance practice what he would tell you is it's really the going through the process of creating the family mission statement. That's really the important part of the exercise. The output in fact is a document in itself, but the process is really important because it if it's done correctly in enables family members to take place in the creation of this and enables family members to be heard in that process. It gives everyone a seat at that table and it's an inclusive process. If it's done correctly that allows family members to understand where they have common ground may be where they have differences and income to comment understanding as a family and so that discussion itself is really powerful. We we often facilitate these Types of discussions for clients. I'm sure Brian you and Mark have been a part of that process, you know with with our specialists in terms of working with their families. And so we really think it's it's the process that makes a lot of sense and then if there's an output that's that that's a product of that process that family mission statement. It's something that families can always go back to and refer to in terms of what they captured in terms of their values that something they can revisit on an annual basis to see if they're still you know on track with what they discussed or if anything's changed. Or I think it's important just to sort of reiterate here that the family mission statement really is separate from the family office in the sense that it doesn't really matter where you decide. how you decide to structure your family office a family mission statement is still an interesting thing in a worthwhile thing for a wealthy families to talk about Absolutely. So I almost think about that is the foundational step in terms of setting up a family office, which is simply what's important to the family. What are the family's values? Sometimes I have conversations and be curious and in your perspective Mark and Brian you see this I get this all the time in terms of I said my family office great. What is it that you want the family office to do for you? Why are you asking this question and it becomes this circular conversation in terms of oh one of my friends said I should have a family office. Well, that's not really a particularly good reason to have a family office. The question always comes back to that. Why and I think that's discussion over the family mission statement. And if the family office is a reflection of the family and what they're trying to achieve and the objectives of the family office and the purpose of the family office should be set up to serve that family. It's really hard to set up a family office for a long term success without first answering those questions. So it does happen all the time and sometimes families don't want to go through that particular exercise. Is but I do think it's a really important part of that process you get that question mark and Brian. Do you see that from your clients? So we see it all the time. We see also related things in the sense of how do you include the younger generation? And how do you evolve that mission statement? as the family grows and as you know as people get engaged and married and there are other people at the table. How does that mission statement have to keep evolving and it also sort of points to your family office has to then keep evolving to in a lot of ways. So maybe just a couple of thoughts if any of you in the audience are looking to start a family office, you know, the first thing we would say is have a clear vision and mission statement have an understanding of what your values are be sensitive to the different views and opinions of different family members who may be affected or included in this family office service model. The third thing is really be realistic about the cost of setting up your own family office. If you own and operate a business right now a family office single family office is no different than the small medium-sized business. You have to have the business plan. You have to have a budget you have to have a plan for measuring success and then perhaps balance, you know the need for information sharing and in privacy among the different family members and all those involved. So Valley you talked a lot about the Catalyst and the needs and the services. I think what I find really interesting and I think we have some slides here is we said at the beginning, you know, no family offices exactly like another but I think we can generalize different operating models for the way family offices destruction of cells. Keep in mind that our in our our participants here are all part of family business magazine. So they're all part of families that own businesses, which is you just noted is is very similar to having an actual family office. But talk through and we can project if it's not already up some of the operating models and how are things are in outsourced or brought in-house through the Continuum of those different structures. Sure, absolutely. So, you know to your point Brian by virtue of the fact that a single family office is customized to needs of each family. No two family offices are identical or like but that being said we've come up with four different categories in terms of thinking about a family office operate in model. So hopefully you can all see the slides. It's it's a Continuum. So on one side you see a virtual model which is a completely outsourced model. That means that there is no separate single family office. There's no dedicated staff. But all of the personal financial needs are met by Third parties and on the other side of the spectrum, you can see what we call a niche asset manager, which is a very specific type of a standalone and institutionalized my office and then we have the family offices in between so given that this is the family business magazine. I venture to that that a number of you may have commingled family offices also known as embedded family offices. And this is where you have a private operating business and there are individuals that sit within that operating business that often wear multiple hats sometimes it's CFO. Sometimes it's a trusted advisor. Sometimes it can be an executive assistant that not only have day-to-day responsibility to the operating company, but they also have responsibilities to the family on the personal side as well. So, in fact, we did a study of us family offices, we found that 14% of us family offices operated as embedded or single family office and then the other the third model that you'll see on the slide is the Standalone institutional family office. So this is where there are dedicated staff members that are dedicated or employed by a separate and Performing personal and financial affairs on behalf of the family. Sometimes you'll see a simple structure while you'll have a CEO that has management responsibilities. They're the primary liaison between the family and the family office and a number of other staff members that are in place commonly perhaps as yeah forward controller that doesn't Financial Administration. Sometimes you'll also have some operating functions within the family office as well domestic staff that are overseeing by the CEO. That's a standalone family office. And the last one is a niche asset manager. This is typically a larger family office that just focuses on investments. So there's some pretty well known families out there that do have a niche asset manager. They operate and recruit from the same talent pool as private Equity firms, which fun managers so you're really a private form of investment. Firm and I think it's really interesting maybe to talk through some case studies, you know, Mark Brian in terms of some work that we've done together. So, you know on one end I would say in terms of the niche asset manager these tend to be very very large family offices. You can tell multi-billion dollar family offices that have Specific goals in mind as they're thinking about their Investments I think oftentimes they think about them as vehicles for Alpha generation. They may employ more sophisticated strategies that are kids when I alternative investment firm may may employ such as private Equity Venture Capital real estate. Those are just some examples of strategies there. Typically you're looking at well north of 10 million dollars to run a family office like this and it's expensive to recruit that type of talent. So very clear objective there in terms of setting that up. You know, I would say in terms of on the other side of the spectrum. There's the virtual family office and you know, Mark and Brian, you know, we recently worked on an opportunity here. There was a business owner that had an upcoming liquidity event that he was planning for he had a total Network or has a whole network of the tune of several. Hundred million dollars so we can call it a centimillionaire. So Beneath the billionaire category so certainly extremely successful and I think this individual was working looking for a number of services from the asset management piece known as Investment Management estate planning planting management, some of the bill pay some lifestyle needs and he actually found it more efficient to work with a few different trusted advisors. And the three common advisors are one a law firm to is a CPA firm in free is global or financial services arm. And so this individual ended up sending up a virtual family office and you know, Mark and Brian. Is there anything that you you want to comment about this particular client situation before I turn to Um, perhaps, you know, one of the Standalone models that we've worked on. the ultimate for second but Valerie, you know, I think you were very helpful at the beginning of helping them think through what was needed and just that conversation of discussing the goals really as you've out a very articulated early here. What are they trying to accomplish and realize that setting up a structure as interesting is that is and as you noted earlier a lot of times people just say well my friends have suggested that I should do this but in talking it through realize that among the three advisor teams that you talked about working collaboratively, we could actually deliver all of the needs that they had and all of the goals that they had. It doesn't mean that it's some future point. There might be some structure that's created and you've probably seen that Evolution, but at least for the last four or five years it's worked in this sort of a model and being able to deliver all of these different things to them working collaboratively without having to actually set up an entity or structure independent of just you know themselves. I think Brian Brian hid on it where he kept alluding to the collaboration and I think that works very very well. If you can get the teams to collaborate well with other professionals and when that happens, it becomes a very cost-effective and very powerful tool. The problem is is when they don't collaborate well, so you've got to chose your professionals well and a lot of times you'll find that those professionals have worked together before and if that's the case you're you're in luck. Right. I think I think that makes that makes a lot of sense. So for all the families that are tuned in today, I think that the team is really important and the team that you choose to help you with your personal financial affairs makes a huge difference just in terms of the success of that operating model. So maybe turning to the next example, that's just a quick question. What was the second advisor team mentioned for virtual? You said Law Firm Global Financial Services firm and one more was mentioned that the audience member didn't catch that. Assess CPA firm CPA for maybe a yes. So so, you know some of the common needs that a family may have include the tax planning and prep work and that's where the CPA firm comes in and is really a one of the critical, you know three advisors on that team and then of course when we think about the law firm that can be helpful with drafting legal documents helping with the tax trust in the state planning. Usually Financial Services firms can be helpful in terms of a second set of eyes and ears, but they're not going to draft the documents. So so you'll need a law firm to do that. It but the CPA firm to answer your question David is what we think is one of the critical advisors to help with that tax planning and front work because usually when families are thinking about if the setting up a family office, they're not going to use, you know, a mass taxable prepare Northerly want to do it themselves. And so that's a third party service provider that we see. Thank you forgive the interruption. What David by entering the conversation there you brought up an interesting point and you started out a path that I I think we should talk about is that when you do collaborate with other products Financial Service professionals, whether that's accountants or lawyers or that somebody tends to become the lead advisor on the out of the team and then she usually appointed or or appointed subtly by the the client itself. And so the the advisors that deal the best together are the ones that sort of share skills. So for an example on our team, we have a tax in the state attorney and even though he doesn't do any of the documents it allows us to to communicate very well with his attorney and with his CPA. So I think figuring out that collaboration and team lead and who leads the team is important for these to successful Thanks for those thoughts Mark great great insights just in terms of how how you approach that practically. So maybe then moving to the next example, which is the Standalone institutional model. So, you know, Mark Brandon and I recently worked with another client where the patriarch still owns and operates a family business. Um, and he wanted a free up some of his time to focus more on the operating business rather than his personal needs and so he decided to create a single family office. I think another element that was interesting here is that he also had significant liquid net worth which was a catalyst for setting up this family office and hiring a professional run that family office. So one thing to think about when someone owns and operates a business isn't sure there's no conflict of interest between what they're doing and directing within the family office and what they're doing for their operating this particularly if there's out if there's third party shareholders involved in the core operating business, so this individual happened to be in financial services sector and so this individual, you know embarked on the path to set up a relatively small family Office Hire. CEO to oversee a number of activities for him and so a number of activities that he insourced included overseeing your personal matters for the family overseeing the wealth advisory component overseeing the financial Administration, but this individual thought it was more effective and more efficient to actually Outsource the investment management. So while they do really He did set up a single family office. But now my office didn't insource the investment piece. He partnered and interviewed free outside Financial Services firms to form that function for him. And I think what's really interesting here is this partnership? I think an effective Financial Services firm will be able to be flexible to work with families, whether it's on an all heart basis just families picking and choosing where they need help and where they need additional support in the model that makes the most sense for them all the way through holy Outsource approach where certain functions whether it's the investment function which can be outsourced through an Outsource Chief investment officer function or the financial function, which can be outsourced through and Outsource CFO function clients can pick and choose which works best for them. And so small family offices even large family offices effectively leverage third-party. A providers to complement what they're doing in-house and perhaps Leverage The expertise and scale of a third party which may bring a lot of complementary as well as additive skill sets and value to add to the table, you know in this particular case, you know Mark Brian. Is there anything that stood out to you about about this client that you know went down the path of setting up this family office? I think if I was gonna pick the one part it. He's very good because of his business at warehousing Talent. He would find extremely talented people and he would hire them without really knowing where they would end up in his company, but knowing he would find someplace for somebody that talented. Well expanding into a family office allowed him to to take some of these people that he had been warehousing and say, oh here's where their skill set really lies. I'm already paying them. Let me use them somewhere where it makes sense also because of the core of his business was an investment from he did see a lot of opportunities that they were able to do a lot of the in-house due diligence and I think the reason that we really stay involved even with all their talent was because we could give them sort of a and a more objective sort of outside Viewpoint outside of the people they had in there. So Mark, you bring up a really good point there, which is oftentimes as family fees are thinking about the services that they need for their family whether or not they want to establish a family office and then further to that whether they want to insource or Outsource a function one of the really interesting questions I tend to get is should I insource a function or try Outsource that function and commonly what we see is that families will insource a function where they find that they have a core competency or a competitive Advantage where they can generate Alpha. So I think in this particular case that we're discussing this individual in Source some areas where he felt like he had a competitive Advantage where he felt like he had talent to be able to execute on a particular mandate but also found value and partnering with third party firms. Why is it, you know, Mark Brian, why is it that he found value and partnering with you? Well, I think there is multiple advisors like us that he's working with and I think that what they've done is Mark said earlier. He's really good at warehousing talent but also finding Talent externally and having us each do what we do. Well, so one might be more focused on lending and credit issues for them one might be more focused on is particular investment strategies one might be focused more in some lifestyle advisory needs as big art collector. So lending against Art was a particular need that the family had and that was something that we were able to to have some input on so I think it's just a smart way of saying we want we understand the breadth of our needs are going to evolve over time. And that's the other interesting thing I've seen about this family is they really have grown in a walled they weren't stock or got themself stuck in any model that they couldn't online if if circumstances dictated and that's what's happened. So as he's On his family and his wealth he's added people internally and he's sought the right resources externally to fulfill whatever the families needs are. That's a great thing. Coming up just on the talent front. So, you know as as we think about setting up a single family office and as as a family thinks about hiring third party Talent, so a professional family office. One thing to think about is it is a human capital business and how do you find that best talent in and I think in this case that we're talking about individuals particularly skilled at what you called where housing talent and finding athletes that can perform a number of different roles for him, but that's an interesting component as well. We've actually done a study on this. So we're in the process of doing a Refresh on our single family office compensation study with our partner both have Consulting and we're looking to publish this in the fourth quarter, but it's a competitive market for family office Talent right now. I think with the number of family offices that exists globally there is there is a competitive market to attract and retain the best talent out there and you know, Are seeing that your families are a really looking for first class service and so be on the lookout for that next publication. Just on that idea of recruiting Talent Valerie. Are there any best practices that you've seen in terms of how to you know, he's done at a unique way, but is there you know across the families you've worked with, you know a place to go or a way to To try to secure your good talent. Sure, absolutely. So he's just three primary ways that I see a family or a family office hiring Talent one is is exactly what we just discussed where the family already has trusted professionals or individuals within their Network that they simply tap to to work for them in the family office capacity to is through a family's Network. So their own private Network bill, ask other families that they know if anybody that's trusted within their Network to be a good fit for them. And the third is using professional search forms. So large family offices can contract and do a retained search and the benefit of doing a retained search is you can look outside of your own network. You can look outside of your geography in terms of searching for candidates that may have the appropriate experience. But I think more importantly cultural fit for the long-term success of a family office. That's great. When you start let me just something out of Love Field a little bit. When when we look at the difference between single-family offices and multifamily offices. Doesn't a single family office that successful and keeps the family together. Doesn't that eventually have to become a multifamily offices the family grows generationally and there are more more clients and smaller pieces of wealth split up or people doing their own things. So I think there's two answers to that Mark. I think one is from a regulatory perspective. And I think the term family office is is something from a regular Tory perspective. I think that's under review right now. So I think to you know to be seen I think that's a great question to keep tabs on just in terms of what that outcome is going to be because there is a specific definition in terms of what a family office is and whether or not it's regulated by the SEC which oversees investment firms and then the second the second answer is whether is it a multifamily officer or not. I think when I think about a multi-family office, there are commercial multi-family offices and then there are perhaps them family offices that just serve more than one family but not necessarily for profit. So I think that's certainly a possibility. I think that commercial multi. Offices grow at a single family offices as to your points families grow as families think about economies of scale and spreading out the cost of the family office infrastructure and sharing that with other families. Sometimes other families see the success of a family office and they they want to partner with that family and that leads the establishment of a Malta family office. So there's many different models out there. I think more to be seen on the regulatory front but you know, I'd really love to ask the two you a question, you know, Mark and Brian. So you've been in this business for a very long time you have years of experience in terms of working with ultra high net worth families and family office clients. What are the things that families should be asking What are the questions that they should be asking their service providers to ensure that they're receiving the best license service? So that's a great question. I think one thing that we I don't think we've touched on here yet, but I know is in the documents and it's a topic that five or six years ago was not even on our lexicon is cybersecurity. I think that we're in a place now where it's it's become one from, you know, not even being mentioned to now being one of the most important aspects for everything from you know, identity theft privacy theft and so on it it is really something that's important question to ask your providers. What are they doing about cybersecurity? How are they addressing it? What are the you know, what are the is the commitment to ensure that your information and your assets are safe and protected so that I think is is something that is really really an important question that again wasn't even part of our conversation a few years ago. I think another pay attention to is understanding that even though a family office involves. A lot of different skill sets everywhere from Investments to legal to accounting issues, you said I think the thing that shouldn't be lost is that you're dealing with people and that these professionals have to be able to deal with multiple personalities. We all know how hard it is to deal with our own children. And now we're asking professionals to come in and Shepherd them through their lives and through their children's lives. So I think having this emission statement not only for your family, but for the professionals to understand who your family is and will be and for your family to understand how the professionals and what their jobs are the most successful family offices. I think are the ones that have a clear sort of the lineation that you know, the family office guy isn't your uncle in a sense. It's so we like the stress communication and empathy Okay. Well, I haven't remember a questions from the audience and we only have but we have less than 10 minutes to go. So I will bring some of those in now. Two of them are related to the CEO position or the leader of the family office. At first who should that CEO or leader be accountable to you know, what's the best structure, you know for the CEO for in terms of accountability and and and to make sure that the family feels like they have that kind of accountability to that. Absolutely David. That's a great question. So typically the CEO will be accountable to a governing body. It could be a family Council. It could be a board of directors and either case. There are family members that sit on that governing body. Sometimes there are some third parties that maybe brought in but that governing body should really reflect the interest of all the family members that are being served by the family office and often times that governing body will help to set the compensation Arrangement Benchmark the success of the CEO and the family office, but you know, we do think it's important to have a government structure Clarity around the objective the goals for the family office what the Strategic plan looks like. So hopefully they answer the question that came in It does and there was a question as well about whether the CEO or head of the family office. Is it typical for that person to receive incentive or performance-based conversation? I would note that if you look at your event resources under the video that you see there. There is a report on family office single family office governance and compensation, which I think answers that question. Is that true Valerie? Yes, that's true. So I think we're seeing a trend towards more formalized compensation structures. So what that means is a handshake is no longer good enough. Where trust me come work for me, you know, I'll do the right thing by you. It is not really good enough as family off. This is our competing for talent as they're becoming more professionalized and so long term incentive compensation is one form of compensation that a CEO may receive typically there. There's four components to compensation at the executive level. One is the base salary. The second is some form of benefits. The third is going to be Bonus, usually there's either discretionary bonus or there will be a Target bonus for the year. And the last component is exactly that piece of it, which is the long-term incentive. Station and long-term incentive compensation can come in a number of conductors everything from carried interest if the families engaged typically in various forms of alternative investing. Sometimes it can come through deferred constructures. Sometimes it can come through leverage as an example. So we do see me that key Management's executives are being offered long-term incentive plans and oftentimes, it's about alignment of Interest. So as families and family offices are thinking about retaining key employees for the long term long-term incentive comp structures are one way to do this and if it's of interest to the audience, we do have a report from 2019 the single family office compensation study that we conducted and there'll be a new one coming out in the fourth quarter as well that has very specific data points on not only sea level compensation, but also other staff level positions within the family office. Terrific a couple of questions came in around this this area. What's the best legal structure for for a single family office the way you know, how should you set it up? What are the pros and cons of the different legal entities? And how how is the legal structure set up typically from multi-generational so legal structure single legal structure multi. Have at it. All right. So let me copy off this by saying that I am not a lawyer. So let me give you some statistics in terms of what we've seen. So I think I previously mentioned that we saw that 14% of us-based family offices are embedded within their operating company. So that means there's in fact no separate legal entity structure of the remaining 86% We see limited Partnerships and LLCs as popular vehicles and then there's a case that came out called Linder management and if anyone wants more detailed overview, please reach out to Mark and Brian and we be happy to schedule a private session to talk about this but with that case we're seeing increase utilization, of course, so I think it's a fairly complex answer but I'll give you a partial answer through some specific and then if anyone wants to talk about it further we can set up some private meetings. Okay terrific. So some questions about the embedded family office are the costs. Of the services that are performed by employees tax deductible from that there that provided to the family office and how important is it to charge the cost of the time of employees of the operating company to the family office. So in terms of the tax deductibility question, that's a really good question. It's it's not that straightforward. There are a whole group of professionals dedicated towards structuring family offices and addressing tax deductible the deductibility. And so I think we I think in terms of best practices We do think it's important if there is an operating business to understand if there are other shareholders our share other shareholders that are non-family members bearing the cost of some of the key employees of the of the operating business performing personal matters. And so would you think it is that best practice to personal matters are being done. And then eventually I think if Family's preparing for the sale of that business. It's always good as a foundation to start thinking about what structure may be needed to continue to serve that family Valerie if I can just interject in David really in the document. The best practice is document. They're actually as a discussion on a tax ruling around what could constitute the tax deductibility of the family Office business and I think there's three criteria that the the ruling addresses and so in that document you'll find discussion of that specific question. Terrific. Okay. Well, we're coming up to the top of the hour. So I wanted to say thank you. First of all to Valerie Mark and Brian for a really terrific webinar. There are a number of questions that we did not get to there was a request to get contact information for Valerie. So I will follow up after the webinar will allow Mark and Brian and Valerie to follow up on that. They'll see all of the questions that have Come in that we did not get to and I wanted to note to you again. We said there were some questions about the slides you saw the structural slides those will be available to you. We will send a link to the PDFs. If you didn't get a chance to download them from this platform, but it's a lot of great information that can help you think through the type of family office you want to do and how you you know, how you can mix internal and external external resources. If you'd like to explore these kinds of issues even more in depth. I have to do a little sales pitch for us to I encourage you and your family members to join us in Chicago September 22 through 24 for our annual family business Legacy and wealth conference Mark and Brian will be there with us. This will be our first back to in person event. We'll have live virtual access for those who can't join us live, but I hope you get a chance to come and see us in Chicago. Would like to we'd like to see people face to face again pretty soon. Anyway with that. I wish you all a wonderful rest of your day. Wonderful rest of your August, and I'm going to end the webcast now. Thank you Valerie. Thank you Mark. Thank you, David.
Family Office Best Practices
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