Learn about the benefits of having in-house estate planning and how an MFO can help support a values transfer to the next generation.
First developed by JP Morgan and the Rockefellers in the 19th century, multi-family offices have been around for more than a century and an increasing number of ultra-high-net worth (UHNW) families are embracing the model for their wealth planning.
And, as more and more families look to cement a giving legacy they can be proud of, it becomes increasingly important to craft a complex plan to pass on a legacy for future generations.
Commissioned by RBC Wealth Management, The Economist Intelligence Unit (EIU) undertook a study of 1,051 high-net-worth individuals (HNWIs), including 207 respondents in the UK, from March to May, 2018. The survey explores how the meanings of legacy and wealth are being redefined across regions, genders and generations.
According to The new face of wealth and legacy research, 76 percent of respondents in the UK agree professional financial resources are more important to personal wealth planning now than in previous generations.
Multi-family offices (MFO) are again on the rise as financial institutions embrace the model, in part to cater to the rapid growth of UHNW families. The structure can also be ideal for coordinating charitable and ethical investing goals.
Unlike a typical financial advisor, a family office is a centralised team of advisors that caters to UHNW families and provides a wide range of services, from wealth management and estate planning to tax and legal advice. It can range in size from a few staff members to a larger group of advisors, lawyers and accountants, catering to multiple families with similar needs.
Stuart Mauger, director of sales and relationship management for MFOs at RBC Wealth Management, says the in-house structure of the MFO makes it ideal for navigating the landscape of charitable giving, with its oft-changing rules and tax implications.
“MFOs have the intel, contacts and experience – particularly cross border – to navigate the ever changing landscape of the global family. This frees up the most precious commodity of all for those families – time,” says Mauger, who is based in the Channel Islands.
Finding consensus on any issue can be problem for families, particularly when large sums of money are involved. An MFO can provide an objective third party to help iron out issues and keep a family discussion about legacy and giving on track.
“It can remove the potential for conflict later if it’s the MFO that’s made the decision – with direction from the family – on which charity to choose,” says Mauger.
An MFO advisor can also raise questions that may not be top of mind to family members, such as the reputational consequences of investing in a particular cause, or the complications of giving in certain jurisdictions or geographies.
For some families, consensus may benefit from creating a family charter, says Edmund Holzapfel, director of sales and relationship management at RBC Wealth Management in London. This is essentially a document that outlines family rules of ownership and succession, as well as shared goals and values that can provide direction for family investments and philanthropic efforts.
Research from The EIU highlights there are differences in how men and women even define wealth. For example, 56 percent of HNW women in the UK think the ability to create change through charitable giving is becoming more important in defining wealth, compared with 38 percent of men.
“Typically with these vast sums of money, there is potential for conflicts,” he says. “[The MFO] can come in and start mapping out what their values are, what’s their value statement, what they’re trying to achieve; is it charitable giving, is it pure investment returns, is it diversification? And they’ll start having those types of conversations.”
The clout of an MFO can also allow a family to play a greater role in how a charitable organization operates, giving them more say in how their assets are used and ensuring good governance at the charity. This could be accomplished by pushing for a board seat for someone from the office, says Mauger.
“It’s important for the MFO to be the one that documents all the minutes, why this charity was considered, why this grant was considered etc., and then to record the inflows and outflows and the success of the typical charitable project,” he says.
According to The EIU research, transparency plays a part in giving, with respondents in the UK assessing their donations based on feedback and recognition (51 percent), media coverage (26 percent), formal feedback from recipients (22 percent) and social media (12 percent).
With several client families, an MFO can become a significant entity in its own right. There’s not a firm barrier for entry, but typically a family net worth of at least £25 million should be the lower end for any family contemplating a family office, says Holzapfel.
An MFO can also help groom the next generation for legacy planning, says Mauger.
“Some of the MFOs can bring in a family member, maybe for a summer or for a gap year. They go into the MFO and go through all the disciplines, so they get an understanding of what it’s doing for the family, in a wider sense,” he says.
The legacy achieved can actually be bringing the family closer together, because of the common goal of charitable giving.
“Some families are very discreet and secretive and it’s about philanthropy and doing it all confidentially. Others are brands in themselves. So it all depends on the family,” says Holzapfel.
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