JWM - A Family Office by Any Other Name

Volume 17 No.3 Winter 2014
TheVoices of Influence | www.iijournals.com
www.iijwm.com

A FAMILY OFFICE BY ANY OTHER NAME… WINTER 2014
A Family Office by Any
Other Name…
MICHAEL ZEUNER, MARIA ELENA LAGOMASINO,
AND SANTIAGO ULLOA
MICHAEL ZEUNER
is a managing partner of
WE Family Offices in
New York, NY.
michael.zeuner@wefamilyoffices.
com
MARIA ELENA
LAGOMASINO
is a managing partner
and CEO of WE Family
Offices in New York, NY.
mel.lagomasino@wefamilyoffices.
com
SANTIAGO ULLOA
is a managing partner of
WE Family Offices in
Miami, FL.
santiago.ulloa@wefamilyoffices.
com
T
he term “family office” is in
vogue, with many wealth man-
agers positioning themselves as a
family office to wealthy investors.
In fact, in a June 2014 ranking of global family
offices published by Bloomberg1
almost every
one of the first ten firms listed on the ranking
as family offices, weren’t family offices at all.
Instead, they were traditional financial ser-
vices firms, positioning themselves as family
offices!
This comes as no surprise, as the term
“family office” connotes sophistication, inde-
pendence, and objectivity. In the wake of the
2008 financial crisis, in which so many global
financial institutions’ names were tarnished,
it would seem that in order to take advan-
tage of the favorable positioning of the term
“family office,” many of these same firms
have pivoted to positioning their wealth
management arms as family offices.
But calling a firm a family office is one
thing, delivering a family office experience
to clients is entirely another. This of course
begs the question: exactly what is a “family
office experience”? This article is designed
to answer that question and to help fami-
lies cut through the clutter of the marketing
and positioning noise to distinguish the real
family offices from the imposters. We start by
proposing a role-based definition of a family
office (as opposed to service-based); then we
look at the differences between a traditional
wealth management firm and a family office,
focusing on why it may be challenging for a
traditional wealth management firm to offer
a family office experience to its clients. We
then discuss the emergence of a new kind
of family office business model—a single
family office for multiple families—and we
conclude with a diagnostic tool that a family
can use to determine whether they want or
need a family office and, if so, how they can
determine the kind that will best suit them.
WHAT IS A FAMILY OFFICE?
It is probably easier to start with the
question: What isn’t a family office? For
example, the definition Bloomberg used in its
“Family Offices” ranking, referenced above.
To be included in Bloomberg’s global family
office ranking, a firm must offer: “direct and
comprehensive investment and noninvest-
ment services to high-net-worth families…
(and) the latter may include family meetings,
financial education, art consulting, estate
planning, family governance, foundation
management, business consulting, property
management, travel arrangements, and shop-
ping assistance.”
Unfortunately, this broad definition,
which focuses on the kinds of services the firm
offers, does a disservice (no pun intended) to
families who may be seeking a family office
experience. A more helpful definition of a
JWM-ZEUNER.indd 20JWM-ZEUNER.indd 20 10/16/14 12:22:17 PM10/16/14 12:22:17 PM

THE JOURNAL OF WEALTH MANAGEMENTWINTER 2014
family office would be one based not on which services
are provided, but instead on how and to what ends the
services are provided.
Traditionally, a wealthy family established a family
office—that is, they hired people to work directly for
them—because they wanted the support of resources
that would work exclusively on solving issues related to the
agenda of that family. The family office was established and
maintained to help the family both define and execute
its wealth management agenda, across both financial and
non-financial dimensions. It may have been established
to provide a broad or narrow range of services, financial
and non-financial, but what all traditional family offices
have in common is that they exist exclusively to serve the
interests of the family for whom they work. We can call this
kind of family office a “dedicated family office.”
Professionals working in a dedicated family office
represent the family in its dealings with the family’s
wide array of wealth management providers, including
but not limited to investment managers, brokers, banks,
custodians, trustees, insurers, lawyers, accountants, and
so forth. These professionals also counsel and support
the family, ideally helping instill the family’s values
across generations and assisting all family members in
becoming productive, engaged, and responsible actors
in the life of the family’s wealth.
So if a fundamental feature of the family office is
to assess and work to meet the family’s agenda exclu-
sively, the fundamental question becomes how can a
wealth management firm that may have a different
agenda—i.e., to sell or distribute financial products and
services, or to provide discretionary investment manage-
ment services—function as a dedicated family office?2
The simple answer is, it can’t. This does not mean
that the wealth management firm is not providing high-
quality, necessary services to families, it just means that
neither the firm, nor the family, should confuse that
activity with being a family office in the best sense.
DIFFERENCES BETWEEN A WEALTH
MANAGEMENT FIRM AND A DEDICATED
FAMILY OFFICE
Let’s examine the two key reasons why a wealth
management firm cannot provide a family office expe-
rience—that is, why they cannot represent the family’s
agenda exclusively. The first relates to the business model
of a financial services firm, and the second relates to the
common practice of taking discretion over investable
assets.
WHOM IS YOUR ADVISOR DOING
BUSINESS FOR?
Whether the manager takes the form of a broker,
private bank, or trust company, typical wealth manage-
ment firms depend on revenue from selling financial
products and services. This means that the primary role
of a wealth management firm is to identify its clients’
needs and then offer up various products or services that
meet those needs.
When the family has a challenge or opportunity,
the financial services firm will suggest various product
solutions. While the financial services institution may
have very high-quality products or solutions on offer to
recommend, the fundamental fact remains that: a) the
offering firm, Firm 1, will likely not be recommending
the solutions of another firm, Firm 2, unless Firm 1
is getting paid by Firm 2 to recommend its products;
and b) there will often be a conflict of interest, driven
by fees and compensation, between the product that is
being recommended by the firm and the best interests
of the client. Such conflicts are not necessarily illegal, so
long as they are disclosed in the “fine print”—e.g., in an
account opening agreement or offering document and
or if the firm is not operating under a fiduciary respon-
sibility, which most, including broker dealers, are not.3
Typically, if the wealth management firm is being
paid to sell products and services to clients, it will not
recommend products and services on which it would
not earn revenue—even if they are appropriate for
the client—e.g., passive solutions. Further, the wealth
manager might not recommend those products and ser-
vices on which it will get paid less, even if those lower-
cost options are effective solutions that meet a family’s
needs.
In addition, the business model of most traditional
wealth management firms is to cross-sell to clients as
many products and services of the firm and its affiliates
as possible. The firm’s goal is to capture as high a share of
a family’s net worth as possible. It is not hard to imagine
how the agenda to cross-sell and capture a high share of
a family’s wealth as possible can often conflict with the
best interests of the family and its agenda.

Contrast this with a dedicated family office experi-
ence. Because a family office exists to exclusively rep-
resent the interests of the family it works for, it will
solve for a particular challenge or opportunity by going
out into the marketplace and shopping around for the
best answer. This likely means talking to multiple pro-
viders, assessing multiple options, and presenting the
family with a series of optimal choices driven solely by
solving for the family’s objectives. Any economic costs
or benefits to the family office will not and should not
be a factor in the selection of any solution to a particular
challenge or opportunity facing the family.
For example, in the case of an investment recom-
mendation, a family office will clearly articulate the
trade-off between investing in a passive, low-cost solu-
tion versus investing in a higher-cost alpha-seeking
manager. But whatever investment decision is ulti-
mately made, the family office’s recommendation will
not be colored by the economics or compensation to
the advising family office. Instead, the family office is
being paid to source and recommend the best option
it can find, with no economic interest in favoring one
solution over another. This is in stark contrast to a wealth
management firm, whose business model depends on
earning revenues from the products and services it rec-
ommends and sells to its clients.
THE ROLE OF INVESTMENT DISCRETION
The second primary reason why a wealth manage-
ment firm cannot deliver a family office experience has
to do with the common practice of taking discretion for
investment decisions from clients. It is quite common,
and in fact in most cases necessary and appropriate, for
a wealth owner to give discretion to an asset manager,
within a specific asset class or mandate. By giving dis-
cretion to an asset manager the wealth owner is giving
permission to the asset manager to make recommenda-
tions and execute trades in accordance with the strategy
objectives of the investment manager.
Where discretion can become more problematic is
at the overall level of wealth management, around deci-
sion making with respect to overall asset allocation and
the broad goals and objectives of the wealth overall.
Having discretion at this overall level can change the
role of the wealth advisor from taking a broad view,
in partnership with the family, on how to solve the
family’s challenges and opportunities to the wealth
manager telling the family how their assets should be
allocated and invested, in accordance with the wealth
management firm’s goals and objectives; this may or
may not align with the specific objectives of the wealth
owner. In particular, this can lead to the wealth owner
feeling as if they have given up control over the overall
allocation and management of their portfolio, which
may be a disconcerting and uncomfortable feeling.
For example, if the wealth manager has a partic-
ular view about a broad investment issue—for example,
about the role of passive investments in the portfolio, the
use of alternative investments, or the role of trading off
liquidity for the potential of higher returns—and that is
not the wealth owner’s view about that particular issue, if
the wealth manager has discretion, then the wealth may
not be managed consistent with the owner’s preferences.
This situation could introduce tension into the advisory
relationship that over time could become problematic.
The issue is that often the wealth owner does not under-
stand the implications of giving discretion at the highest
level of decision making—but has little choice once the
discretionary relationship is started.
By contrast, a dedicated family office will have
a broader focus with priorities dictated by the fami-
ly’s full range of needs and objectives across the entire
wealth enterprise. With a family office, these tensions
do not exist because the role of the family office is to
customize and buy investment and service solutions that
fit the wealth owner’s objectives, preferences and con-
straints. Where there are differences of opinion between
the wealth owner and the family office professional,
the family office professional can explain the differ-
ences and the implications to the owner, but—unlike a
discretionary asset manager—the family office has no
economic incentive to push its views on the wealth
owner.4
To summarize, despite the fact that wealth man-
agement firms around the world are positioning them-
selves as “family offices,” if we instead use an objective
definition of family office as an advisor with a business
model that allows it to serve a family’s agenda exclusively,
we see it is by definition impossible for a financial ser-
vices firm, or discretionary asset manager, to serve as
a dedicated family office or deliver a true family office
experience.

SINGLE FAMILY OFFICES FOR MULTIPLE
FAMILIES
Does this mean that a family looking for a true
family office experience (i.e., having a team at their dis-
posal that is paid to represent their interests exclusively)
has no choice but to establish their own family office?
Not necessarily.
Over the past several years, a new class of wealth
manager has emerged—one that has a business model
based on the traditional family office model of sourcing
and buying (not selling its own financial products) and
one that does not take discretion. Let’s call this model a
single-family office for multiple families. This characteriza-
tion distinguishes these advisors from the wealth man-
agement firms and multi-family offices that exist either
to sell financial products and services, or to provide
discretionary asset management services.
A single family office for multiple families will
typically have on staff professionals with expertise in
a wide range of disciplines including: global capital
markets, investments, tax and estate planning and
structuring, family governance and dynamics, risk
management, reporting and trade transaction review,
and so forth. These professionals will use their exper-
tise and credentials to help solve for the families who
have engaged that family office—not to sell financial
products or services to them. A single family office for
multiple families and the professionals who work there
will use their experience and credentials to help address
the client family’s entire financial picture—with their
only agenda being to solve for what each client family
is trying to accomplish.
In most financial services firms, including tradi-
tional multi-family offices, “soft services” like family
governance and education, family counseling, and so
forth, are often viewed as an “add-on” to the more
“important” investment advisory/management services
and are often used primarily to enhance the relationship
and cross-sell additional products and services.
In a family office that serves multiple families,
these family advisory services are front and center, and
are a key part of the advisory experience. Since the
key role of the family office is to represent a particular
family’s agenda in managing and advising around their
wealth management needs—understanding the whole
picture includes not just understanding the family wealth
(holdings, providers, structures) but also and perhaps
more importantly understanding the family itself—what
is their story, their values and goals, their individual and
collective needs, their family dynamics and communi-
cation styles, and so forth and then using this under-
standing to advise and help the family plan, structure,
manage, and invest their wealth in a more holistic way
that is based on the unique characteristics of each family
and its wealth.
A significant implication for a family working with
a family office is the ability to source and evaluate a
broad range of financial and wealth management ser-
vices and providers to determine what solutions may
best suit them. If the family was working with a tradi-
tional wealth manager, the solutions presented to them
would be limited to either the strategies the firm has
on offer and from which it can earn a fee, or the third-
party investment options that have been “approved”
to be on its investment platform—i.e., strategies that
the manager has agreements to distribute, for a fee. In
both cases, there are real risks that, unbeknownst to
the family, the economic agenda of the selling wealth
manager will be a factor in the advice given, hopefully
along with the family’s objectives, goals, and preferences.
A family office that works with multiple families can
also further extend this idea and gain benefits from the
family office sourcing for multiple families and sharing
knowledge and investment opportunities across fami-
lies—again with no agenda other than solving for each
family’s objectives.
Additional benefits of working with a family office
that serves multiple families are: the enablement and
execution support of the family office professionals and
oversight and quality control of the family’s broad eco-
system of wealth management providers.
SHOULD MY FAMILY HAVE A FAMILY
OFFICE?
Now we have established: 1) what a family office
experience is, 2) why a traditional wealth or asset man-
ager cannot provide it, and 3) how a class of firms has
emerged offering a single family office experience to
multiple families, the final question we will address is
how a wealthy family can determine whether they in
fact need or want a family office and, if so, how they
can determine the kind that will suit them.
The first and most important question a family
should consider is: is our wealth large enough and

complex enough to be considered an enterprise—that
is, is our wealth an entity in and of itself that needs a
strategy, explicit governance, and management processes
to oversee it?5
If the answer is no, then a family office
is likely not necessary.
For the family that concludes its wealth is large
enough and complex enough to be considered (and
managed like) an enterprise, a series of key questions
follows:
1) Are we willing to pay the cost—apart from and in
addition to what we pay for asset management—for
a family office? Put another way—do we see
enough value in the services a family office would
provide?
2) Who are we as a family, what are we trying to
accomplish, and what role do we want to play in
the management and oversight of our wealth?
3) If our answers to these first two questions indicate
we should consider a family office, what kind of
family office is right for us?
To start, let’s address the first and most important
question: is our family willing to pay a fee for invest-
ment advice separate from what we pay for investment
products and services? The reason this question needs
to be answered explicitly is because the traditional route
most families take—whether they consciously make the
decision to or not—is to buy advice and products from
their wealth managers on a bundled basis.
Exhibit 1 illustrates the way that most families
interact with their wealth managers: they engage a series
of asset managers (manufacturers) and private banks/
brokers/trust companies (distributors) who then source
and assemble a variety of wealth and investment man-
agement products and services for them.
The potential for misalignment of interests in this
way of operating are well documented—including rec-
ommendations of unsuitable products, overreliance on
proprietary products, conflicts arising from compensa-
tion to the broker or private banker, or the firm driving
recommendations rather than pursuing the best interests
of clients.
In addition to these misalignment challenges, the
family is also the only party looking at the whole enter-
prise—which is often complex, fragmented, and hard to
assemble. The family is often the only party with any
interest in trying to integrate all the different providers
E X H I B I T 1
Interactions between Families and Traditional Wealth Managers

to make sure there are no underlaps or overlaps in the
products and services the family is buying. Because all
the providers will report information using different
terminology and reporting packages, the family’s ability
to get a consolidated report of everything they own is
very challenging, which complicates or frustrates any
attempt to perform analytics on a comprehensive basis,
across providers.
When working in this traditional manner, there
are several key activities a family needs to address,
including:
• Enterprise-wide mapping and planning
• Integration of the wide range of providers to be
sure all are working together around a common
agenda—the family’s
• Aggregation of investment performance reports
• Identification and assessment of providers’ conflicts
of interest and their potential impact
• Fee and expense management
• Fee and product/service negotiation.
Typically, when a family decides to set up a family
office, they do so to resolve some or all of these issues.
Exhibit 2 illustrates this way of operating. Importantly,
when a family sets up a family office, their objective is
typically not to displace the wealth management pro-
viders, but instead to play a very different role—that of
representing the family and its interests and objectives,
and conducting the key activities described above.
Today competitiveness and shareholder pressure on
traditional wealth management institutions to cross-sell
and generate increased revenue from their private clients
is only increasing. For ultra-HNW families, not using a
family office to manage your wealth enterprise is simply
not an option. The stakes are too high, and the poten-
tial for misalignment too great. Therefore, three basic
options exist for families, with respect to conducting the
activities of a family office:
• Try to fill the role themselves.
• Hire their own talent and establish a single family
office.
• Engage a dedicated family office that serves
multiple families (not to be confused with a tra-
ditional wealth manager calling itself a “family
office”).
E X H I B I T 2
Interactions in the Family Office Environment

The key questions a family should ask itself to
assess whether it wants to take on the role of being the
family office itself, or hire others (or a firm) to do it for
the family include:
• Who are we as a family?
• What are our skill sets and interests? Today and in
the future?
• What role do we want to play with respect to man-
aging our wealth?
• How involved in managing our wealth enterprise
do we want to be?
• What are our multi-generational agenda and
objectives?
SUMMARY AND CONCLUSION
In this article we have tried to more clearly define
the currently much abused concept: the family office.
We hope it is clear that, despite the fact that the name
has been co-opted by the traditional financial services
industry in their marketing and positioning efforts, it is
unwise for a family to assume if they are seeking a true
family office experience and set of services, they will
receive it from a traditional wealth management firm
just because it calls itself a family office.
Rather than a list of services-based definitions, we
use a definition of family office based on the role it plays
for a wealthy family: a team of advisors that exclusively
serves and represents the interests and agenda—broadly
defined—of the family. In fact it is this standard that
provides the benchmark for assessing the character and
quality of your current or prospective family office.
ENDNOTES
1
Bloomberg Brief: Family Office, June 6, 2014, Darshini
Shah—Editor. (http://www.bloombergbriefs.com/content/
uploads/sites/2/2014/06/Family_Office_Supplement.pdf).
2
A more detailed discussion on the conflicts of interest
embedded in the traditional wealth management industry can
be found in: Lockshin, Stephen D., Get Wise to Your Advisor:
How to Reach Your Investment Goals Without Getting Ripped
Off. Wiley 2014.
3
For more on fiduciary responsibility please see the
following sources: http://www.wefamilyoffices.com/think-
publications/ and http://www.thefiduciaryinstitute.org.
4
Of course, the authors realize that the concept of giving
discretion to a wealth management firm for the oversight
of investments is a well-accepted and common practice. Fur-
ther, it is certainly possible that with a properly crafted Invest-
ment Policy Statement serving as a governance agreement
between the firm chosen to oversee the assets and the investing
family, the challenges associated with a difference of opinion/
view between the wealth owner and the wealth manager can
be identified, managed, and somewhat mitigated. In addition,
if a wealth owner carefully selects a wealth management firm
that is subject to a fiduciary standard and reads their ADV
carefully, they can also work to avoid the unfortunate conflicts
of interest that may be present in a discretionary relationship
with a non-fiduciary, or traditional wealth management firm.
The issue the authors wish to point out, however, is that for a
wealth owner looking to be actively engaged and involved in
the oversight and decision making at the highest level—that is
around the deployment of their assets (not the actual picking
of individual securities by a manager within a specific asset
class or mandate)—the act of giving discretion at the highest
level may result in them feeling as if they are “not in control”
which can over time lead to dissatisfaction with the rela-
tionship. For those wealth owners seeking to stay in control,
a non-discretionary relationship may be more satisfying.
5
For more on the concept of treating wealth as an enter-
prise, please see: http://www.wefamilyoffices.com/wealth-
enterprise/.
To order reprints of this article, please contact Dewey Palmieri
at dpalmieri@iijournals.com or 212-224-3675.

JWM - A Family Office by Any Other Name

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