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Family Office Services: Do You and Your Business Need Them Now?

Robert Wermuth, CLU®, ChFC®, AIF® | December 4, 2020

Eagles fans know that good quarterbacking can often be difficult to come by.  But finding an advisor to think about the big picture shouldn’t require a Hail Mary.  I explain more in this recent article about the “Family Office” approach. 

Have you outgrown your current advisor team? Do your current advisors stay only “in their lane” or do they regularly work together on your behalf? Who is quarterbacking the “big picture”? I.e, business interests, real estate, personal affairs, investments, taxes, estate plan, cash flow, liabilities, opportunity analysis and forecasting? Or do these items remain on your desk, and somewhere near the bottom of the to-do list? When a crisis demanding immediate attention arises is it dealt with in isolation, overlooking the bigger, long-term picture?

Enter the “Family Office” Approach 

What is a Family Office?  It is a group of professionals from different but related disciplines such as business and estate attorneys, accountants, investment advisors, maybe real estate specialists and private equity analysts working in a coordinated effort to meet your family’s long-term goals.  Normally this team works for you, full time and only on your affairs.  Obviously, this approach is out of reach for most families.

You can likely utilize “family office services” without the formality.  Further, you do not need to be in charge of the team on a day-to-day basis, nor do you need to have to replace your current team to do so.

Where to Start

Find your quarterback. Look for leadership qualities. This professional may already exist on the current team. What you are looking for is someone who focuses on the following:

1.  Uber Organization: Preparing the “Family Bible.” This is a comprehensive summary of family information including estate plan, trusts, balance sheet by title, liabilities, cash flows,  asset-allocation targets, children’s assets, education assets, business entities, ownership structures, real estate holdings, employee benefits, buy-sell and operation agreements, retirement plans, personal investments, family foundations… etc.

The Bible is a “living” document updated by the quarterback that provides an in-depth account of your family’s legal and financial affairs. It is made available to your spouse/significant other and children if appropriate, as well as to the various team professionals.

2.  Forecasting: This allows you and your team to see the impact of potential changes relative to your present circumstances. It provides a clear analysis of the impact a new strategy may have on your entire families-financial profile versus making a complicated planning decision “with blinders on,” i.e., not seeing the entire picture.

What might be the impact of buying more real estate? Should you go forward with that new idea or investment? How will the newly proposed tax or estate law affect your business? Do you need to consider a change in strategy? Decisions are not made in isolation. With forecasting/modeling software you can view each aspect of your affairs and then model the collective outcome.  Forecasting shows your plan in motion. 

3. Team Meetings: The best outcomes typically occur when each of your advisors come together to review the Bible, analyze the forecast, examine current plans and compare them to objectives or concerns. Such meetings can be held annually or more or less often depending on your situation. In any event, the Family Office Services model removes the day-to-day responsibilities from your to-do list and allows you (and your spouse) to see your affairs clearly and in their entirety.

4.  Setting Strategy – Action Plans: The goal of all plans is to be implemented. It is typically the quarterback who will prepare the action list (a summary of the advisors’ collective observations and recommendations) but it is you who will make the final decision as to which actions and priorities will occur before setting a timeline for implementation. 

5. Repeat – The proposed actions, recommendation summaries and forecasting are then added to the Bible, providing you and your family with an updated blueprint for action. Ideally it will also favorably position you before the next round of planning. 

It’s in the Details

The details of each Action Plan are as unique as those they have been designed to help. No two families have the same set of circumstances, concerns, objectives, or financial profile. Here are some examples of the actions that have arisen from recent team meetings:

  • Decision to gift a minority share of a closely held business to a Delaware Trust at a discount prior to a sale.
  • Structure an investment plan for children to be combined with ongoing education (readings, podcasts, apps) intended to begin a baseline knowledge of the markets.
  • Implement a Qualified Retirement Plan (Cash Balance, Safe Harbor 401k and Profit Sharing Plan) combined with a Deferred Compensation Plan in order to support a business transition within a family. This provided the sellers with more than adequate resources to maintain their standard of living while furnishing the buyers with a way to source the funds for the transition in a tax-efficient manner.
  • Rebalance a family foundation portfolio to align it with family investment objectives – in this case with Environmental Social Governance (ESG) non-fossil-fuel focused fund managers.
  • Structure a management company to oversee the family business and implement a board-committee approach to oversee the management company in cooperation with the spouse and adult-children.
  • Organize an investment portfolio (all accounts, all titles, all sources including flows) in a tax-and-expense efficient manner with simple quarterly reporting and accountability. Hire a fiduciary to oversee implementation.
  •  Restructure several parcels of company real estate into a new entity and add oversight to recognize and meet management and strategic needs.
  • Establish a Family Foundation with a funding plan during the highest income years to be integrated with an estate plan that supports community interests while integrating the children (and some family friends) in the investment and distribution decisions.
  • Form a transition-specialists team (investment banker and transaction attorney) to find a suitable buyer for a family business. 

If you are interested in more information on Family Office Services or to speak with a Quarterback please email me at RWermuth@Legacy-online.com

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Rob Wermuth is a senior partner with Legacy Planning who combines nearly 30 years of financial services experience with cutting-edge technology to deliver to his clients integrated solutions to simplify their complex financial reality. He specializes in documenting goals and developing strategies for significant life events, including: corporate succession planning, estate planning and establishing or managing a family foundation.

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