To better understand the emerging family office business structure, Bill Hortz from the Institute for Innovation Development interviewed Alyssa Dalbey, CPWA®, CFP® and Wealth Manager at Schultz Financial Group (SFG) – an independent RIA firm since 1982 with a commitment to deepening client relationships by offering a unique integrated package of services to create a working partnership with their clients. This belief shaped their conscious firm development decisions to provide their clients with a more holistic and carefully integrated family and business wealth planning approach that covers the SFG “Four Capitals of Wealth” – Financial Matters, Physical Well-being, Intellectual Engagement, and Psychological Space.
Hortz: Did the concept of a multi-family office structure come to mind as you were consciously choosing to expand the range of your services and working relationships with clients? When did you realize you were approaching a multi-family office structure?
Dalbey: Early on, we found ourselves working with high-net-worth individuals and business owners who started families. As these families and their businesses grew and expanded, the complexities of our wealth management relationships with them increased.
The decision to expand our range of services and working relationships was driven by the need to offer more holistic and integrated wealth management solutions, ultimately leading us to adopt a more comprehensive wealth management model. There was not a single moment in time that we realized we were operating under a multi-family office model. This growth and expansion of our services happened organically.
Hortz: From your experience, why do high-net-worth families and successful business owners need a more comprehensive family office structure than traditional wealth management services?
Dalbey: In working with our clients, it became clear to us that high-net-worth (“HNW”) families, not just billionaires, require a family office service structure to manage the complexities of their wealth and to help ensure long-term financial security and well-being. A family office provides a centralized approach to wealth management, offering personalized services that address the unique needs of HNW individuals beyond just money. By consolidating these services, a family office helps streamline decision-making and can enhance the efficiency of managing wealth.
Additionally, a family office offers confidentiality and security, compiling and protecting sensitive financial information. A family office should help provide continuity and stability, to help ensure that wealth is preserved and transferred across generations. For families with diverse assets and interests, a family office should act as a trusted advisor, guiding them through financial and business decisions and helping them achieve their goals across time and generations.
Hortz: What services did you determine that a family office approach should provide?
Dalbey: By asking a lot of probing questions and listening intently to our clients, many made it clear that their goals were not solely about money. Over time we learned and compiled client concerns to a more expansive redefinition of wealth and a new client dialogue into the “Four Capitals of Wealth” – Financial Matters, Physical Well-being, Intellectual Engagement, and Psychological Space – which offer the following:
Financial Matters – we gather and analyze information from the client and their other advisors (such as their CPA, estate planning attorney, etc.), to develop customized investment strategies that incorporates investments (including alternative investments), detailed financial planning, thorough tax planning and optimization coordinated with client’s CPA, estate planning, legal advisory relating to estate and business issues, risk management mitigated through insurance and other protective measures, and philanthropic advisory. Furthermore, we can share those plans with the next generation so that their children and grandchildren may be good stewards of the family’s wealth.
Physical Well-being – we provide clients with a subscription to the Tufts Health & Nutrition Letter, which has prompted clients to engage deeper in health-related discussions with our Physical Capital Resource Manager. We also provide access to articles and resources on diet & nutrition, health & fitness, and healthy recipes, and guide clients to the information that relates specifically to their Physical Well-being goals.
Intellectual Engagement – is an invaluable asset, and we recognize that it evolves throughout life. As such, we help clients identify opportunities and resources to harness their natural desires and maximize their intellectual capital during their high-earning years. Then, we help them transform it to their next career, avocation or hobby using their personal skills and experience to positively impact their future.
Psychological Space – we work with clients to identify what brings them joy and how they can share that with others, whether that be family, friends, or their community. We also help clients identify how they want to contribute to society, as giving back can enhance psychological well-being. Legacy planning is another important pillar of our Psychological Space family office services.
Most importantly, we learned that the key differentiating service we could provide HNW clients was in carefully integrating all aspects of a family’s needs and goals which informed all our decisions and recommendations. Thereby, we were given the ability to truly go beyond the traditional euphemisms of “personalized” services into uniquely tailored and bespoke solutions. The resulting Four Capitals Plan we develop together with our clients serves as the foundation for an ongoing, interactive, and personal relationship. It helps us understand our clients holistically and serve them in a meaningful way.
Hortz: How are family office services different for business owner clients?
Dalbey: While there are many areas of need for HNW families, this can be heightened for the business owner that carries the weight of the business and family livelihood on his or her back. The emotional, motivational, physical, and psychological forces need to be aligned and managed as well as the financial cash flow.
This entails even more in-depth “Four Capitals of Wealth” management and a family office structure to handle complex business needs that can also include human capital management, property management, diverse business assets, intellectual property/trademark protections, retirement/benefits programs, business/personal tax planning optimization, succession planning, eventual business sale, family/business balance, etc.
Family office services can bring together a team of highly skilled professionals, including tax specialists, legal experts, and investment bankers. Business owners often benefit from this diverse range of expertise, receiving comprehensive and informed advice.
Hortz: How is investment management different for family office clients?
Dalbey: Investment management for a family office differs significantly from traditional investment management due to the unique needs and goals of high-net-worth families. Here are some key distinctions we’ve observed:
Family offices tailor investment strategies to the specific objectives, risk tolerance, and time horizons of the family. This personalized approach is designed to ensure that the investment portfolio aligns with the family’s overall financial plans and legacy goals. This may include separating the portfolio out into different sub-portfolios, each with their own goals and objectives.
One of the significant differences in investment management for family offices is the inclusion of alternative investments including private equity, private credit, hedge funds, commodities, real estate, art and collectibles. HNW individuals can also access exclusive investment opportunities that may not be available to the general public. This includes private deals, co-investments, and bespoke investment vehicles tailored to the family’s needs.
Family offices can also play a crucial role in educating family members about investment principles and involving them in the decision-making process. This helps ensure that future generations are prepared to manage and preserve the family’s wealth while also carrying on the family’s mission and values. We find great joy in working with the multiple generations of our clients’ families.
Hortz: Can you share with us a few brief client case studies that demonstrate the power of holistic financial planning and the family office model?
Dalbey: We have a business-owner client that was referred to our firm for our wealth management and business consulting services by an existing client. This business owner is single and owns and operates a successful business that is cash flow positive and has been in existence for over ten years.
Despite receiving a few million dollars of cash flow every year, this client lacked a personal investment portfolio, retirement savings, and college savings for his children. Additionally, his business had no formal operational procedures, career paths, or incentive plans. We worked with the client to develop a cash flow management plan that would satisfy both business and personal goals by accumulating investment savings in accounts for his own future, the future expansion of his business, and his children’s college education.
We also consulted with him and his management team to write job descriptions, create career paths, develop a new employee training program, put together an incentive plan, and implement an operational checklist for ensuring the business consistently delivers the quality of goods and services customers have come to expect.
We have brought in personal and business attorneys to address business succession issues and estate planning. We have consulted with bankers to establish long-term banking relationships and secure financing for business expansion. We also coordinated tax planning with both his CPA and bookkeeper.
Hortz: Are prospects that you are seeing aware of and seeking family office services or is there more education needed to explain this service model?
Dalbey: There are several reasons why many HNW clients might not be aware of family office services:
Lack of Awareness and Education – Family office services are often not widely advertised or discussed in mainstream financial education. Many HNW individuals may not be aware of the existence or benefits of family offices simply because they have not been exposed to this information. Family office services are still relatively new and accessible for the HNW individuals and business owners as these services were exclusive to the ultra HNW families for a long time.
Traditional Financial Services – Many HNW individuals rely on traditional financial services provided by banks, brokerage firms, and independent financial advisors. These traditional services may meet their needs to a certain extent. However, once a family’s net worth starts to exceed $10-$15 million and they start prioritizing things like family legacy and business succession, we believe family office services are critical to meet their needs.
Limited Marketing and Outreach – Family offices often operate with a low profile and rely on word-of-mouth referrals rather than extensive marketing campaigns. This limited outreach means that potential clients may not come across family office services unless they are specifically looking for them or are referred by someone in their network.
Focus on Business Interests – For some business owners, the primary focus is often on managing and growing their business. They may not prioritize or even consider the additional benefits that a family office can provide in terms of personal wealth management, succession planning, and risk management.
Disclosures
Schultz Financial Group, Inc. (“SFG”) is a registered investment adviser with a primary business location in Reno, Nevada. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that SFG has attained a certain level of skill, training, or ability. The Institute for Innovation Development (“IID”) is an educational and business catalyst for members determined to grow their businesses in a world of constant change, which is dedicated to educate, arm, support and motivate team member firms in making innovation best practices a vital cornerstone for their business growth. SFG and IID are not affiliated, meaning that neither entity controls the other entity, and they are not under common control. IID is not an SFG client, and nothing in this article is intended to be an “endorsement” of SFG by IID. Neither SFG nor IID compensated the other party for the publication of this article. However, SFG is a “member firm” of IID, which pays membership fees to participate in IID activities. Therefore, the recommendation by IID that an individual engage SFG presents a conflict of interest because it could be made based on IID’s interest in continuing its relationship with SFG and the collection of membership fees. IID drafted this article for the use of the other financial advisors. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the SFG’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. All expressions of opinion reflect the judgment of SFG as of the date of publication and are subject to change. This article does not constitute personalized advice from SFG or its affiliated investment professionals, or a solicitation to execute specific securities transactions. Readers should not use any of this content as the sole basis for any investment, financial planning, tax, legal or other decisions. Rather, SFG recommends that readers consult SFG and their other professional advisers (including their lawyers and accountants) and consider independent due diligence before implementing any of the options directly or indirectly referenced above. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by SFG, will be profitable or equal any historical performance level. Additional information about SFG, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/108724.