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Many family office “imposters” in wealth management industry, paper argues

Financial services firms serve their own agenda – selling and distributing products and services – and should not be confused with family offices, despite often positioning themselves as such, a new journal paper has argued.

Published in The Journal of Wealth Management, A family office by any other name… says the term is “in vogue” and is being exploited by global financial institutions, many of which have had their reputations tarnished in the wake of the 2008 financial crisis.

In contrast, it argues, the term family office “connotes sophistication, independence and objectivity”. The average single family office manages $890 million of assets, according to the 2014 Global Family Office Report, and acts as a private office for a family of significant wealth, employing anywhere from a couple of staff to more than 20.

The paper proposes an objective definition for family offices based on the role they play, rather than the services they provide, in order to differentiate real family offices from imposters. Many wealth management firms provide services similar to family offices, but cannot deliver the same independence and objectivity due to their commercial interests.

Among the firms positioning themselves as family offices, but that the article argues fall outside that category, are almost all the top 10 included in Bloomberg’s annual ranking of the sector. This argument was echoed in a CampdenFB editorial last year, which said these types of firms were just top end private banks and wealth managers.

This year, the list, released in June, included HSBC Private Wealth Solutions, Northern Trust and BNY Mellon Wealth Management, which are all private banks.

The article, written by WE Family Office chief executive Maria Elena Lagomasino, and two of the firm’s managing partners, says what all traditional family offices have in common is that they exist exclusively to serve the interests of the family for which they work.

It acts as the family’s representative to service providers such as investment managers, brokers, banks, custodians, trustees, insurers, lawyers and accountants.

The paper argues the best interests of a family will conflict with the business model of most wealth management firms, which is to cross-sell as many products and services as possible and capture the largest possible share of the family’s net worth.

It concludes: “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.”

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