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How private banks can help family offices

Jeffrey Sacks

By Jeffrey Sacks

Head - EMEA Investment Strategy

May 3, 2016Posted InFamily Office and Wealth Advisory

Great wealth typically requires ingenuity, time, and effort to build up.

By contrast, the process of dissipating it can occur all too easily. According to one study, family wealth was dissipated within three generations in nine out of ten cases*.

Creating a family office to manage wealth is one way that ultra-high net worth families try to avoid this outcome. A family office can help centralize the execution of investment strategy, tax services, insurance planning, philanthropic advice and personal services. This can be especially useful in the case of large, geographically widespread families – especially where competing interests exist – as well as for those with complex arrangements. 

While having a family office serves to centralize wealth management and related functions, many family offices also turn to larger private banks for assistance. Outsourcing certain activities can help lower costs and enhance flexibility, as well as providing access to specialist expertise for shaping the family office’s investment policy and process.

A well-crafted family mission statement is essential to an effective family office. It should set out the family office’s core purpose, define the family’s wealth, and address the goals of any family business. The overall objective here should be to align the family’s core values and to facilitate leadership. A large private bank with experience of a wide variety of ultra-high net worth families can bring valuable insights to this process.

Likewise, a private bank can work with the family office in forming an investment process. This begins with writing an investment policy statement, which defines objectives, benchmarks, roles and responsibilities. The private bank can then help determine an appropriate asset allocation given the family office’s objectives, perhaps using a proprietary methodology. 

The next step is implementing the appropriate asset allocation within a portfolio, in accordance with the investment policy statement. Here, the private bank can potentially add value by providing access to a broad range of securities and funds, as well as research and analysis. A manager-selection policy based on performance, and transparency of fees are two of the key elements of a private bank’s approach to consider.

Ultimately, a private bank can help enhance the structure and governance of a family office, raise the rigour of investment decision-making and monitoring, add cohesion to the family philosophy, and nurture the younger generation. A larger private bank – with an institutional trading platform, breadth of research, and capital markets expertise – may be especially well placed to assist here.

*Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values - Roy Williams and Vic Preisser, 2003.