4 Factors Why Wealth Management is necessary for Family Offices

Family offices are an outsourced solution for financial and investment management of affluent families or individuals. Primary factors to establish a family office include: need to preserve family wealth, consolidation of assets, ensuring transfer of wealth to future generations and dealing with unexpected liquidity influxes. Private wealth management advisors are employed by family offices to review and resolve issues pertaining to family finances, administration, legal and taxation. Wealth management has also gained prominence because of the aspirations of the affluent families to more control their investments, fiduciary affairs, and lifestyle management. Let’s partake in reviewing some factors which deem wealth management necessary for family offices-

1. Private Wealth Management

Wealth managers offer a financial diagnosis for family offices, defining strategic asset allocations according to aspirational needs and risk appetite. Based on this, wealth managers source most appropriate fund managers and investment ideas to the client. Once the client is onboard with the investment mandates and benchmarks, wealth managers allocate assets and complete the transaction. They also prepare a thorough report of the investment execution and performance, for the client to review and compare their investments in a uniform manner.

2. Asset Reporting

Family offices need to have a tab on their assets, acquisition costs, depreciation, and disposal. Wealth managers review and provide information such as the asset breakdown by type, and comparison of previous to current month data, depicting the percentages of holdings allocated to each asset class. They help in tracking fixed assets for financial accounting, preventive sustenance and theft preclusion. Moreover, wealth managers provide due diligence to the client regarding-

●    Assets listed in Access
●    Asset Chain of Custody
●    Asset History Report
●    Assets needing audit
●    Retired assets report

3. Estate Planning

Wealth managers manage an affluent individual’s assets, in the case of their incapacitation or death. They supervise the transfer of assets to heirs and settlement of estate taxes if any. Estate planning negates the possibility of a clash of interests amongst heirs. Wealth managers offer extensive estate management services like-

●    Creation of will
●    Setting up of trust accounts in the name of beneficiaries to limit estate taxes.
●    Establishing a guardian for living dependents
●    Reducing the taxable estate by establishing annual gifting
●    Setting up of the durable power of attorney (POA) to supervise other assets and investments.

4. Alternate Asset Classes

Alternative assets are gaining popularity amongst family offices, due to their unconventional nature in terms of the investment portfolio. These assets include rare coins and stamps, artworks private equity, trading strategy indices, venture capital and hedge funds. Investing in such alternate asset classes help diversify an investor's portfolio. Being non-traditional investments, they help in sustaining market volatility. Due to their lower liquidity and mispriced value, alternative assets offer excellent arbitrage opportunities. Investing in alternative asset classes isn’t appropriate for everyone. As a result, it is necessary to take the help of wealth managers, who review client’s risk tolerance and investment objectives before offering ideas to invest in new opportunities.

Last Few Words

Family offices are more than just one individual, and their wealth needs to be sustained to reap dividends over a substantial time period. To maximize their wealth management efficiency, services of wealth management firms is a necessity. Wealth managers understand your investment needs and goals, thereby providing appropriate investment guidelines to maximize wealth, and deal with unexpected liquidity influxes.

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Understanding the Different Family Office Templates

Initially set up by the ultra-wealthy families such as the Fricks, Vanderbilts and Rockefellers, the concept of family offices has moved on this side of the globe as well to associate itself with giant names such as the Bajajs, Munjals, Premji, Wadia, and Ambani, among others in India. After all, the need for family offices in India is growing at a rapid pace with the proliferating number of HNWIs or High-net-worth individuals. The modus operandi of a family office, however, depends largely on your level of wealth, types of assets, and goals. This categories their functioning into three templates.

Administrative Family Office

This model involves managing the advisory and investment management services through the help of external service providers hired as contracts, however, it provides some level of tax, bookkeeping and other administrative services through its direct employed staff, who, usually, work on a part time basis. An administrative family office is often used by wealthy families that have an asset base of Rs. 5 crore and above.

Hybrid Family Office

Under the hybrid family office model, strategic functions, more often than not, run parallel to the objectives of the family and consequently they are managed in-house. To meet the long-term investment goals of the family, therefore, certain families allocate family members to manage specific strategic activities. This is especially the case when the member has an expertise in wealth management and privacy is a big concern. Though, certain investment decisions under this wealth management model may be taken in-house, the office outsources experts for tax, asset allocation and legal matters.

Comprehensive Family Office

This model is best for families who need control, security and privacy of the highest degree when managing their wealth. Given this, all administrative services and legal, tax, risk and core management works are managed by the in-house members of such family offices, though, it may outsource specialized investment management activities such as venture capital, market investments, hedge fund, private equity, etc. The outsourcing of such services, however, depends on the family’s budget, objectives, and other elements.

Conclusion

The job of a family office is not limited to protection and passing on of the multiplying wealth of a family to its heirs. Beyond the strategic functions that entail managing investment portfolio, taxes, and insurance also lie the responsibility to showcase the philanthropic deeds of the clients. Family office services offered by professional companies, therefore, usually, cover everything from private wealth management, estate planning, administrative, tax and philanthropy services.

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Managing Wealth with Family Offices in India

Did you know how many Indians were there in the Forbes top 100 billionaire’s 2014 real time ranking list? There were 4 names including those of Mukesh Ambani, Dilip Sanghvi, Laxmi Mittal and Azim Premji in the top 100.In fact, Ambani presently holds the 27th position in the list which means that he has also made it to the top 50 billionaires globally.

We all know that gaining wealth is tough but after accumulating such wealth the toughest job is to maintain it. As the value of money will only decrease it is important to invest wisely. For maintaining your wealth and increase it with time, it is necessary that proper investments are made by the professional wealth services. This is how people with appropriate investment can reap profits while increasing their bank balance. It is important to note that the professionals can provide all the information you require for increasing your wealth over a period of time.

India has the fastest rate of minting millionaires, which makes it a perfect place for wealth managers. It is true that the in the past billionaires were reluctant to take professional help, but now with the young generation of billionaires, the concept is getting a warm welcome. In fact, in a research conducted by Indian rating agency Crisil, it is said that the 62,000 households of India, with an income of 5 million dollars will reach 219,000 by 2015.

Basically, a family office or a single family office is a private company that helps wealthy families in managing their assets and investments. A U.S. based research firm, Cerulli Associates have managed assets worth $3 trillion and more worldwide. It has also stated that international banks and institutions like UBS, Morgan Stanley, Bank of America Merrill Lynch have assets worth $350 billion.

However, in India, Wealth management organizations are at its nascent stage and it has been predicted that by 2015 there will be more than 940 offices. Previously, the old billionaires were not comfortable sharing information with anyone about family wealth. This trend has led a lot of them starting their own offices rather than going to private banks or wealth management service providers. Azim Premji, (Chairman of Wipro India’s third largest IT Company) has an in-house family office, PremjiInvest, worth $1 Billion of personal wealth.

The concept of family offices in india holds huge potential, however, till now only 20% of it has been penetrated according to Markets and Markets, a full market research company and consulting firm. Therefore, if you’re searching for such services, it is worth doing some research. The smart way is to go online and look for leading wealth management service providers. You’ll find a range of websites that provide such services. You can then select one as per your requirements. It is best to contact professional wealth management companies for quality services. Contact them now!

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