<b>Business:</b> The emergence of family office

THE challenges in managing huge wealth are unique and undefined, even for many successful wealth creators. The rich, as F. Scott Fitzgerald famously remarked, are different from the rest of us -- and so are their problems. One of the perennial challenges has been managing their massive fortunes. In terms of wealth management, the rich have not exactly been helped by the global financial service industry. This is because of the widespread institutional predilection for pushing products.

Stanley Pantowich, founder of TAG Associates, a respected multifamily office in New York, says: "Insurance people and stock brokers, who do planning and give advice, do so in the presence of inherent conflicts -- they ultimately sell products."

High net-worth individuals know that despite all the assurance that financial services and products are being "tailored to meet individual needs", that is not always the case. More often than not, a brokerage firm, a bank, or private investment firm will stress uniform solutions for asset allocation or investment selection. This institutional cookie-cutter mentality will have a low probability of success in this affluent niche market, which needs solutions tailored to fit their amazing wealth, unique needs and their family dynamics.

Also, to understand families and their specific needs, you need to spend time listening. Many financial planners and institutions do not find this feasible because their time is scarce as they are subjected to the pressure of selling products or services in order to meet targets.

Knowing these constraints, high net-worth individuals are aware that they need professional support that puts the family's needs first, rather than the earning targets posted by institutional managers.

But what type of professional support best fits a multi-layered and complex family, and in some cases of massive inherited wealth, generations of families?

Many wealthy families have found that the family office is a pragmatic solution. According to Carol Pepper, a founder of a noted family office in New York, three developments among wealthy families stimulated the formation of family offices.

Demand for bespoke of tailor-made services

Families are beginning to embrace the concept of open architecture more fully. An open architecture basically means that they want access to the "best breed" of providers for all of their wealth management needs, including money managers, estate planners, accounting and tax advisers as well as philanthropic advisers.

They do not want to be constrained by a preferred list of providers or a set of joint-venture relationships that might make sense for a particular private bank but are not in the best interests of their particular personal situation.

Integration and oversight

Families are being offered more and more complex financial products and structures, but usually lack the ability and time to sit down and truly understand how each piece fits into the whole puzzle. What they are looking for is oversight and integration, in addition to top technical advice.

High net-worth individuals usually don't want to be the general contractor for the financial services offered by institutions.

They want a life planner that integrates their values, needs, life priorities and wealth management. They do not want segmented product planners hawking single tax, insurance and investment products and services that don't fit together.

Avoid conflicts of interest

Families are becoming more aware of the inherent conflicts of interest that exist in many traditional private banking models and many are looking for a way to cope or better yet, eliminate these conflicts.

Any adviser whose bonus is based on the volume of investment products sold -- whether the bonus is based on assets under management or commissions -- faces a conflict of interest; it is his earnings versus the client's best interests.

For some families, the answer lies in a stand-alone, fully-staffed family office. For others, joining a multi-family office makes more sense.

On top of that, other institutional problems with private bankers and investment firms have added to the disillusionment of wealthy families.

According to Mark Spangler, a wealth management specialist in United States, many wealthy families are developing a growing dissatisfaction with bank trust departments and their weaknesses, such as high turnover rate, limited investment choices and the tendency of old-money institutions' marketing department to neglect new money flowing in from the nouveau riche.

On the other hand, the family office neatly solves many of these problems, by providing a dedicated professional financial service that integrates these families' financial and non-financial agenda while eliminating those pesky conflicts of interest.

The problem of snobbery also does not arise since a family office catering wholly to a family's own interests would not turn its nose up at new money just because the family is nouveau riche and lacks a hundred-year-old pedigree.

Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-client family office in Malaysia

Business: The emergence of family office