Three Tools of the Mega Rich

Most of the world’s populations are lucky (?) enough to not have to worry too much about complex money management. For these folks a bank with a checking account and credit card, a home mortgage, car loan, student loan and brokerage account is about as complex as it gets.

But for a thin slice of the world’s people exist money and life tools not known about or experienced by the rest of us. What are some of these elite tools used by the mega rich? Here are three of them:

 

Private Banking.

The term private banking (or wealth management) includes banking, investment and other financial services offered on an individual basis to wealthy clients of banks and other institutions. A family is one of many clients of the bank, but they probably have a dedicated client manager or team.

Private banking (or wealth management) services are used by wealthy families who can’t afford or don’t want to use a multi family office. A certain level of wealth is desirable (at least one million in liquid assets, often more, sometimes less), and often required, before using private banking, since the investment risks and fees can be quite high.

Why do some wealthy families use private banking?

To gain access to alternative investment vehicles.  

These types of investments are not typically available to the average investor. They include things such as foreign exchange markets, derivatives, structured notes, private equity (investing in start up companies for example), global investments and etc.

To utilize trust and custodial services.

The family trust or other organization type can be managed by the private bank team.

For assistance with structuring their wealth and comprehensive wealth-management services. 

The private banking team looks at the entire picture and helps determine how to allocate across multiple types of investments, countries and structures to manage the wealth. Citi’s website (https://www.privatebank.citibank.com) describes it as “Wealth structuring shapes what a family’s money does: how it provides protection; passes on values; minimizes taxes; enables control; fosters privacy and realizes a legacy.”

Wealth-management can include all aspects including estate-planning, tax-efficient planning across multiple countries, insurance planning, philanthropic planning and etc

• to help with atypical investments such as art collections, sports franchise investments and etc
• to assist with family meetings, next-generation training, development of family visions, constitutions and etc
• to assist with family business sales, management and succession planning

A non exhaustive list of banks which offer private banking services include: JPMorgan, Goldman Sachs, UBS, Citibank, Credit Suisse, Deutsche Bank, HSBC Private Bank and Wells Fargo.

Private banks may tend to recommend in house solutions and products to their clients over solutions offered by third parties.

Multi Family Office.

A multi family office is an organization that provides services similar to single family offices, but with the main focus on asset management services. In this type of organization, a family is one of several families that are served by an office.

Multi family offices are used by wealthy clients who can’t afford or don’t want their own dedicated family office. These families typically have investible assets in the level in the neighborhood of 55 million dollars.

Multi family offices are public institutions, not privately held, and as such are regulated.

Why do some families use multi family offices?

To gain access to the level of service offered by a single family office without the associated costs.

This includes a focus on multi generational planning and activities.

To gain access to open architecture type wealth structuring.

Managers are not typically paid from selling certain products so they can offer more objective choices.

To gain access to all of the equivalent services and products offered by private banking plus more alternative investment types.

Examples of a few multi family offices include GenSpring, Rockefeller Financial and Northern Trust.

Single Family Office.

A family office is a business run by and for the family which centralizes the management of the family wealth to transfer it across multiple generations. Functions can include management of investments, taxes, philanthropy, trusts and legal matters. The Rockefellers established the first family office in 1911. Family offices generally provide personalized, private and holistic wealth management. They may also provide personal services to family members, such as managing household staff, making travel arrangements, doing property management, providing financial education to family members and etc.

Single family offices are used by only the very, very wealthy as they can cost upwards of a million dollars a year to run.

Why do some families use their own private office?

To receive family services.

These services include arranging family meetings, travel, housing, travel, reviewing and advising on schools children should attend, security and healthcare arrangements, educational services, residential property management, bill paying, social event planning and execution and more.

To preserve wealth.

This includes the full range of wealth management, structuring, financial planning, estate planning, risk management, access to the highest end investment managers and etc.

To administer and report on wealth structures.

Wealth at this level may require multi tiered organizational structures such as holding companies, multiple trusts, partnerships, agreements, contracts and etc which are in or cross multiple countries, states and other jurisdictions. Running these various entities and reporting on them to the family is done by the office.

To get access to managers with expertise in specific areas.

Examples include expertise in specific countries, industries, geographic regions and etc.

Since these offices are privately owned, no example offices will be listed. You might assume that Bill Gates and Warren Buffett might have their own family office.

Sources include:

Stragegy for the Wealthy Family: Seven Principles to Assure Riches to Riches Across Generations by Mark Haynes Daniell, copyright 2008 by John Wiley & Sons

Citibank https://www.privatebank.citibank.com

Credit Suisse https://www.credit-suisse.com/us/

Deutsche Bank http://www.pwm.db.com/pwm/en/

HSBC Bank http://www.hsbcprivatebank.com/

Rothschild http://privatebankingandtrust.rothschild.com/

Family Wealth Alliance http://www.fwalliance.com/