Article
Article
Podcast
30.3.2023
Anyone who deals with investments as a wealthy investor knows that choosing the right investment advisor plays a crucial role in long-term wealth preservation. Unlike banks and asset managers, who often only have a limited view of a client's wealth and may be restricted to internal products, family offices offer holistic and independent advice. So are traditional banks really still the right solution today? Or does the future lie in the services of family offices, which promise more opportunities in terms of independence, profit margin, flexibility and trust?
High-net-worth individuals with investments in the mid-seven-figure range usually have the choice between a bank/private bank, an independent asset manager or a family office.
Banks make an important contribution to the economy and often perform several tasks. Business with private customers is a small part of their activities. Bank advisors present various investment products to their clients and help them decide which ones are most suitable. However, the data points used to make recommendations are often limited to the wealth at one bank and often do not take into account larger illiquid assets, for example.
However, wealthy private individuals often have more than one banking relationship and/or more than one asset manager. Solid advice can only be provided and excessive risk in the portfolio, such as cluster risks, can only be avoided if all assets are included.
A family office focuses on wealthy private individuals and their diverse concerns and aims to provide its clients with holistic support and to understand and implement the contexts, backgrounds and individual preferences of its clients. This also involves a longer investment horizon and individual advice that often encompasses the whole family. Before even talking about possible investment strategies, a family office tries to establish the long-term objectives of the family's wealth and income situation in order to develop an individual strategy tailored to the client's needs and suitable for the long term.
A family office first analyzes the client's individual situation in several meetings and draws up a balance sheet. A family office then compares this with the desired objectives of wealth . In the event of discrepancies, a family office creates a customized investment strategy at the level of the various asset classes based on the individual target return and risk appetite. This "strategic asset allocation (SAA)" takes into account not only the client's financial objectives, but also personal preferences and qualitative parameters.
The SAA is the framework that investors use to allocate their portfolio to different asset classes such as equities, bonds, real estate and commodities in order to achieve a balanced risk-return structure in different market cycles. The goal of a so-called strategic asset allocation(read blog article) is to minimize the risk in the portfolio by diversifying the asset classes and their relationship to each other while achieving an appropriate return that meets the investor's long-term goals.
The SAA is usually based on a comprehensive analysis of the investor's investment objectives, investment horizon and risk tolerance. The task of a family office is to continuously monitor the SAA, regularly reconcile the current status of the portfolio with the target allocation of the SAA in the event of major market jumps or disruptions and ensure that the SAA continues to meet the investor's objectives.
A family office is usually an owner-managed company whose aim is to provide long-term and continuous support to its clients. The majority of family office clients are looked after by the same family office for generations. This naturally sharpens the focus on suitable long-term investment strategies and leads to highly trusting relationships.
Avoiding conflicts of interest is just as important as the independence of the recommendations made. As a result, family offices usually involve external and thoroughly vetted asset managers in their clients' portfolios. The aim is to implement the most suitable strategy for their clients. The mix of selected managers is continuously reviewed and the managers are also regularly questioned about their performance and strategy.
Family offices always act in the interests of their clients and can therefore make long-term decisions without external constraints.
Clients of family offices thus benefit from a competent partner with whom they can discuss all issues relating to wealth and thus incorporate all matters relating to wealth into the implementation of the investment strategy. This has also led, for example, to family offices starting very early on to extend their clients' wealth to illiquid asset classes such as real estate or private equity.
In addition, a family office continuously monitors the investment strategy and adjusts it as necessary to ensure that client objectives are met. The family office advisors conduct regular reviews to ensure that investment decisions are based on the latest market developments and investment strategies. In contrast, a bank may not be able to pay the same attention to the client's portfolio.
In summary, family offices are a promising alternative to traditional banks and asset managers for high-net-worth investors. Family offices offer holistic advice that is tailored to individual needs and goals. They emphasize long-term support and an independent investment strategy that is diversified and continuously monitored across several banks and asset managers. This allows wealthy investors to benefit from greater flexibility, profit margins and trust.
Article
30.3.2023
Beatrice Reed
What distinguishes traditional banks from family offices? Does the future of wealth management perhaps even lie in the services of family offices, which promise more opportunities in terms of independence, profit margin, flexibility and trust?
Anyone who deals with investments as a wealthy investor knows that choosing the right investment advisor plays a crucial role in long-term wealth preservation. Unlike banks and asset managers, who often only have a limited view of a client's wealth and may be restricted to internal products, family offices offer holistic and independent advice. So are traditional banks really still the right solution today? Or does the future lie in the services of family offices, which promise more opportunities in terms of independence, profit margin, flexibility and trust?
High-net-worth individuals with investments in the mid-seven-figure range usually have the choice between a bank/private bank, an independent asset manager or a family office.
Banks make an important contribution to the economy and often perform several tasks. Business with private customers is a small part of their activities. Bank advisors present various investment products to their clients and help them decide which ones are most suitable. However, the data points used to make recommendations are often limited to the wealth at one bank and often do not take into account larger illiquid assets, for example.
However, wealthy private individuals often have more than one banking relationship and/or more than one asset manager. Solid advice can only be provided and excessive risk in the portfolio, such as cluster risks, can only be avoided if all assets are included.
A family office focuses on wealthy private individuals and their diverse concerns and aims to provide its clients with holistic support and to understand and implement the contexts, backgrounds and individual preferences of its clients. This also involves a longer investment horizon and individual advice that often encompasses the whole family. Before even talking about possible investment strategies, a family office tries to establish the long-term objectives of the family's wealth and income situation in order to develop an individual strategy tailored to the client's needs and suitable for the long term.
A family office first analyzes the client's individual situation in several meetings and draws up a balance sheet. A family office then compares this with the desired objectives of wealth . In the event of discrepancies, a family office creates a customized investment strategy at the level of the various asset classes based on the individual target return and risk appetite. This "strategic asset allocation (SAA)" takes into account not only the client's financial objectives, but also personal preferences and qualitative parameters.
The SAA is the framework that investors use to allocate their portfolio to different asset classes such as equities, bonds, real estate and commodities in order to achieve a balanced risk-return structure in different market cycles. The goal of a so-called strategic asset allocation(read blog article) is to minimize the risk in the portfolio by diversifying the asset classes and their relationship to each other while achieving an appropriate return that meets the investor's long-term goals.
The SAA is usually based on a comprehensive analysis of the investor's investment objectives, investment horizon and risk tolerance. The task of a family office is to continuously monitor the SAA, regularly reconcile the current status of the portfolio with the target allocation of the SAA in the event of major market jumps or disruptions and ensure that the SAA continues to meet the investor's objectives.
A family office is usually an owner-managed company whose aim is to provide long-term and continuous support to its clients. The majority of family office clients are looked after by the same family office for generations. This naturally sharpens the focus on suitable long-term investment strategies and leads to highly trusting relationships.
Avoiding conflicts of interest is just as important as the independence of the recommendations made. As a result, family offices usually involve external and thoroughly vetted asset managers in their clients' portfolios. The aim is to implement the most suitable strategy for their clients. The mix of selected managers is continuously reviewed and the managers are also regularly questioned about their performance and strategy.
Family offices always act in the interests of their clients and can therefore make long-term decisions without external constraints.
Clients of family offices thus benefit from a competent partner with whom they can discuss all issues relating to wealth and thus incorporate all matters relating to wealth into the implementation of the investment strategy. This has also led, for example, to family offices starting very early on to extend their clients' wealth to illiquid asset classes such as real estate or private equity.
In addition, a family office continuously monitors the investment strategy and adjusts it as necessary to ensure that client objectives are met. The family office advisors conduct regular reviews to ensure that investment decisions are based on the latest market developments and investment strategies. In contrast, a bank may not be able to pay the same attention to the client's portfolio.
In summary, family offices are a promising alternative to traditional banks and asset managers for high-net-worth investors. Family offices offer holistic advice that is tailored to individual needs and goals. They emphasize long-term support and an independent investment strategy that is diversified and continuously monitored across several banks and asset managers. This allows wealthy investors to benefit from greater flexibility, profit margins and trust.
About the author
Beatrice Reed
Beatrice Reed works as a Senior Family Officer at FINVIA. Born in Munich, she holds a Bachelor's degree in International Management and French (UMIST, Université Paris Dauphine) and a Master's degree in Management (London School of Economics and the University of St. Gallen) with distinction. She then began her professional career in London, initially at the management consultancy Accenture.
Beatrice Reed then moved into wealth management and has now been advising high-net-worth families, single family offices and foundations for almost 20 years - often with complex international and intergenerational structures. From 2006, Beatrice Reed worked at UBS in London for four years, followed by 6 years at Deutsche Bank in London. Since 2015, Beatrice Reed has returned to her hometown of Munich and, prior to Finvia, worked for the independent asset manager Hartz Regehr for almost six years as a senior client advisor and member of the management team.
