The Virtual Family Office

 

I think that the estimated £5trn thirty year intergenerational wealth transfer “opportunity” actually presents a major challenge to financial advisers. Because what I hear and read suggests that the children of most clients have little or no connection with their parents’ adviser. So what? The majority of firms are owned by people who will have retired in the next ten or fifteen years. True. But if the owner wants to sell their firm at some stage, it won’t look that attractive if the revenues will start falling as the clients start dying. I carry out a few commercial due diligence projects relating to Financial Adviser firms, (sometimes called distributors!) and I am beginning to think that client mortality might be becoming important. It seems to me that if a financial advice firm was looking to sell and was well  positioned for intergenerational wealth transfers it is likely that it would be valued far more highly than a firm that might see assets leaving the business when the clients died.  To put in bluntly; for the latter, cash cows will pass away. So, how can you be a winner in this space?

 

I did a small piece of due diligence on a UK family office last month. In that business all the children and some grandchildren were involved, solicitors were employed, there were options as to the services available. It was very impressive. The average investment was around one million pounds but I guess the clients had other assets such as businesses and property. However, the costs involved in providing the services were quite substantial. So, perhaps some Financial Adviser owner managers might want to consider a VFO – a Virtual Family Office. It could future proof their business and enhance the services available to their clients and their clients’ children. When I say “virtual” I mean partnering with other professionals to create a Family Office experience. It could be that you are already referring clients to, say, solicitors, mortgage brokers and accountants but the VFO would “virtually” wrap around them.

 

The client proposition would contain access to the VFO solicitors and accountants via the VFO website or face to face. The fees would be lower than standard. Ditto access to  mortgage and insurance brokers and others. So, if the clients or the client’s dependants were buying a house they would have private access to the website and would be able to execute – with or without advice – the mortgage, the conveyancing, the protection insurance and the home and contents insurance. The proposition could also include an unlimited number of quick calls from family members to a solicitor for advice on other issues. And, of course it would also include will writing and other services which could be priced individually. The VPO would need to be packaged, priced and branded carefully. Personally, I would just call it the XYZ Family Office. As for fees; maybe the usual percentage on funds invested plus some small ongoing monthly fees with extra fees for tax returns, any serious legal work etc. Of course, all of this needs to be researched.

 

Recently I sat in on some customer research where half a dozen clients listened to new ideas (and complained about existing services!) in return for a donation to their favourite charity. Their input on the Family Office concept was positive. Seems to me that such research would make sense for any business looking to ensure a decent valuation when the time comes to sell. Why not give it a try? One last thought. And it’s a bit sober: “Nothing is certain except for death and taxes.”  (Ben Franklin). When a bereavement does occur the loss of a life can be very difficult to bear and all the subsequent administration can make things even worse. Wouldn’t it be good for the family to make one call and most of it could be sorted?