Honey, We’re Rich!

Say what, dear reader?  You have just been blessed with a humongous liquidity event?

After decades of work and a bit of luck you “suddenly” have millions, perhaps even tens or hundreds of millions of dollars in investible wealth after selling your business or going public.

You are now officially rich, and it feels great.

But wait.  What’s that?  Obscure family members you never knew existed are beseeching you for “loans”; allegedly good causes from Missoula to Mozambique are demanding donations; sketchy financial “advisors” are bombing your email and phones with “once-in-a-lifetime opportunities.”

First Things First

We’ve recruited family office investment heads and advised on selecting wealth-management firms.  But it works both ways.  We listen very carefully to our clients and learn a lot from them.

Here is some advice from clients who have been through it.

1. The very first thing. Hire a tough, experienced lawyer who is used to dealing with wealth managers, brokers, and solicitors.  (Not just the firm who helped you with routine legal chores on the way up.)  It will be money well spent and you won’t regret it.  You will need a real pro to run interference for you against the sharks.
2. The very next thing. Hire a reliable and reputable accountant who understands the complexities of wealth-management.  You will need financial controls and a voice of caution.  Dollars can slip away fast without an experienced check on your newly-rich exuberance.
3. Take your time. No sudden moves.  Think about how to organize your affairs, your objectives, impact on family-members and upcoming generations.
4. Establish a realistic spending rate. And stick to it.  One rashly-purchased yacht, jet, or hobby-ranch can punch a surprisingly big hole in your seemingly-unsinkable new fortune.

Fortune and Fate

Why build a family investment office? Because, as one chief investment officer at a large family office told me recently, “bad stuff happens.”

He mentioned that when the head of the family and business founder was thinking about hiring internal investment talent, the founder asked other family leaders he knew why they had hired a CIO.

They all said that having investment expertise inhouse and a portion of the assets in a diversified portfolio separate from the main business helped them when the unexpected struck.

In the last twenty-five years we’ve weathered a slew of financial storms including the 1997 Asian financial crisis, the 1998 Russian collapse, the 2000 Dot-com bubble, the Twin Tower attacks, and the 2007–2008 and February 2020 crashes. Remember those? And for the last two years Covid. And now there’s the appalling Russian assault on Ukraine.

And yet, in every crisis there’s opportunity. In 2020, according to the Credit Suisse 2021 Global Wealth Report, total wealth in North America rose by US 12.4 trillion. And probably more in 2021.

Looking at the ultra-high-net-worth segment, Boston Consulting Group counts 20,600 UHNW individuals in the US with personal wealth over $100 million, totaling about $5.8 trillion in investable assets.

Meanwhile, depending on the source, the number of US family investment offices grew from 3,000 to well over 5,000 during the last decade.

Personally, we have received more family office chief investment officer inquiries in the last two years than we’ve had in the ten prior.

Why?