A couple of years ago it was reported that Oprah Winfrey hired Peter Adamson to manage her fortune (estimated at $2 billion) to run a family office for her. She joined successful entrepreneurs like Bill Gates, Michael Dell, and Mayor Michael Bloomberg who utilize family offices to manage their fortunes. A family office is a private entity meant to serve all the personal and financial needs of one wealthy person. This concept dates back to 1882 when John D. Rockefeller established one to manage his family’s wealth but also to maintain a sense of family cohesion. There are approximately 3,000 of these type family offices in the United States. Family offices typically strive to preserve the family’s wealth, foster stewardship of the wealth for the next generation, and help expand the family’s philanthropic legacy.
In addition to managing investments, the family office often provides personal services to family members such as managing staff, coordinating travel, doing property management, and handling day to day finances. These family office services obviously come with a price which can often be $1 million or more. That is why you typically only see them with families that have assets of $100 million or more. There are also multi-family offices which provide these type services to multiple families which helps mitigate the cost. While these type family offices are not for most of us, there are some very important lessons we can learn from how the deep rich manage their affairs.
Where Did the Money Go?
When you are young and scratching by to make a living then you typically have a lot of clarity about your income and expenses. However, I too often find that once someone starts to earn significant income like a physician then the assumption is “my income is more than my expenses” which leads a lackadaisical approach to managing expenses. What the family offices do for the rich is help them manage their household like a business. They keep a keen eye on the income and expenses. The good news is that with all of the technology tools available today like Mint.com, it is easier than ever to track and review expenses. I advise having a budget and tracking where your money goes. Just like a business owner, look at the monthly “profit and loss” of your household and analyze for trends. Studies have shown that tracking and reviewing expenses has a significant impact on curbing expenditures.
Look at the Big Picture
Family offices don’t just look at the income and expenses, they also provide a holistic view of the family’s wealth. Physicians often have a variety of investments including traditional money management accounts, real estate, and private equity investments. I recommend reviewing at least quarterly the big picture of your wealth and tracking its trajectory. Too often investments are made and little attention or follow up is made on how they are performing. I also recommend taking a long term view of the kind of wealth that you are trying to create for your children or grandchildren. Many people have large life insurance policies but have not put enough thought about the impact of this kind of money on their kids.
Build Your Team
Family offices help make their families lives more convenient and efficient. Families with this kind of net worth hire the best to run their financial affairs and typically apply this same level of diligence to other service providers. Whatever our income level, we all have the ability to choose the best people to be “on our team.” I utilize an exercise called the “Team 100” to help people identify the very best providers for assistance when they need it. The Team 100 list is also a great way to refer quality providers to friends and family. This list includes everything from physicians and accountants to mechanics and lawn professionals. It is a fun exercise as you diligently put together your team of “A list” service providers. These people are all part of our team so we want to make sure we have the best of the best.
Savvy physicians leverage the income stream from their profession and run their life like a business. They are building wealth to weather the storms of a changing health care industry and building a legacy for future generations. Here’s to your success as you apply these lessons from the deep rich on being intentional about your life and financial affairs.
Martin Willoughby is a serial entrepreneur, author of the book Zoom Entrepreneur, and a business consultant. Direct questions to Martin at firstname.lastname@example.org