The families behind JPMorgan and Co, Ford Family Motors, the Trump Organisation, Hilton Hotels and the Rockefeller phenomenon have more in common than just luxurious lifestyles, pools of cash, multifaceted investments and priceless assets.
These multi-generational families have built on their ancestors' success and accumulated wealth that has not only lasted one lifetime, but which has the potential to last for many more to come.
With these family dynasties or empires accumulating levels of wealth your average advice practice would find difficult to handle, the family office and multi-family office concept was born.
Typically a private advisory firm set up to manage the investments of one or a handful of affluent families, these offices are unlike traditional wealth management shops in that their client base is a lot smaller with the range of services provided a lot broader.
They usually offer advice on all areas of wealth management, tax, risk, property and accounting, but differ from your average practice in that they also might provide advice on payroll, legal matters, philanthropic coordination, succession planning and family governance.
They also must consider the needs of not just an individual but a family of clients now and in the future.
Made up of unique experts who cater to the needs of different family members, the family or multi-family office will also access additional support from well-established financial organisations, many of which have increased their service offering for this sector in recent years.
A concept that has to date been more prevalent overseas, particularly in the United States and Europe, many believe Australia's generational wealth and family office sector has gained great pace.
With well-known wealthy families, such as the Packers and Murdochs, and those behind big department stores such as Myer, industry professionals say the family office concept has really started to take shape in Australia over the past decade.
They say it is a sector that has not only grown significantly over the years, but one that a lot more financial services companies are beginning to support as external providers.
One of the more well-known multi-family offices that exists in Australia today is the Myer Family Company, established in 1934 by the man behind the Myer department store chain, Sidney Myer.
Its head of family office and wealth services for Sydney, Keith Drewery, says Myer set up the Myer Family Company so future generations could participate in the opportunities he created though his wealth, with his legacy creating a multi-generational wealth management vehicle that now benefits five generations of the family.
Drewery says the Myer Family Company serves the wealth management needs of not just the Myer Family, but an additional 50 families across Sydney and Melbourne, and has about $2 billion under management and advice, and around $4 billion under administration.
"We have about 60 staff in total and seek out high-quality investments for use in the portfolios of both the Myer Family Company and clients alike," he says.
"We also have robust operations and compliance platforms to ensure that structures are fit to meet the challenges and opportunities that lie in estate planning, tax and superannuation laws and regulations."
He says the Myer Family Company provides a comprehensive service that reflects clients' individual values and aspirations, and that embraces unique family circumstances.
"We deal with the full spectrum of wealth management issues, including family governance, generational wealth transfer, investment mandates and philanthropic activities," he says.
"We also provide selected client access to high-quality investment opportunities through our extensive network of investment managers and products.
"Our function really is to enable wealthy families to peacefully manage the transition of wealth from one point to another and manage intergenerational succession."
While the multi-family office will manage more clients than a single family office, neither have the number of clients of a traditional advisory firm as they need the time to fully appreciate the complex needs of each family office client and tailor services accordingly, he says. "Wealth preservation remains of the highest importance to any family which has successfully created wealth and will always be the greatest challenge for family offices," he says.
"Another key challenge for our sector is the ability to appreciate the needs and aspirations of the different generations of families.
"The Myer Foundation, for example, is a private charitable foundation which was set up over 50 years ago. There are separate boards within the foundation, including the G4 committee, which comprises fourth generation family members, who independently consider the issues relevant to them in the distribution of funding not-for-profit organisations.
"Their interests might be totally different to earlier or older generations as to who they will fund, so you need to understand that there will be different views and thoughts across different generations of families."
Drewery says the reason the establishment of family and multi-family offices has probably been slower in Australia is because there are fewer well-established families here compared to the US and Europe.
"In saying that, however, there are probably more family offices in Australia than people are aware of, but because they are typically privately owned and set up by individual families, there's less knowledge of them," he says.
According to Drewery, single family offices are more common in Australia than multi-family offices as many prefer their affairs to be managed internally and separately to other wealthy families.
"For that reason, while a lot of single family offices in the US have evolved into multi-family offices, I'm not sure if that will be the case in Australia," he says.
"We might see the establishment of a few more multi-family offices, but I'm just not sure they will be the types to evolve from the single family office model."
He says either way, going forward there will be a growing need for families of a certain size and with a certain level of wealth to coordinate how they receive services.
"Whether they do access a multi-family office, establish a single family office or use the services of a number of different providers, there will need to be a greater level of collaboration within the sector to help this market flourish," Drewery says.
He says while financial services groups will probably look to establish greater services for the sector, wealthy families will be the main driver behind the establishment of more family offices.
National Australia Bank (NAB) Private Wealth general manager of wealth services and strategic alliances Will Hamilton says while NAB doesn't operate any form of family office, it does service this sector of the market as an external financial services provider.
"We work for family offices rather than with the families directly," Hamilton says.
"Family offices are our clients, not our competitors. We help them with basic banking products, deposit accounts, credit cards, loans, business succession and investment solutions."
He says as more generations of wealthy Australian families come through, more family offices are being established and approaching NAB for support services.
"Particularly in the last two or three years there has been significant growth in this sector and, from what we've seen, particularly in Melbourne," he says.
"I'm not sure why we've seen a spike in Melbourne specifically, however, it's not uncommon that a lot of entrepreneurial types are generally based in or around capital cities."
He says NAB views the family office sector as an important one and it is re-evaluating how it services clients in this space as it wants to maximise services provided to them and opportunities available for them as well.
Macquarie Private Bank global head Guy Hedley says Macquarie also provides support to family offices. "We have established dedicated family office banking teams in Sydney and Melbourne, which are focused primarily on providing trusted advisory services, as well as financial and wealth management advice," Hedley says.
"We would certainly service a large portion of the family office market in Australia and while there would probably be less than 20 multi-family offices domestically, single family offices are growing quite rapidly with a lot of ultra high net worth families establishing these offices today."
He says Macquarie typically provides thought leadership on investments, including asset allocation advice, as well as investment banking services.
"A lot of conflict comes with establishing a family office in so far as coordinating the needs of different family members and across different generations, so we're happy to provide support services rather than compete with them," he says.
While there are a number of well-established family and multi-family offices in Australia, it's still a relatively new concept, with many still developing and evolving their models.
"For the time being a lot of Australian family offices are probably going off the structure of European and US-style family offices, but as generational wealth in this country grows Australia will most likely start to develop its own more unique style of office," Hedley says.
Boutique funds management firm Private Portfolio Managers (PPM) head of corporate development Kris Vogelsong says PPM was established in 1995 to support family offices and charitable organisations, and today would service around 160 family offices in Australia.
"We offer our investment management services through an individually managed account, providing a transparent, cost-effective and tax-effective service for these clients," Vogelsong says.
"Family offices will also approach us for tax-effective funds management services and to manage Australian equity portfolios on their behalf."
He says activity in the family office sector has picked up significantly in Australia in the past few years.
"Across the board, I'd say the number of family offices in the last four or five years has grown about 30 to 40 per cent in Australia," he says.
"With higher levels of wealth creation and the financial needs of families becoming more sophisticated, more service providers are entering this space, which is also driving growth."
Having more service providers and fund managers such as PPM working in the sector makes the establishment of family offices much more viable, he says.
Investment and advisory firm Wingate Group services but also co-invests with family offices, its group managing director, Farrel Meltzer says.
"Family offices are both our clients and/or co-investors, so we really act as an advisory business and investment partner for family offices," Meltzer says.
"We have an arm of our business that provides independent advice on corporate transactions and investments, and then we have other parts of our business where we invest our own funds in partnership with family offices and other substantial private investors.
"The majority of what we invest in with family offices is centred on listed investments, property and private equities."
He says conflict can arise in advising and co-investing with family offices, which is why Wingate never acts as an adviser and co-investor on the same matter.
"The family office concept has developed substantially over the last decade," he says.
"Ten years ago it was common in Europe and other parts of the world but quite an undeveloped and unknown concept locally. "Today, however, it has become a much more professionalised sector in Australia and we're seeing a much higher number of family offices being established."
As to whether more family offices will be created locally, industry heads say there is room for growth, however, they doubt whether there will be the same rate of growth as there has been in recent times.
Hamilton says there will definitely be growth in the family office space, but is unsure whether it will be a huge market as not everyone will have the level of wealth these high net worth families do.
"I think multi-family offices could also look to cater to a slightly different client base in so far as they could take on more less ultra high net worth families while single family offices cater to the extremely wealthy," he says.
"In saying that, however, I think the establishment of multi-family offices will probably be less common but they will still have opportunities to increase their client bases."
He says with more Australian business owners accumulating high levels of wealth and knowing the risks associated with that, more are looking to establish family offices to protect their assets and the financial opportunities of the next generation of their families.
Hedley says there are definitely more families and entrepreneurs looking to establish structures that look like family offices.
"Broadly speaking, they generally have around $100 million," he says.
"When they reach that figure it is typically then that they evaluate whether they should have their own structure to support them, however, in saying that there are also a lot of people that reach the $30 million mark that are thinking about more dedicated support too."
He says the family office sector has gained a lot of traction.
"In the past, ultra high net worth families might have just taken advice or seen a fund manager, but setting up their own structures has become a much more attractive avenue for many wealthy Australian families," he says.
Vogelsong says despite increased interest by families to have their own structure, some will be better suited to the single family office whereas others are suited to the multi-family office model.
"I think both models are quite different in so far as each has their own purpose depending on how complex a family's wealth requirements are," he says.
"If a high level of control is needed due to them having sophisticated needs and ultra high levels of wealth, a single family office structure might suit them better.
"Affluent families that have a smaller but still large proportion of wealth but who may not have such complex needs, however, might fit the multi-family office structure better as there are less ongoing expenses as there are a number of clients, not just one."
Vogelsong says every family is different and their attributes will determine the model they suit best.
Meltzer says you would need to have a fairly large wealth base of at least $100 million or more to justify the expense of a single family office.
"I think we'll see more single than multi-family offices get established, but I don't think there will be a massive explosion of single family offices due to sheer economics. We could, however, see some less ultra high net worth families establish multi-family offices as a way to pool their assets together so that they can get some economies of scale, reduce costs and still have access to this type of specialised structure," he says.
Vogelsong says while he agrees the family office sector is a growing phenomenon, the rate of growth will probably slow down in future.
Meltzer says because the bull market has come to an end and the industry is faced with a stagnant period in investment markets, he agrees the growth of the family office sector and the creation of wealth will slow down. "In saying that, however, a lot of family offices are established when a family sells a business and begins to manage liquid assets," he says.
"Because a lot of businesses were set up post war and are now changing hands with younger generations in a lot of cases selling rather than carrying on the business, a lot of them are creating family offices to manage their wealth.
"So while markets might be a little stagnant at the moment, the succession from one generation to the next will accelerate over the next decade and impact growth in the sector."
He says family offices are evolving and developing and post the global financial crisis (GFC), a lot of these family offices are in a better position than what they were previously.
"This is because when capital markets dried up and retail investors withdrew from the market, those with liquidity were the family offices, so they snapped up opportunities quickly," he says.
"Institutions froze during the GFC and there was a desperate need for capital, so where you had family offices that could move quickly, they did and they did really well from it too.
"In debt markets there were good opportunities to invest in property-backed mezzanine debt or fixed interest instruments, for example, which have from time to time in a crisis traded at abnormally large discounts due to market dislocation rather than any underlying fundamental problem with the investment."
Hamilton says the GFC also highlighted the volatility of markets and encouraged a lot of families who used multiple service providers to review how their finance was structured.
Despite growth in the sector, however, industry experts say the skill set required within a family office is very specialised.
Meltzer says due to high levels of wealth and complex investments, the expertise and knowledge required is more specialised than within a traditional wealth management practice.
"You need investment expertise in specific asset classes, then you need a person or people who know about many asset classes, but the problem is these professionals can be few and far between in Australia," he says.
"Another quality critical to the success of running a family office, which is hard to find locally and internationally, is the softer skills, so the skills and emotional intelligence that you need to deal with multiple family members not only across financial issues but personal issues, interpersonal family issues, succession and all the other things that arise within a family."
He says family offices must possess both technical and interpersonal skills in order to be successful.
Hedley says while there are a number of experts working in the family office space in Australia, he agrees one of the biggest constraints is talent.
"There just aren't as many people who understand how a family office works in Australia as there are abroad," he says.
"We've just hired someone from a very large family office in Ireland as the head of our Sydney family office banking team because there just wasn't the same experience and expertise in Australia as there was overseas and which these families require."
He says it's about investing not just for one generation but forever, so in that instance all decision-making processes are different and touch on very personal issues family by family.
Meltzer says unlike the traditional financial planning client, clients within family offices also tend to be a lot more hands on.
"A quarterly report won't suffice as they typically like to be involved in the decision-making process and be quite hands on with their investments," he says.
In terms of whether there is a particular type of business that would best service this sector, industry heads agree not just any business can do it. Meltzer says some accounting firms have tried and failed.
"I think the most likely businesses that could accommodate this model are high-end financial advisory boutiques and boutique fund managers because they're used to dealing with high net worth individuals and they usually have a deep skill set," he says.
Vogelsong says a lot of people who have established family offices have come from an accounting background, but that it could interest some institutional groups and boutiques as well, while many businesses would prefer to remain only as external support providers to this sector.
"It is a very different model to mainstream financial planning. Clients in this space require a much higher level of service and attention, which means that any business that services them will be limited in terms of scale," he says.
Hedley says there is room for industry experts to move into this space, but it would be hard to service without investment banking capabilities.
"The family office sector really is internationalising and we're seeing that through the creation of professional networking groups in the Asia-Pacific region, such as the Asian Wealth Advisers Forum, where groups like us and others involved in the sector meet and discuss issues affecting multi and single family offices in the region," he says.
Meltzer says the family office sector will continue to evolve and while there will be players who come and go, the industry will continue to see the establishment of new family office models.
"I think we will also begin to develop a more unique Australian family office concept," he says.
"Our economic base and wealth dynamics in Australia are very different to that of Europe and the US, which is why mirroring their models won't always work."
Overall, industry heads agree the family office sector will never be incredibly huge as there are not a great number of multi-millionaire families based locally, but agree it is an ever-growing and evolving sector within Australia that will require more specialist experts in the field in the future.
