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There’s Getting Rich and Staying Rich
My inspirations for these weekly missives are naturally quite varied, often coming from conversations with clients, prospects, and colleagues and conferences I attend.
This week, the genesis for my post is an article that landed in my email inbox, from one of a number of lists I’ve subscribed to along the way.
If you’re one of my regular readers (thanks!), you likely also see a lot written about the fascinating world of family offices, which continue to become more and more prevalent.
You also may not be surprised that my views on the family office world are very different from the mainstream.
If Some Financial Wealth Is Good, More Is Better. Right?
So let’s jump into the article in question, and see what we can learn.
The headline is what struck me first, not surprisingly. It read “Family Offices Might Not Always Make You Richer…. Bill Gates Is a Good Example”.
Wow, there’s a lot there, isn’t there?
The first thing that jumped out at me is the implied expectation that a family office’s role or goal is mainly about making the family richer.
And here when I say “richer” I am going with the mainstream definition of the word, i.e. relating to more financial wealth.
The article noted that the investment returns Gates has achieved through his family offices leave him with a lower net worth than he would have if he had never sold any of his stock in Microsoft.
Well, D’Uh!
It’s All About the Money, But Should It Be?
So first off, anyone with their own family office is already financially wealthy, so the role of the family office is not about the family “getting rich”. It’s a lot more about “staying rich”.
And while it’s easy for anyone to calculate what Gates’ net worth would be if he had held all or most of his MSFT stock, no financial advisor would ever recommend such a concentrated portfolio, void of any diversification, to any client.
But of course my view on this is that focusing only on the family’s financial wealth is an error that too many people continue to make.
The financial wealth is what everyone sees and talks about, and it also happens to be the easy stuff to deal with, and the area where most of those surrounding the family earn their salaries, thereby enriching themselves.
Scott Peppet’s M/L/F Ratio
I was nearly 100% certain that I had written about Scott Peppet’s “M/L/F Ratio” here before, but it turns out I hadn’t, until now.
So in the spirit of Too Good NOT to Share, here goes.
I wasn’t completely wrong, though, as I had shared it elsewhere, just not in my blog. See How can a family’s generations stick together? “Generative Alliance” to the rescue.
That article, that I wrote last year for CanadianFamilyOffices.Com, included the views of both Peppet and the venerable Dennis Jaffe, but we’ll stick with Peppet’s ratio idea here.
Money – Legal – Family: What Percentage of Each?
Family offices need to focus on M, Money, of course. They are also responsible for taking care of a lot of L, Legal matters for the families they serve. Nobody is saying they shouldn’t.
But M and L are all about the “office” part of the family office, but what about the family, for whom all this work is ostensibly being done?
Why don’t most family offices focus much on the F, Family?
This is considered “the soft stuff”, but that’s a real misnomer, because it is really hard to do it well.
But does that mean that they shouldn’t be doing more?
Peppet speaks about the amount of time and effort, on a percentage basis, of those who work for the family office.
He believes that, on average, family office employees spend about 70% of their time working on M, about 20% on L, leaving only a measly 10% for F.
My guess is that his numbers are pretty close to what’s going on, on average.
Enriching the Family’s Other Capitals
But just as Bill Gates doesn’t really need more money, most families who have or use a family office have already achieved comfortable financial status.
They could often use support for the other types of capital, like human and relationship capital, that can be a challenge for such families.
Family office employees and outside advisors who can help in those areas can enrich their family clients is so many ways.
Just because some financial wealth is good, doesn’t mean that more is always better.
