(Note: The following is a first of a series of articles taken from the authors' new book, Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy.)

As advisors and financial services firms vie to add the most affluent clients to their roster, the family office is at the top of the list when it comes to assets and opportunity. Still, despite the vast amounts of money handled by family offices and the marquee names Gates, Getty, Ford and Rockefeller, to name just a few of the most prominent-the family office remains terra incognita. Any information about family offices is by-and-large incomplete, inaccurate, outdated or overblown.

And that's hardly surprising. The exceptionally wealthy (by our definition, those with at least $10 million in investable assets) may want their names associated with private foundations, charitable trusts and society galas, but they don't want people prying into their personal financial affairs. The less that's known about them, the less likely they are to be dunned by salespeople, litigators or even disgruntled relatives. As a result, historically there has been very little in the way of hard information about family offices that firms and advisors might use to court them with.

To open the door on the world of the family office, we surveyed the executive directors of 653 single-family, multifamily, and commercial family offices over the course of nine months. Those offices had a total of 34,499 clients with a combined net worth of more than $2 trillion and investable assets of more than $1.2 trillion. We explored their unique motivations and preferences, as well as the financial products and services they used and wanted to use in the years ahead. As a result, we were able to not only set the record straight about the way family offices operate, but also to create benchmarks and baselines for both the families looking to open or be part of a family office and for those advisors and firms that want to work with them.

A Pressing Need

The need for such guidance is especially pressing today because, with the advent of the multifamily and commercial family office, the family office bar for entry has been lowered to as little as $5 million from the more traditional $100 million minimum. And there's also been a steady increase in the ranks of the exceptionally affluent both here and abroad, as well as a rising demand for the highest-end services.

Taken together, that means more people interested in family offices, more firms offering them (often by acquiring existing family office operations) and more business models to chose from. Further, with a wide-open market, not all of the advisors and firms jumping feet first into the market know what they're doing. Similarly, not everyone joining a family office knows what to expect. Our research was designed to help guide the decision-making process for those affluent families and the strategic approach for advisors and financial services firms.

Defining The Family Office

The family office is an in-house operation specifically built to meet the investment, tax and wealth management needs of a single affluent family or a number of affluent families, while also addressing many of their personal issues such as security, travel and even family politics. The benefits are myriad and include: increased financial clout (a number of families can combine to have what is in effect institutional scale), cost efficiencies and complete financial control.

The driving rationale for a family office is that the any family's assets and interests are better managed by a single organization dedicated to catering to its individual needs. By having a detailed and comprehensive understanding of the family's financial picture, especially with regard to various tax issues, the family office is able to maximize the family' assets and also enable the family to achieve its nonfinancial agenda, which may include philanthropy or family cohesion.

The Ranks Of The Exceptionally Wealthy

So how many people are candidates for family offices? There's no definitive list of the exceptionally wealthy but, by most accounts, the population is steadily growing. In fact, over the last 25 years, despite the blip of an occasional recession and downturn, the booming stock market and positive international business environment have ushered in a new age of global affluence.

Based on our analytic model, we came up with a low estimate, best estimate and high estimate for three categories of exceptional affluence: the low-end wealthy, with $10 million to $49 million in net worth; the mid-range affluent, with $50 million to $99 million; and the high-end affluent, with $100 million or more (Exhibit 1).

And while anyone on the list is a good candidate for a family office, it should be noted that those at the very tip of the wealth pyramid are as far from the low-end affluent, money-wise, as the low-end affluent are from garden variety millionaires (Exhibit 2).

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