by Melissa Klein
Once reserved for those with the kind of wealth associated with names like Rockefeller, the family office has taken on a new and expanded form.
As clients demand ever more specialized services, CPA firms across the country are heeding the call by providing family office services.
CPA firms are in a good position to fill a void in the market by providing family office services to multiple clients, according to Jim Quinlan, a partner at Devon, Pa.-based Smart & Associates and the president of the advisory firm Smart Financial Advisors.
“In order to justify having your own family office, you need a net worth of about $150 million. We can serve all of the people who don’t have that $150 million, but who have $20 million or $30 million,” said Quinlan.
But while a bankroll of $150 million is no longer necessary, having someone take care of all of your household financial needs doesn’t come cheap. Fees vary widely from firm to firm, depending on the types of services rendered, but, in some cases, peace of mind and financial freedom can cost as much as six figures a year.
“It’s not an inexpensive service,” said David Morgan, managing principal of Brentwood, Tenn.-based Lattimore Black Morgan & Cain. “It’s a very customized approach and the cost depends on what people want.”
In addition to monthly tax and accounting services, the firm will pay clients’ bills, keep track of their cash balances and investments, do their estate planning, evaluate their insurance coverage, and even help set up charitable foundations.
“Essentially, we function as their personal CFO,” said Morgan. “If they say they want us to pick up the mail, we pick up the mail. We do what our clients want us to do so they’ll be able to enjoy their wealth.”
For that, the typical family office client pays the CPA firm between $60,000 and $100,000 annually, not including fees for investment advisory services, which are provided through LBMC Investment Advisors LLC, a separate registered investment advisory firm.
LBMC started providing family office services in 1986 in response to inquiries from a couple of clients who had sold large businesses and needed more personal attention. Today, Morgan said, the practice accounts for about $800,000 in revenue.
“Our family office clients are generally one of two types of people,” said Morgan. “Either they sold a business for a lot of money and want to enjoy the fruits of their labor without worrying about paying bills and reconciling back accounts, or they already have a substantial amount of money with the potential to earn more and don’t want to invest their time in managing money.”
Most of the firm’s 25 groups of family office clients have from $10 million to $50 million in personal net worth, and have “significant free cash flow and investable assets,” Morgan said. About half were already clients of the CPA firm.
“We take a comprehensive approach. A lot of firms can write checks, but they probably don’t have the estate planning expertise or the insurance expertise that we have,” said Morgan. “The key here is pulling it all together under one roof. It’s a coordinated approach.”
“Anything you can think about, we probably have done,” said Arnold Cohen, chair of Mahoney Cohen Family Office Services LLC and co-founder of CPA firm Mahoney Cohen & Co. Cohen said that family office services for an entire family (for which the firms charges hourly) can run as high as $1 million yearly, and can range from $25,000 to $75,000 for others.
In addition to paying all of a clients’ household bills and taking care of their taxes, Mahoney Cohen will process medical claims, prepare cash flow analysis and projections, settle insurance claims, hire a housekeeper, purchase a jet, arrange for pet grooming, and make sure that the allowance check is sent to their son or daughter at college.
Mahoney Cohen’s family office, which grew from servicing a single CPA firm client in 1976 to become a separate entity five years ago, now works with 12 families and parts of 150 others. About half of its clients were existing CPA firm clients.
The 25-employee practice includes administrative staff who input data and prepare bills for payment, what Cohen calls “relationship people” who work with the families on a day-to-day basis, preparers, reviewers, two secretaries and six principals. The practice represents about 13 percent of the accounting firm’s revenues, which were $29.6 million for fiscal 2002.
The firm’s typical family office client has a liquid net worth of at least $5 million (excluding personal residences and businesses). Mahoney Cohen works with hundreds of vendors nationwide to provide an extensive array of concierge services, which Cohen said are the most in demand.
“It’s taken us years to develop our best-in-class list of vendors,” said Cohen. “We make sure clients are not just getting a good price, but the best service.”
While Mahoney Cohen will do nearly anything its family office clients desire, there are four things it won’t do. “We will review but won’t draft documents; we don’t do asset allocation; we won’t select money managers; and we won’t be involved in the investment strategy,” said Cohen. “We didn’t want the responsibility. These are long-term relationships. We don’t want to lose a client because we picked the wrong stock. That’s not our expertise.”
Cohen said that the firm will “oversight, compile and compare the results of the money managers against agreed-upon benchmarks.”
The firm is just starting to offer some advisory services through a separate entity in Florida, where it opened a second family office practice two years ago. That practice will offer asset allocation, money manager selection, monitoring and oversight. The firm hired outside expertise in the form of a former money manager to oversee the wealth advisory practice, Cohen said.
Smart & Associates took a different approach. While the firm provides a full range of accounting, tax and financial services through its in-house family office practice, it chose not to offer the kinds of high-level concierge services that many people think of when they hear the term “family office.”
“There are too many things you can’t control that would bring you liability Ñ not financial liability, but relationship liability,” Quinlan said of the decision.
Their family office services range from accounting, check writing and invoice processing to reviewing insurance policies, cash flow analysis and tax compliance and consulting. The firm also has separate insurance and investment advisory firms to fill those needs.
Quinlan said that the firm’s average family office client has a net worth of around $10 million. But sometimes it’s the complexity of a client’s financial situation, rather than the amount of money, that drives demand for family office services.
“Our family office clients often have multiple locations in multiple states. They travel between houses, so their money needs to be moved around,” said Smart & Associates partner Chris Hegarty. “Some of them are younger entrepreneurs who need assistance, while others are executives who have sold a business and want to hand off [financial issues] to someone else.”
