Me and my personal CFO

Five months after returning to India, Anil Kalra got a call from an old friend. He wanted Kalra to meet his "Relationship Manager". No doubt another young hotshot with some foreign bank, Kalra thought morosely. Having spent 25 years abroad and coming back with pots of moolah, Kalra, a former group Chief Executive of the largest financial services company in the Caribbean, had discovered that managing his wealth from India would not be easy. Just a few days before his friend had phoned, Kalra had been to Citibank and ABN AMRO to open high-end accounts.

"Somehow, I was not able to get a complete picture of my current financial status," recalls Kalra, of those first few days after signing up with Citigold Wealth Management and ABN AMRO Van Gogh Preferred Banking. For one, there was no one to help him tackle the shock of discovering that his huge medical cover abroad had gone, leaving Kalra, 58, and his family with a measly medical cover of Rs 3 lakh each.

But the friend's relationship manager turned out to be Client Associates, which offered Kalra what is called a multi-family office service—an independent advisory platform for rich families, offering a multi-disciplinary approach to managing their wealth. Kalra, a Chartered Accountant by training, fell for their business model and suggestions on how they could deal with the medical contingencies.

"When I came to India, I was looking at various options. All the options—private banking, priority banking, wealth management services— were pretty much the same. Each had a menu of products and you had to select from that… it wasn't really financial advice," Kalra says. Kalra asked Client Associates to run his financial back-office. "The objective is to protect and create wealth. Making sure that if tomorrow something happens to me, there is an orderly transfer of that wealth to my heirs," he says.

Kalra, who has assets and investments in four countries, thinks multifamily offices are made for ultra high net worth individuals (UHNIs) like him, who often need to access their international assets and unbundle them at the right time. "With international investments, tax planning and succession planning become very critical. For instance, if you prepare one will, and you have assets in four different countries, you will be subjected to four different taxes on your total wealth," says Kalra, who is now preparing a structured bequest with the help of Client Associates. On the investments side, he is close to writing a cheque for a private equity deal in a fast-food vans start-up.

The multi-family office, which goes beyond wealth management and private banking, is catching up fast with super-rich families in India. While the concept is not new, what is different now is that the ranks of the very, very rich are swelling. According to a 2008 report by Celent, a US-based financial research and consultancy firm, there are 20,000 families in India with an investible surplus of $10-30 million (Rs 46-138 crore) and 6,000 families that have an investible surplus of above $30 million. The report says that households with investible surplus in excess of $30 million would touch 10,500 by 2012, while the households with investible surplus of $10-30 million are expected to grow to 42,000 during the same period.

Apart from providing traditional wealth services, multi-family offices also render functions like succession planning, philanthropy, offshore concierge services (read assistance with travel and entertainment arrangements around the world), multigenerational education, legal and taxation advisory, investment in Indian and international art, and Indian and overseas real estate. That's way beyond what private banking offers. Best of all, family offices are not in the business of merely "selling" third party products such as insurance or mutual funds to their clients. These products often come with a sales commission, prompting wealth managers to push them.

Explains Richa Karpe, Director (Investments), Altamount Capital Management: "Typically, wealthy families in India get their company's CFO, CA or legal people taking care of their personal financial affairs. But this is not their primary job. Besides this, families have two options—either create their own single family office (SFO) like Mukesh Ambani or Azim Premji or partner with a multi-family office." In order to build the whole capability internally through a SFO, they need a vendor platform, reporting software, and 4-5 people who have expertise in managing wealth. But for this, they need to spend huge amount of money and time. The other way is to use the existing platforms such as multi-family office. "We have tools, ability and a fullfledged team to do that. We are the independent eyes and ears of the families," says Karpe.

PMS vs Priority Banking vs Family Office PMS (Portfolio Management Services) A stand-alone product. Just one investment option that may form part of the portfolio. Managed on a discretionary basis. The client, after investing funds in the PMS, has no say over the portfolio. Decision authority resides with the fund manager. Priority Banking Focus is mainly on investment advisory and financial planning. Clients usually have more than one advisor/points of contact. Frequent change of advisors raises issues of relationship continuity. Incentives may result in hardsell of products. Limited or negligible level of personalisation. Family Office Focus is not only wealth advisory, but wealth protection and estate planning. Solutions are customised using the entire range of products. Clients have a single point of contact, which ensures superior coordination and execution. Operates on an open architecture model; there is no emphasis on product pushing. Clients get personalised attention from senior investment management team on each portfolio. Acts as a "one-stop shop" for finance (personal and business) related needs of the clients. It is akin to being the family's CFO and consultant.

People argue that multi-family offices aren't much different from existing wealth management concerns that also serve rich families. However, those involved in this business think otherwise. Says Jaideep Hansraj, Head (Wealth Management Services), Kotak Mahindra Bank: "As opposed to the current wealth management industry, which looks after a small pie of the family wealth, the idea of family office is more holistic. Also, we don't sell products to our clients. Our structure provides one-stop service for the family's diverse needs."

Once a family subscribes to this service, it does not have to deal with banks, stockbrokers or wealth managers. The advisory firm sorts out all that. In addition, multi-family office services offer risk management, insurance, and a range of lifestyle services such as bill paying, property management, documentation and other banking and administrative activities.

Essentially, a multi-family office aggregates all the portfolios and accounts that a family may have with different institutions. Their key role is to do a thorough performance analysis on who is performing better and who's not. The advisor, being fully briefed about the client's cash flow, investments, tax situation and family dynamics, sets up a family committee that works out strategic asset allocation and long-term objectives. "Our job is to ensure that each portfolio is aligned to the asset allocation plan. In several cases, we see that families have been sold the same fund by different financial institutions.

And on an aggregate basis, they have very high exposure to one sector or one fund. We keep check on such risks and advise clients to rebalance overall portfolio," says Karpe. On a broader level, multi-family offices have three kinds of people— relationship, investment and private equity managers. Most of them also hire a small number of legal, taxation and estate planning consultants. While the average account size varies from Rs 25-100 crore, these relationship managers usually handle a maximum of four clients.

Says Himanshu Kohli, Founder Partner, Client Associates: "Large average account sizes and low client to employee ratios allows a great deal of focus and attention on each family." A multi-family office also helps families avoid the three-generation trap. Without effective planning, as many as 70 per cent of wealthy families actually lose control of their wealth by the end of the second generation, and 90 per cent by the end of the third, according to a study last year by the Williams Group, a US-based family wealth consulting firm. Says Viraj Ghatlia, VP (Strategic Solutions), ASK Family Office: "One of the reasons why clients choose family office services is for the expertise that they provide in protecting wealth from the viewpoint of it being successfully transferred to the next generation."

This wealth transfer to the next generation can be done in many ways, says Ghatlia, the most common route being the creation of trusts that are irrevocable in nature, house sizable amount of assets and are managed actively by the trustees who carry out the objectives as stated in the trust deed.

"The trust may also appoint an investment advisor to provide investment advice on the assets of the trust," notes Ghatlia.

Karpe says families are increasingly paying attention to smooth transfer of wealth from one generation to another. "In India, a lot of younger generations are inheriting family businesses. Let's suppose a family wants to make a will. We, as an external dispassionate party, come into the picture, and get involved with each member. Following our analysis and questioning, we help families drive the process," she says.

What a Multi-family Office Does Wealth Management Financial and Tax Planning Estate Planning and Systematic Wealth Transfer Philanthropy Counselling Expertise in Alternatives Risk Management Consolidated Reporting Administrative Services, such as Documentation, Payment of Bills, etc. Coordinate External Advisors

Karpe notes that a large number of families have interest in philanthropy, but don't know how to go about it. "Altamount develops the whole offering for them. We help them set up a trust, identify the causes and how those causes can be supported," she says.

Although fee structures vary widely, most multi-family offices charge for assets under supervision, which varies from 0.5-1.5 per cent annually. Generally, fees are based on the time, volume of work and attention that a family needs. Also, due diligence must be taken while evaluating a family office proposition.

There are some aspects of the relationship, such as quality of research, sophistication of advisory tools and company expertise that must be analysed before taking the plunge. With the economy rebounding, surely multi-family office will have more takers than ever before.