It has been almost 12 years (SEC June 22,2011) since the SEC defined the Family Office in order to exempt wealthy families to manage their wealth without registering with the SEC under the Investment Advisor Act of 1940. An outcome of this exemption was that “Family Offices” had less transparency and less regulatory oversight than what is required of registered investment advisors. This change stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The collapse of Archegos Capital Management (Archegos) in March 2021 cost investors holding shares of ViacomCBS, Discovery, and GSXTechedu over $100 Billion in losses, in addition, many Wall Street Banks were unaware of their similar super leveraged bets at other banks and those banks lost $10 Billion.

In late April 2022, federal authorities filed criminal charges against the owners of Archegos.

There may be more regulation coming to Family Offices given the lack of transparency and stock manipulation scheme by Archegos. However, Family Offices that register with their state or SEC as an investment advisor may accept public money from outside investors.  Registered investment advisors must maintain independent accounts, follow regulatory guidance, maintain detailed records of transactions, act in the best interest of all their clients, and submit to random regulatory audits of the firm’s activities.

When Concierge Financial Advisor, LLC registered with the state of Florida, we established a risk management and economic framework that enabled hedging and active management that were some of the best practices of hedge funds but without the exorbitant fees of 2% of Assets under Management (AUM) and 20% of upside returns. Here are some of the best practices that differentiate Concierge Financial Advisor from other wealth management firms:

1. We start with a review of your assets, liabilities, goals, values, and risk tolerance.  We decide with our clients on a summary financial plan and review the approach and controls consistent with the plan.
2. We invest with our clients in the same asset classes.  We care about managing the returns and risks of clients because it also affects our family fund outcomes.
3. Every client has investments customized to their risk-return profile using our strategic, tactical, and bolster risk framework that adjusts to market conditions.
4. We are limiting the number of clients to 100 so that we can properly devote time to each client.  We are not like most firms that are trying to get more Assets Under Management (AUM).  Most firms focus their efforts on marketing to grow assets, not on actively managing the clients’ money within a risk management framework.
5. Fees are assessed as a percentage of AUM and are no higher than 1% for individuals, businesses, or household funds with at least $1 million to invest.
6. There is no charge for cash held in bank or money market accounts waiting for the right opportunity.  This enables us and you to manage investment inflows and outflow to match your long-term investment plan.  Cash is not “Trash.” Cash is a temporary reserve that will be actively redeployed for better risk-adjusted returns during periods of market momentum changes, volatility, or economic uncertainty.
7. If you are in the stock market, you are exposed to equity downside risk. Diversification is important but it does not eliminate market risk.  We periodically use limited market hedging and option strategies to enter a position, exit a position, or enhance returns on existing positions.
8. Every 12 months we adjust our long-term strategic investment model, and every quarter we adjust our shorter-term tactical investment model.

Feel free to chat with us on our approach to wealth risk management and how we could improve your financial plan right now.  Email me at bob@CFAdvisor.com for a portfolio review.

References

Goldstein, Matthew and Nguyen, Lananh. “Archegos stock manipulation scheme was ‘historic’, US Attorney says.” The New York Times,  27 Apr. 2022, www.nytimes.com/2022/04/27/business/archegos-bill-hwang-patrick-halligan.html.

“SEC Adopts Rule Under Dodd-Frank Act Defining “Family Offices,” Securities and Exchange Commission, June 22,2011, www.sec.gov/news/press/2011/2011-134.