Behind the buzzwords with Bill Mulvahill

Searching for a financial advisor means getting inundated with certain buzzwords. For a long time it was “fiduciary” and now it's “virtual family office.” But what do these terms really mean? 

In this episode, Morgan and Bill discuss what a traditional family office is, how it’s evolved into a multi-family office, and the current trend toward virtual family offices. Beyond that, they look at what it takes to build a truly supportive virtual family office, and what questions to ask an advisor to see if you’ll really get that level of support.

Not sure if a virtual family office is what you need? This is the episode for you.

Ready to get to work right away? Learn more by visiting www.trailheadplanners.com.

Thank you for listening!

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Transcript

SPEAKER_01 0:04

All right, welcome back to Morgan on Purpose, the podcast. Uh, we're welcoming back, friend, my business partner, uh Bill Mobilehill. Bill Mobilehill, welcome back to the podcast. Glad to be back. I'm sure you are. Um and let's get straight to the point. Uh the Timberwolves are winning. Uh, when this is released, we don't know if the Timberwolves will still be winning versus the San Antonio Spurs, but we we're up 1-0 as opposed as as of this shooting, and that's very exciting news.

SPEAKER_00 0:32

Yes, it is. And uh I don't I don't want to say anything about it because I don't want to jinx it, but um it's an exciting time.

SPEAKER_01 0:39

Yeah. The only thing I'll say is that the main thing that matters is that someone beats Oklahoma City. I think that's the most important thing to all of us.

SPEAKER_00 0:47

I I think that's important based on the theory that good guys should always be bad guys. And uh the light dark. Yes, and Oklahoma City are the bad guys.

SPEAKER_01 0:57

So yeah, yeah, fair. Um all right, so let's get to the point. So we had you on about a month ago, um, and we were talking about one of our core audiences, which is entrepreneurs, um, and how they can optimize and grow their business. Uh, today I want to focus on what's been sort of a sidebar conversation um up until this point. And so that's what we call the virtual family office. Uh so for folks who don't know, um, our wealth advisory firm, Trailhead Planners, is structured to operate like a virtual family office. And we did this intentionally because we think it's the best way to serve our clients, whether you're a business owner navigating a complex exit, a retiree who is charitably inclined, or managing legacy planning perhaps, uh, or a family dealing with multi-generational wealth transfer. Uh, however, the term family office has also become a bit of a buzzword in our industry. And so I brought Bill on to help us suss through that and kind of address uh the term and the issue head on, um and so we can actually define what the heck family office means. Uh so Bill, let's start with the basics. What is a traditional family office, uh, the original model that billionaires used, um, and what makes it so effective?

SPEAKER_00 2:24

Yeah, so you know, if you think about what a wealth management firm is, where you know you're helping people with all sorts of parts of their finances, investments, you know, retirement planning, uh, and there's all the other areas, tax planning, estate planning, et cetera. And what a what a family office is, a true family office is it's essentially like that, but it's just for one family or maybe a subset of families. And um the power of it is that they're able to be very customized and focused on that family, and they're able to work with that family in a very deep way. Um, the issue uh is that it's quite expensive, and you have to have, you know, minimum one to $200 million to have a family office. And honestly, that number probably keeps going up too. So even those numbers, those thresholds might be outdated uh at this point. Um, but it's really out of the reach of nearly everyone, and it's becoming more and more out of reach um just as like the cost of running one goes up and up uh as well. Um but it's really their ability to kind of coordinate all of those areas of someone's fairly complex finances at a very deep and coordinated and customized uh level.

SPEAKER_01 3:37

Yeah, and so and just to kind of hone in on that, you're hiring your own CFO, you're hiring your own tax strategist. And I want when I say hiring, it's not like uh hiring a partner at some other firm. It's like you're literally hiring on a salary the individual, uh, the investment manager. Um these individuals are all working full-time uh in support of the family. Uh we've we've seen family offices that have uh you know coaches, life coaches, uh career coaches, all that stuff uh set up for you know second gen or third gen or something, something like that. So uh it's this is why the threshold for a family office isn't probably isn't 100 million anymore, it's frankly uh 500 million and getting closer to a billion. So the traditional model works well, uh, but it's also, as we noted, it's completely out of reach for most uh even successful people, right? Um walk me through how a virtual family office, which is our little spin on that, uh, makes the family office uh kind of service model more accessible. So, what's the difference in the structure?

SPEAKER_00 4:53

Yeah, I mean, if you think that the challenge with the typical family office is it's just really expensive to hire your own, not just a state attorney, but a team of estate attorneys and a team of accountants and tax professionals and a team of investment professionals. And so what a virtual family office is, is you know, we essentially sit at the center of it and source and collaborate with uh outside professionals from various firms to essentially create and mimic that same team and that same concept. Um and the the key to all of that is the level of coordination that's needed across that. And I think that's that's really what we try to focus on and try to do well. And it's also in the identifying and sourcing the right professionals too. Um because you know, what's right for one client from for an attorney might be not right for another client. And so you have to, you know, you have to have a high standard as you go out and source those professionals, and you have to essentially be a matchmaker too. Um, because again, what an entrepreneur that has a $10 million business and you know and revenue needs is different than an entrepreneur with a $50 million business, and that's different than just you know a family that doesn't own a business, but maybe they have you know big charitable giving goals, for example, um, or a retiree that wants to navigate taxes in retirement. So there's different needs, and you need to source those professionals, you know, according to their needs, uh, and you have to have a high standard as you find and matchmake them. And then there's the coordination that needs to be done too. Um, and so I think that's that's what it is. And by not needing to hire your own of all of that, and to being a little more like call it like open source model, uh, you're able to build a very, very high quality team and very high quality experience in a way that is cost effective and achievable for most people.

SPEAKER_01 7:00

Yeah, and I think that that last sentence really sums it up to where it's cost-effective and achievable. And I think to the point where at Trailhead, as we've rolled this out over the last half decade or so, um, we're able to do this for sort of the millionaire next door type, the millionaire retiree next door, um, where you know, ensuring all some of this is in-house, some of this is uh uh let's say coordinating with our professionals, but where tax planning is getting done, we're coordinating with the coordinating with the tax preparation team, uh instructions to estate attorneys, uh if there's trusts or not, making sure that you know all that gets done, uh assets get retitled, house gets retitled, uh, coordinating with insurance professionals, right? And so it's like we kind of sit at the hub of all this work going on, making sure that it's all aligned with the client's goals. Uh, but when we say this is accessible, like we really mean that this is accessible, this level of service is accessible to uh most wealthy families who want to work with a great wealth advisor. So I guess what we've seen though is that many firms are using this kind of virtual family office language as a marketing term without actually delivering on it. So, in your mind, what's what's different about how we operate here at Trailhead versus kind of using this term just as like a marketing label?

SPEAKER_00 8:24

Yeah, it's an interesting question because I feel like it's just the perpetual uh a perpetual issue our industry has is a term gets used and it it catches some momentum and then everyone tends to abuse it. And it makes it really hard for consumers because if you're a consumer, you get you get lost in kind of the the maze of what all these words are, what do they mean, and then like who's actually following through on this? And that's a challenge. If you're a consumer, you you really have a hard time vetting and assessing who's actually following through on, you know, who's actually a who's actually a fiduciary, who's actually providing a virtual family office experience. What I'd say is the difference between someone who just says it from a marketing standpoint versus someone who's following through on it is the level of coordination that's actually being done. Um, you know, and and that's the key. Uh I think in the traditional world and in most cases, you know, a person will have these various professionals they're working with, and they are kind of sitting in the center of all that, where they have to go meet with their tax person, then they have to go talk with their state attorney, and then they go talk with their wealth advisor or investment manager, and they're needing to find a way to translate and coordinate everything that's going on. Whereas someone who's truly doing a virtual family office and doing it at a high level, like the wealth advisor or whatever they want to call themselves, they are sitting at the center of that and actually doing the coordination. They are in the meeting and in on the emails with the tax professional, you know, handling a lot of that communication. They are in the meeting with and handling a lot of the communication with the estate attorney. And they're coordinating the investment portfolio with all the planning that's happening in those areas, and same with insurance, um, and same with things that are happening, you know, with uh a business that the client may own. Um, so there's a lot of work involved there, and so it's kind of taking that burden of coordinating all those pieces off of the client and onto the wealth advisor. And someone you know who who's doing that is that's kind of the threshold for actually executing on it. And it's it's a lot of work, which is why most advisors don't do it.

SPEAKER_01 10:47

Yeah, yeah. I think um as you talk through it, you can just start to imagine how much of a time suck that is. And I'll be clear like some people love that, but I don't know many of them, right? You and I tend to love that, but that's why we we do this job. Um, and then I'd also say what happens is it becomes this massive game of telephone, where uh insurance professional might say this thing, a state attorney says this thing, tax professional says this thing, investment advisor says this thing, and it's all kind of funneling through the client with maybe different levels of understanding. Um, and it can become incredibly confusing. Uh, to the extent something does get implemented, it might be counteracted by uh something on the other side of the wheel, so to speak. Um and ultimately it's just it's an ineffective mess. And so you really, you know, what we advocate is is this professional can come in, this is us on the team, um, and just kind of help coordinate all of this. Um so when you're in if someone's interviewing firms uh and hearing this term thrown around, um, or really just you know, asking about wealth advisory in general, frankly, what what questions should they be asking to find out, you know, what what level of service am I about to receive?

SPEAKER_00 12:04

Uh that's that's another really good question because you know, if again, it's a real challenge, I think, for consumers to vet who's actually providing these services at a high level and who's just making promises to get a sale. Um and I think the key is in that upfront process, you have to ask really good questions and they have to be specific questions. And the professional on the other side should have specific answers that are credible. And I think, you know, as a starting point, like what services are you actually providing um and and look for detail um and specif, you know, specific details in their response to that. How do you actually coordinate between the various professionals? Are you gonna be and are you willing to be in meetings with my estate attorney, with my tax professional, with my insurance agent, with my business's CFO, um if if you need to be. Um, how do you help like will you help me and how do you find and vet the right professionals? Um how often will you meet with me? How often are you communicating with the these various other professionals that I need that are in my life? Um and can you give me some examples of how you've done this with other clients? Um those are I think are a good starting point. Um and and again, the more specific and detailed you can be in your questions, and the more specific and detailed the professional can be in their answers, I think it sets the consumer and the client up for just you know a better chance at finding the right professional and someone who's actually going to follow through at providing a high level of service.

SPEAKER_01 13:54

So, what type of ongoing services and support should someone expect from a from a virtual family office?

SPEAKER_00 14:02

Um You know, that's a good question. Uh, as with most things, I think I think it depends. I think I'm I'm curious what your thoughts are, but I I think you you want a regular cadence of meetings um and and frequent touch points. Um I think the freak exact frequency is gonna differ for each client. Um, but you you want, you know, you want to know that you're gonna have multiple conversations throughout the year with the professional to make sure that things are happening uh proactively. Um I think you want to make sure that they're gonna help you with your estate planning and that they're gonna be involved in that process. Um and then I think a big one that we see is you want to make sure that they're gonna be proactive in helping you with your tax situation. Um I think that in particular is an area where everyone says that they do tax planning, but it's it's a lot less common to see truly proactive um planning and then kind of relationship management done on the tax side of things. Um too often I think people uh give it lip service, but they're really um they're really not as proactive in that area as uh as they often promise.

SPEAKER_01 15:17

They're frivolously throwing out ideas, yeah, which is different than uh actual tax planning.

SPEAKER_00 15:23

Yeah. Yep. I mean, what what are you what are your thoughts on on that?

SPEAKER_01 15:27

Well, I'd say when I when I think of a virtual family office, I would say that it's actually customized um to the family and their needs, right? So some families have higher needs, more professionals. Um you could even get into like true bill pay or cash flow management, right? Um or an introduction to an executive coach or something like that. I I think other families um you'd be overpaying for so much complexity, right? Like so you can kind of simplify it. And and that's where it's almost like a little bit of an accordion where it can kind of like stretch out um as a family's needs expand and then and then contract again. Um but it really should be about, okay, how do we it's not about increasing complexity, it's about how do we simplify you know the financial aspect of your life as much as possible in coordination with your goals, in coordination with your values, and ensure that the various professionals are uh aware of those values and goals and that you know that the work they do supports that. If there's a specific like a state recommendation, but it you know dramatically increases administrative uh complexity and cost, someone's got to really help the individual think through that, right? And so that I think that's where like knowing the client, knowing their goals is just so important um as you navigate all this. Um, so I guess I guess the conversation around the Ritual Family Office reminds me a bit of the fiduciary buzzword uh from a few years ago. Uh and so for those of you who don't know, a fiduciary advisor is someone who's legally obligated to put your interests first. It's a regulatory designation from the SEC. Uh, but there are different types of fiduciaries, uh, some of which are, let's say, less legally binding. Um and then also a lot of the financial advice you get online, you know, let's say like TikTok or something like that, those people aren't fiduciaries in most cases, right? So they have no legal obligation to actually provide uh advice that's in your best interest. Um meanwhile, I'd say qualified professionals like us are held to a very strict standard. Um while someone with a big social media following can say whatever they want. So I guess, Bill, as you as you see people talk about fiduciary or virtual family office, um do you think some of the stuff gets watered down and or misused? And I guess how do you feel about that?

SPEAKER_00 17:51

100%. And and like I said earlier, it's it's an issue that our it's unfortunately uh a feature in our industry is that these words get thrown around and abused.

SPEAKER_01 18:03

And we have an alphabet soup of credentials and it's really we we call ourselves different things. It is it's a very confusing industry to make sense.

unknown 18:12

Yeah.

SPEAKER_00 18:12

I mean, I think if I were a you know a person looking for an advisor, a professional, if someone uses one of these phrases, I think it's a good starting point, but don't take anything at face value. Um and and again, it's you have to have you have to go through the process of vetting them and asking specific questions like we talked about, and really getting a sense for um, you know, based on their answers, if you think they're actually following through at a at a high level. Um part of that is you know, having some good questions and detailed questions to go through it and assessing their answers. And part of that is, you know, when you sit down and you look someone in the eyes and and you know you're you're talking about these things, you can oftentimes just get a sense for whether or not you trust them. Um and and you know, for better or worse, that absolutely is part of the process. But you have to you have to go through the process of of vetting professionals and asking them specific questions to see if they're produ to see if they're actually executing these things at a high level. But yeah, it it absolutely gets it's it absolutely gets um abused and watered down, um, unfortunately. And I I think uh that's the way it will always be. And there will be other words and phrases that um become popular and then follow that cycle and get abused in the future as well, um unfortunately.

SPEAKER_01 19:41

So if someone's looking for financial help, uh whether they're retiring, selling a business, um, managing family health wealth, or maybe receiving family wealth, uh what questions should they start with? What would be like kind of list that we we could throw out there for people?

SPEAKER_00 19:56

You know, I think so we we already talked about some of them, and I think part of it is like getting specific about what the professional is actually doing, how frequently they're meeting with clients. Um ask about specific areas like estate planning and tax planning, and be specific, like what do you really do? What do you actually do for me each year in these areas? Uh and then I think there's a few other important ones. Um one is just making sure that like the expertise and the services of the professional and the firm that you're looking at matches your specific needs, right? Um, so if you have uh stock options from your employer, like that's a specific detail. You need to make sure the professional matches up with that. If you are going to retire in two years, you need someone who really is an expert in the various um tax planning strategies that happen early in retirement. Um, if you're a business owner, there's a lot of complexities that are unique to that, and you need to make sure that the professional has specific experience with those situations. Um, so making sure that there's a match there, I think is very important. I think looking for qualifications and the like the background and experience of the professional is important. Um that's not a perfect way to ensure that they're a good fit, but I think it helps tilt the odds in your favor. So what's their experience? What are their degrees? What are their credentials? I think those things help, even though again, it's not a perfect, it's not a perfect um sign, but it it does help tilt the odds in your favor. Um I think, I think those are I think those are some some good ones. I'm curious what what other thoughts you have on that topic.

SPEAKER_01 21:37

Yeah, I think that's a great fit. It's just like, or lists. It's like, how do I find the right fit? What do I need? Um, you know, what am I looking for? Right? Do I just want some help with investments? Do I just want a retirement plan? Um, or am I looking for much something much more comprehensive and integrated and ongoing? And I think like just kind of a gut check on. What do you offer? What do I need? Do you think I need something different than what I'm looking for? And I think sometimes it's, you know, from our seat on the table, it's it's kind of a um that's a conversation, that's an evolving conversation because people come in with kind of one idea of what's going on, and then we're kind of looking at some other things and putting those in front of them, and we just see if there's alignment um on a go forward plan. So um so I guess like just kind of sum it all up, a virtual family office uh helps you address all these questions because once you find that main hub, uh, we're calling it the quarterback. I don't even really like football, but that's that is the best metaphor we find. Um they can help coordinate the other decisions and professionals you need. And that's precisely why we operate this way, right? So it's by design, we created this just kind of based on client feedback because we were trying to eliminate the confusion uh and give our clients a single point of contact who manages the whole picture. So it's especially helpful to business owners who face uh very complicated decisions uh than someone who's just you know kind of uh managing personal finances, perhaps. Uh, but things like entity structure, succession planning, uh business valuations, right? Like this gets very complicated very fast. Um, but I'd also say it's equally valuable for retiree, uh, navigating legacy planning, uh, tax efficient distributions, uh, or coordinating gifts to children and grandchildren. Um, the complexity is different, right? But the need for coordination is very much the same. So if you're interested in learning more about how we operate at Trailhead Planners, uh visit trailheadplanners.com. We'll put the link in the show notes. Uh, and this is the Morgan on Purpose uh podcast, so please subscribe. Uh be sure be sure to check us out for regular updates, and we'll be back with a new episode in a couple weeks. Thanks so much, Bill. Thank you.