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Modern Wealth — the Family as a Financial Institution

Introduction

Let us say that you are told, in a job interview with a top notch banking & finance firm, that a certain family, over the course of time, has come into possession, wealth that comfortably exceeds a hundred million dollars, may be, say, it is several hundred million dollars. Further, let us say that you are asked, by the distinguished panel of interviewers, what does this piece of information mean to you? You are told that how you answer this question would determine if you are hired.

As a young professional who aspires to make a successful career in the banking & finance industry, you are expected to bring all the knowledge that you have gained, during your years of education and training, to address this situation. You are expected to engage in fundamental and detailed analysis to design a broad framework for managing the wealth of this family, over the course of the 21st century.

 

The Moorings of Modern Banking & Finance

What would you say, in response? How would you go about addressing this problem posed by the panelists, who are all, you may assume, are veterans of international finance?

Don’t turn around and ask, is this scenario even plausible? We are not in the Venice of the Renaissance period, you might say. Nobody really thinks this way in the world of banking & finance today. The wheels of modern finance are turning, over and over, every single minute, and it would be this way for eons and eons of time. People are just cogs in these wheels. They are expected to fit into the appropriate slot in this vast, unending maze of processes and procedures that makes up the modern finance industry, or so you could say.

Well, think of it as a fictitious situation, if you prefer. But, it is worth an attempt to answer this question, if only because it provides an opportunity to throw light on the methods that are available, in the modern world, to the task of managing a family’s wealth. What makes a world modern? Well, there are so many philosophical perspectives that address this question. But it is undeniable that you would have a sure, solid foundation to work with, if you started with an answer that said technology makes the world modern.

The legal framework underpinning modern finance was already established in the major financial centers of Europe during the Renaissance period. The banking & financial infrastructure that are needed for the modern capitalist world were created and refined in the European cities of this period. The list goes on and on — Venice, Genoa, Florence, Rome, Milan, Antwerp, Rotterdam, Bologna, Barcelona, Madrid, Lisbon, London, St. Andrews, Glasgow, Cologne, Munich, Basel, Heidelberg, Bremen, Krakow, Danzig, .…

The Wealthy Family as a Financial Institution

The single most important difference between these financial centers of the Renaissance period and the modern financial system is technological capability. This is what the modern banking system uses to provide services to financial institutions. To assess and monitor the risks and returns on the portfolios of its financial institutions clients on a round the clock, across the world basis is what banking establishments do today.

These institutional clients include business corporations, pension funds, mutual funds and so many other incorporated entities. These services provided to corporate organizations are what a family office, in view of the large capital under its administration, would avail, in the coming decades. Viewing the family as a financial institution conceptually provides the road map for seamlessly adopting those technological capabilities to address the needs that family offices face, while navigating risky and uncertain times, in guardianship of the large wealth accumulations of their families.