"Personal CFO" and "family CFO" are increasingly popular buzzwords that describe this person. The term is a loose one: there is no consensus on what constitutes the ideal CFO—it all depends on our individual needs. The CFO can be a professional at a multifamily office, the head of our own family office, a professional financial advisor or a lawyer or accountant. Entrepreneurs like Rosenberg, who find themselves swamped by their growing business activities, may see business experience as a prerequisite. In most cases, the family CFO must be capable of juggling a wide range of tasks, from overseeing investments and scrutinizing taxes to evaluating aircraft purchase or lease opportunities.

Billionaire entrepreneur Jim Clark actually coined the term about five years ago, when he found himself jockeying among various advisors to manage his wealth. He had founded and sold three successful companies—Netscape Communications, Healtheon and Silicon Graphics—but found himself dealing with 20 separate entities. To remedy this, Clark launched yet another company, called myCFO.com, which is now part of Harris Bank. He aimed to bring the sort of financial rigor seen in the corporate world to affluent individuals’ lives.

Liquidity Event
The event that usually prompts us to hire a family CFO is an infusion of new liquid assets—usually an increase in our assets to more than $100 million. "It usually takes a catalyst in net worth," says Richard Kohan, a partner in personal financial services at PricewaterhouseCoopers. "Entrepreneurs need to bring someone in to allocate the wealth." Jeff White, who acts as a CFO for clients of InvesTrust in Oklahoma, says: "The thought is that ‘I need someone to look after my financial well-being.’" That usually entails managing the clients’ growing assets.

One of the difficulties in choosing a family CFO is defining the skills you need; there is no formal degree for becoming one, no classes to take. "It’s much like the term ‘financial planner,’" says Brad Turner, a senior managing director at McDonald Financial Group in Cleveland, who has helped hire family CFOs. "The name has a very general, very fuzzy description." Rosenberg found that the certified public accountant who is now his CFO slowly evolved into that position over the years. "My CFO is the balancing act in my life," he says. "When everything went bad in the stock market, he brought me into a bank rather then staying with brokers. He was more conservative than me."

In any case, financial expertise is the sine qua non of a family CFO. The key task he or she must successfully complete each year is the planning and management of our asset allocation. This grows out of an analysis of both lifestyle and business issues. If we require more liquidity next year, say, to purchase an aircraft, our CFO may allocate more of our assets to money markets or devise a strategy for cutting taxes. A CFO must keep tabs on our expenses and income and manage our assets to ensure adequate cash flow and investment returns. Depending on our personal and business interests, we may want some special expertise also: some-one with a background in philanthropy if we spend most of our time working on our foundation, or someone with a strong investment background if we like to take charge of our own portfolio.

One of the difficulties in choosing a family CFO is defining the skills you need; there is no formal degree for becoming one, no classes to take. However, financial expertise is the sine qua non.

Another important decision criteria is cost. Mark Feldman, CEO of Inlign Wealth Management in Phoenix, recommends doing a cost-benefit analysis to compare a single-family office CFO with a multifamily office CFO. Determine how much a single-family office will cost, includ-ing the professional salaries, software, networking and support staff. Compare it with quotes for a similar level of service provided by three or four different multifamily offices.

The Multifamily Route
Choosing a professional at a multifamily office as your CFO has significant advantages. They usually have access to a deep, multidisciplinary teams who can devise tax strategies, keep records, plan estates and manage risk. It is prohibitively costly to replicate that in-house, most experts say. Multifamily offices can also negotiate better transaction rates with brokerage firms because they deal with larger volumes of trades than do single-family offices. They can pool security purchases such as stock trades, and this can cut commissions dramatically.

Multifamily offices have several drawbacks. Some get a cut of any commission paid to the brokerage firms that execute their trades. On derivatives trades, they may earn as much as 0.25 percent of the value of the contract. Also, despite the current vogue for open architecture, there is always the risk that the family office arms of financial conglomerates are somehow compensated more to push the firm’s own products, which may not be the best on the market. "Make sure there’s no compensation structure based on recommendations," says White. "It compromises the independence of the family office." The most serious concern, however, may be stewardship. A multifamily office is a business; we are only one of its clients. A single-family office’s mandate is to be wholly devoted to our family’s needs.

Office Expenses
While that sounds ideal, the single-family office has one major problem: cost. We usually need more than $250 million in assets for a single-family office to make sense financially, according to Family Office Exchange (FOX), a consulting firm. A family office, after all, is essentially a separate, self-governing company that may employ anywhere from 5 to 50 people. The average CFO running a family office makes about $180,000 a year, according to FOX. There is also the expense of support staff, office space, technology and insurance. Feldman estimates that for families with assets of roughly $100 million, the total cost of running a single-family office is around $1 million a year; the rock-bottom annual cost for running any family office is about $400,000.

The job of the single-family office CFO is a tough one to fill. A CFO needs a fat Rolodex to spin when hiring accountants and attorneys. "The CFO needs to know enough to be dangerous," says Mike Van Haren, a partner with Michigan law firm Warner Norcross and Judd. "For the rest, the CFO goes to experts." Typically, single-family office CFOs must be well versed in private equity, family start-ups and tax issues. They often have multiple degrees, such as MBAs, JDs and CFPs, according to FOX. Most CFOs have worked in the business world for two or three decades. They must be quick studies because there is no time for clamoring up learning curves when running a family’s finances. "If you’re not quick on your feet, you end up on your back," says White. "There’s no room for not knowing."

Those who decide to foreswear family offices altogether may choose to tap another professional—an accountant or lawyer, for example—as a CFO. However, these professionals often lack experience dealing with family dynamics, something experienced family office personnel typically have. However, if they have our confidence, this may not be an insurmountable problem. "Chemistry is very important," says White. "There has to be a tremendous amount of trust, because they’re going to rely on you to pick the right attorneys and accountants to satisfy their goals."

Hiring our own family CFO typically takes more work than hiring a multifamily office CFO. Lawyers recommend cementing the relationship by drawing up a confidentiality agreement with termination provisions. Some families with a large family office even get professional liability insurance that protects them against the risk of the CFO making serious errors, such as choosing an investment firm without adequate due diligence.

The chances of us finding the perfect Renaissance man or woman to act as our family CFO are slight. It takes time and a great deal of research to find the right candidate. "You’re talking about a very special person," says Claire Kluever, senior relationship officer at FOX. "They have to be strong and in control." They will almost certainly also be in great demand.

From Your Side of the Table:
Essential questions to ask a prospective CFO

The Single-family office
1. What experience do you have starting a family office?
2. Have you dealt with family issues before?
3. What experience do you have dealing with different investments?
4. Who are your references?
5. How deep is your professional contact list?

The Multifamily office
1. What are the core competencies in your firm?
2. What is your experience dealing with my level of wealth?
3. How often do you deal with external advisors?
4. What steps do you take to make sure my records remain confidential?
5. Do you take a portion of the commissions charged on any investment products?


Illustration by Linda Fountain