104: The Micro Family Office Strategy to Run Your Portfolio as a Business

(0:00) If you're a high earning tech professional who's holding between one and thirty million dollars (0:06) in equity compensation and assets, this may be the most important financial conversation (0:11) you've ever had. You're great at growing your wealth, but are you managing it like a business? (0:18) A micro family office is the solution for many who want to transition from scattered accounts (0:24) and reactive advisors to growing and scaling their wealth and protecting it on your terms. (0:31) Let's dig into it.

Welcome to Managing Tech Millions. My name is Christopher Nelson. (0:40) I am your host, and I couldn't be more excited about this episode for a couple of reasons.

(0:46) Number one, this is our episode 104, meaning that we have been putting out episodes to you (0:53) for the last two years. So that's a big moment for us here because we love producing valuable (0:58) content that helps you grow your career, build wealth and live the life that you want. (1:03) Number two is episode number two in our foundation series.

Last week, episode 103 was (1:10) the mindset of the ultra wealthy. If you haven't had a chance to listen to that, go back and check (1:15) that out because it truly helps you set up why today is so important. And today, episode 104, (1:22) we are going to be digging deep into the micro family office and why the micro family office model (1:31) of managing wealth is really what is made for tech employees, entrepreneurs and people that (1:38) have the one to thirty million dollars net worth that allows you to grow, scale and protect your (1:43) wealth on your terms.

And so I want to dig into what is a family office and how did I hear about (1:51) this? Right. So after my first IPO, I heard a little bit around, you know, family office, (1:58) you hear these whispers and you hear this term, you don't really understand what it means. (2:03) And so for me, I reached out to a friend of mine, Marco, who I knew had transitioned from tech, (2:09) got an MBA, did some investment banking and now was working in family offices.

So I had (2:16) the opportunity to sit down with my friend, Marco Cavedo, who explained to me what a family office (2:23) was and how it managed wealth for, you know, for the people who, you know, organize the family (2:31) office. And so that really opened my mind to a completely different way to manage wealth. And (2:38) we're going to be covering off what that means a little later in the episode.

And if you want to (2:42) hear more from Marco, episode 28, we went over what are family offices from the perspective of (2:49) the family that's setting it up. And then also episode 95, he and I dug into the investment (2:55) thesis. So go check those out if you want some more information.

But for myself, I started really (3:02) researching, understanding what family offices were and how they could help somebody like me (3:08) understand and grow my wealth beyond just spreadsheets and scattered accounts. I was (3:14) tired of not having any direction and feeling like I was placing some investments but had no purpose. (3:21) So that's when it was my conversations with Marco that led me to create my micro family office.

(3:29) Christopher, like, can we answer the question, what is a family office? I'm glad you asked. (3:37) And remember, there is nothing, there's no stupid questions here or no questions that (3:42) should not be asked because too many of us sit in silence when it comes to discussing finances, (3:49) discussing the way that money works. And so we need to be able to ask those questions.

(3:54) So let me answer that first. What is a family office? A family office is a business that is (4:02) built around a family's wealth to preserve, grow and manage it across generations. (4:09) That's simply it.

You're taking the wealth that you've created, building a business around it to (4:15) run and grow it, not just for you to retire, not just a little nest egg, but so that something (4:21) that's transitioned to multiple generations beyond it. Now, if you're asking yourself, (4:26) when did this start? Has this been around for just a couple of years? Is this a new thing? (4:31) The answer to that is no. This has been around since the sixth century, where noble families (4:39) would hire major domos to come in almost as chief operating officers to manage all of their (4:47) resources and their wealth for the same purpose, to grow it, protect it for multiple generations.

(4:54) The modern version of what we know as the family office came out of the industrial revolution in the (5:01) 1800s, where the Rockefeller family created the first full service single family office. (5:10) Remember that term, we'll come back to it in a moment, in 1882. So they hired specialists (5:18) to manage their investments, their philanthropy, and also all of their succession planning.

(5:26) Since then, family offices have grown so that they today own, they manage $10 million in wealth (5:34) globally. Family offices have a huge footprint financially. In fact, the wealth managed by (5:42) family offices of $10 trillion is much larger in comparison to the $6.5 million that are being (5:51) managed in hedge funds.

So it's a considerable amount of money. Family offices come in tiers. (5:59) There's three tiers, and the word family office is used every single time, so it could be a little (6:04) confusing.

I may break this down a little differently, but let's start from the top. (6:10) Single family office. This is a single family that is running their wealth as a business, and (6:18) $100 million is required to be in a single family office.

Single. Multi-family office. This is $30 (6:27) to $100 million in net worth.

Multi-family office, where families come together and they share (6:33) services. So this is to keep costs low. They don't have the $100 million to warrant it, (6:39) so you have multi-family offices right here in the middle.

Below that, you have us, (6:45) $1 to $30 million micro-family offices, where we're bringing in on-demand specialists as we (6:52) need them to manage our family offices. So that's the three levels. Single is the biggest.

Multi (7:00) is the next tier, $30 to $100 million. And then us, micro, $1 to $30 million in net worth. (7:07) So you may ask, why a family office? Why not just go to a wealth advisor? This sounds exhausting.

(7:12) Well, I think the biggest reason is that family offices have been outperforming the S&P for the (7:20) last five or 10 years. For a lot of the data that we can collect, we're finding that they are (7:26) doubling, being able to produce twice the return as the S&P 500 versus your index funds if you're (7:34) a fireperson. So the reason that people do this is you're able to get more results.

(7:39) There's also another of other reasons that people are doing it as well, (7:43) but let's dig into those as we get more into the mechanics of the micro-family office. (7:50) So I want to dig into some more details around the micro-family office. The micro-family office (7:57) is the solution that fits into the service desert for those that have $1 to $30 million net worth.

(8:04) Now, if you're asking yourself the question, what do you mean by a service desert? Well, (8:08) this was my experience. After I went through my first IPO in 2012 and became a multimillionaire (8:15) overnight, I thought that I had opened the doors where I was going to get access to family offices. (8:23) I didn't know at that point.

I'd heard the whispers. I knew that it was there for (8:27) high net worth individuals, but I didn't have the breakdown like I just gave you. (8:31) I didn't realize that between $1 and $30 million, there wasn't anything.

(8:37) So you can then understand my disappointment when some gentlemen came in from a large wealth (8:42) management firm and they laid out their investment plan for me, and I had been (8:50) outperforming them in my stock investment for the last 10 years already. They weren't (8:55) offering me anything more, but they were going to charge me more for I don't know what. (9:01) So it was at this point in time that I realized there was nothing that fit me.

If I went to a (9:09) traditional wealth manager, they were going to give me the investment strategies of less (9:15) than $1 million net worth. And this is always a cutoff because when you have over a million (9:21) dollars in net worth that you can invest, you have access to private equity. You have access (9:26) to direct real estate investments, but there's nobody to guide you in creating those.

So this (9:33) is where I realized that I was going to have to do this on my own. And so what I did is I studied (9:41) family offices and how they operated and created a much smaller optimized version for myself. (9:48) And hence, now there is the micro family office.

So it essentially is the way that you run your (9:58) wealth like a business and you create the same artifacts that are being used to run the businesses (10:06) of the single family office, the big boys, the multifamily office, 30 to a hundred million dollars (10:12) you have and create an investment thesis. You create a legacy statement and you use that to (10:19) define how you are going to manage your wealth to reach the desire that you, to reach the goal that (10:26) you want. So essentially if we define a micro family office, it is for high earners who have (10:35) one to $30 million in assets.

It runs your wealth like a business through standardized systems and (10:43) processes. So there's a framework, so you don't have to overthink it. You go in and you get wealth (10:48) ops, which is the framework and you understand how do you architect it? How do you build it? You build (10:54) your entities, you build your team, and then how do you run it month over month, quarter of a quarter.

(11:00) You create a cost effective structure because it's pay as you go. You're not having people on full (11:07) time. You may choose to have certain people on retainer if it suits your case, how you're managing (11:12) it.

And it leverages technology for efficiency and scalability, right? So that you can (11:20) really consolidate and understand what you're doing. This is the entirety of the wealth ops (11:25) framework that powers micro family offices. This bridges the gap between a DIY sort of home wealth (11:34) manager, between a micro family office, which gives you all of the different components that (11:42) the larger family offices have.

So it emerged because for myself and for my peers, millionaires (11:53) have been being minted more and more every single year. In fact, the data says that 500,000 new (12:00) millionaires were minted in 2023 alone, right? We have this great wealth creation engine, (12:07) tech equity. I know some people have sold and bought businesses that generated it, (12:11) but unfortunately we're limited by what the wealth managers have to offer and we want more.

(12:21) So this is why I went out and I built my own. And this is what I'm sharing here with you, (12:27) which is the strategy to build and run your micro family office. (12:31) Hey, before we continue to dig into the micro family office today, I want to let you know that (12:37) I do run monthly free workshops to help you understand how you architect your micro (12:45) family office.

And it's called the wealth ops way. And if you go to wealth ops.live right now, (12:52) you can apply and we run this once a month and it's your opportunity to come into a shared (12:59) learning environment. This is a no pitch zone.

This is two days hands-on where you're going to (13:05) walk away with your legacy statement in your investment thesis. These are two important (13:11) documents that allow you to set the course for your micro family office and be able to move it (13:17) forward. So again, if you'd like to join us, we would love to meet you and have you, (13:21) you can go to wealth ops.live and we'll see you there.

What is the difference between a micro (13:29) family office and going to a wealth manager? I want to answer that question clearly because (13:37) it's important that you understand both so that you can make the choice that's best for you (13:42) and your family. Number one, it has to do with how a family office is fully customized around the (13:50) family's values, their risk tolerance, and their long-term goals. So a family office is fully (13:58) customized versus a, when you go to a wealth manager, they're going to be focused on financial (14:07) services and portfolio management.

That's going to be stocks, bonds, and funds, and generally (14:13) things that they're going to be able to get commissions off of sometimes not, but a wealth (14:19) manager traditionally is operating within a certain bucket of what their company offers (14:25) versus family office is fully customized. The other thing it's important to understand is (14:32) that a family office, their scope is greater than just wealth management. It's also looking at wealth (14:39) management, tax optimization, philanthropy, education, and legacy planning, where when you (14:48) go to a wealth manager, you're going to find that their primary focus is going to be financial (14:53) services, where it's that portfolio management, the investment management, retirement and tax (15:00) planning, and some basic estate planning.

The other thing you need to understand is that (15:06) as a micro family office, you will have complete control over the strategy. You run it and you (15:14) manage it versus when you're dealing with a wealth management firm, you have to accept what (15:21) would be their models. They're going to have investing strategies and models.

If you're asking (15:27) for things that are too bespoke, that could then cost you extra more than actually doing it on (15:33) your own. The other thing it's important to understand is that wealth management firms (15:40) are standardized. They want to try and keep you in a box versus when you are managing your own (15:48) micro family office, you can then choose on the scope of investments.

If you have something that (15:54) really aligns with your values like renewable energies or affordable housing, that's something (16:01) that you can fold into there relatively easily that you can't. Same thing with managing philanthropy. (16:06) I think the last thing is that in a family office, you're going to retain (16:11) full control over who you're partnered with and who you don't want to do business with.

(16:17) You're also going to be making all of your financial decisions based on what's in the (16:22) best interest for your family. You're essentially going to be your family's fiduciary, (16:28) where in wealth management firms, they're not always a fiduciary. They may have sales goals (16:35) and targets that they need to meet.

They may be doing things that are more in their interest (16:40) than your interest. All of this comes at a cost. When you work with a wealth management firm, (16:47) it is going to be much more convenient for you.

This is where a family office is going to take (16:54) more work. Arguably, it's also going to be your family's legacy. I thought it was really important (17:00) to dig in and understand that because when you're thinking about starting and growing a micro family (17:08) office, you want to ensure that you understand what are all the decisions, what are all the impacts, (17:15) and what are all the risks that you're going to take into your hands by managing your family's (17:19) financial future.

I know for myself, it was exciting to me. I always thought that becoming (17:27) an investor, a full-time investor, would be a blast. I wasn't wrong.

I love being able to (17:34) partner with different operators in whatever space, whether that's a technology space, (17:40) whether that's a small business space, whether it's a real estate space, being able to understand (17:47) how they are growing and scaling businesses that provide jobs, that address affordable housing, (17:53) that address different things, and being able to be the one that infuses them with fuel to help (17:59) them scale and help them grow. Ultimately, this is a choice, but it's important that you understand (18:05) and are able to think about what are the differences between a wealth management firm (18:10) that's going to have limited scope, that may also have some conflicts of interest, versus you owning (18:15) your own future and being able to build and scale whatever you choose. Let's dig into what (18:22) are the core functions of a micro-family office? What is the universe and what does it entail? (18:27) It is wealth management.

This is your portfolio strategy. You're investing, you're divesting, (18:33) managing your cash flow. It's also business operations, your bookkeeping, accounting, (18:38) tax strategy, legal, technology, and workflow.

How does this whole machine run together? (18:46) There's also key details to partner management and selection. Not all of your partners are going (18:53) to be with you for your journey. You may outgrow them, or they may not perform.

Those are key (18:59) things to consider, so partner management and selection is critical. There's also family (19:05) governance and education. You want to be able to get clear on what your family's mission is.

(19:12) You want to be a legacy building with your children. You want to be showing them the family business (19:18) that they have the opportunity to move into. There's also lifestyle design and philanthropy.

(19:25) This is your opportunity to give back and your opportunity to leverage this micro-family office (19:32) to unlock the lifestyle that you want. Now, that sounds like a lot, and it feels like it's (19:38) overwhelming, but this is where the WealthOps framework comes into place because in the (19:43) architect and build, it walks you through how do you create a very lean and lightweight structure (19:51) to be able to support all of those processes. Then in the run phase where you're running your (19:56) wealth management in your business operations, the goal is to reduce the amount of time (20:02) in business operations so you can maximize the time you choose to spend in wealth management.

(20:09) If you want to spend a small amount of time in wealth management, and you're really trying to (20:14) maintain and slow and steady up and to the right, you can choose and you can create and craft that (20:19) because remember, this is a micro-family office. Ultimately, it's important that you understand (20:25) the core functions that I'm calling out here map to all of the core functions of a (20:31) multi-family office or a single-family office. It's scaled down for what you need.

(20:37) You think about the estate planning, you're going to have a big lift up front, but then you may be (20:45) doing small updates annually versus a large family office, a single-family office that has (20:52) a large family that every time a grandchild is born, they have to rewrite the will or figure (20:58) out how to bring them into it. That's a whole different level of complexity from a micro-family (21:03) office. So it's important that you understand how it scales.

But this is also where you need (21:10) to understand if a micro-family office is right for you, it's not right for everybody. There's (21:17) a lot of people that want to focus on continuing to grow their career and they don't want to choose (21:23) to have the time for this. There's also people that just really struggle and finances are hard (21:30) for them.

So I told you a few moments ago that I could not wait to become a full-time investor to (21:39) be able to manage my wealth and that is the business that I'm in today. And that's part of my (21:44) portfolio of work that I do since I've graduated from my W-2. But let's think about the ideal (21:51) candidate to build and run a micro-family office.

So you do need to be somebody who has (21:59) $1 million to $30 million in investable assets. This means assets that you can't invest, (22:06) don't include your home, don't include your car. You don't want to be investing (22:11) and playing around with those.

I'm talking $1 million to $30 million in investable assets. (22:16) You have a desire to be the CEO of your wealth. You want to own that vision and you're also not (22:24) afraid to be accountable for the results.

And not that you're going to run the entire thing, (22:30) but just like a CEO, you're also going to be responsible for the hiring and management of (22:34) the partners that you put in place. This is also ideal for somebody who wants to graduate (22:40) from their W-2 as an executive and sees themselves running an investment business (22:46) where they can grow and scale a company. Many of us loved and were excited about growing and scaling (22:55) hyper-growth companies within tech.

Well, imagine that you can now do the same thing. It's your (23:01) wealth. You're learning different techniques to grow and scale it over time that benefits you and (23:07) your family and is able to execute your mission.

That is true financial freedom. That's freedom of (23:14) purpose. That's time freedom.

That's what sitting in this seat and being the CEO of your portfolio (23:20) unlocks for you. This is also ideal for people that have been doing this in a DIY mode and they've (23:27) really sort of built a spreadsheet-driven wealth management company that manages things for them (23:33) and their family, but they want a more structured, holistic view and they want to move into a family (23:38) office model. This is perfect for you.

This is also key for people who, like myself, I'm a (23:47) first-generation millionaire. There's nobody else in my family in previous generations that achieved (23:52) this wealth status that I know of. I've done a little bit of genealogy, but I don't know everything.

(23:58) So for me, it is important. I want to have something to pass on to my children and my (24:04) grandchildren, but I don't want it to just be a little sack of money. Oh, hey, here's a little (24:09) sprinkle of this.

I want it to be a legacy business that my wife, Regine, and I are able to (24:16) put our imprint on. It can make an impact for the world and for the things that we truly believe in. (24:24) What you're going to get when you're running this as a family office, the benefit is (24:28) time efficiency because it's systematized.

You're also going to be able to get a lot more (24:35) dollars back on taxes, and you're also going to then be able to expand and understand the broader (24:41) world of investments and where you want to play in the sandbox and where you don't. But ultimately, (24:47) this is going to give you control and alignment to your values. And for many of you who graduate (24:54) out of the W-2, have a desire to grow and build a business that can be your legacy.

(25:03) This is exactly for you. Okay, and there you have it. That is the flyover of the micro-family (25:10) office so that you can understand that it is truly building a company, a small, nimble, (25:19) lean company around your wealth so that you can grow it, protect it, scale it, and leave it as (25:27) a legacy.

That is what a micro-family office is. You also learned a little bit about the history (25:33) of family offices. You learned that there's the single family office, the big boy, 100 million (25:38) plus.

There is the multi-family office, 30 million to 100 million. Then there's us, the (25:45) micro-family office, the one to $30 million net worth that is run by WealthOps. WealthOps is (25:52) critical because it gives you all of the frameworks, all of the systems and ways to scale it (25:58) so that you don't need to go invent that.

You're focused on operations from day one. That is (26:03) critical. Most importantly, you have understood the value of why running a micro-family office (26:14) can be the key thing for you as you transition from a W-2 into your next phase where it can (26:22) create a lot of opportunity for you to take your wealth that you've taken so much time to build (26:28) and use it to unlock the lifestyle.

The question is, are you ready? Are you ready to be the CEO (26:36) of your family wealth management business or not? We also talked a little bit about (26:42) what's the difference between just going to a wealth manager in a family office. (26:47) We realized that family offices are a much more holistic approach because they're built around the (26:52) family. It's a family business versus the wealth management is just to manage the wealth.

(26:59) I know some people get scared when they say, well, I don't know. Can I be a wealth manager? (27:04) I just always let people know it's a wealth manager. It's not a wealthy rocket scientist.

(27:10) It's a wealth manager. I'm not a wealthy physicist. What they're doing and truly when (27:16) you get into wealth management, it's just being disciplined and making sure that you're (27:21) continuously learning and you're managing your wealth month over month, quarter over quarter, (27:27) the way that you would do a business.

I would present to you that you can do a better job (27:33) of managing that year over year, month over month as you're in your W-2 and transitioning out than (27:40) a wealth manager who's maybe looking at your books once a quarter. I think you could do a (27:45) job. The reality is, you can unlock the lifestyle.

It's time for you to step up and (27:52) it's time for you to run your portfolio as a business. That concludes this episode, (27:57) but I do want to let you know, if you are interested in learning about WealthOps and how (28:02) you can architect your portfolio as a business and set your family up for success, I would encourage (28:10) you to come to wealthops.live. Go to that link and schedule yourself for one of our monthly (28:16) courses. We do two-day masterclasses where we teach you how do you actually architect and build (28:23) a legacy statement and an investment thesis so that you can have the compass and set your business (28:29) on fire.

Anyway, next week we are coming back and I want to give you some clear advantages of (28:38) advantages of running your portfolio as a micro family office. I want to make sure (28:44) that I'm breaking that down in detail so that you can understand that. (28:47) This is Christopher Nelson.

See you next week.