What Is a Personal CFO and Why Do You Need One?

For many high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families, managing the family enterprise that results from significant wealth can be as complex as running a business. Just as any successful business will have an experienced and competent chief financial officer (CFO), so, too, should successful families.

A personal CFO is dedicated to working with a family and its wealth advisors to provide comprehensive financial management with the goal of helping to ensure their financial well-being in areas such as accounting, financial analyses, and property management.

In essence, a personal CFO exists to help relieve the burden of managing the complexities of a family’s financial affairs, giving that family more time to focus on what matters most, while making sure the right controls are in place to mitigate any risk.

A personal CFO can be an individual, but it can also take the form of a specialized wealth management firm or multi-family office that provides these services to other successful families.

Understanding the role of a personal CFO

A personal CFO is responsible for ensuring adherence to a strategic financial plan that aligns with a family’s short- and long-term goals and vision, particularly the parts of a plan that pertain to lifestyle management.

The key responsibilities of a personal CFO typically include:

Bill pay and accounting

A personal CFO will receive, review, record, and pay bills and invoices on a regular basis, manage cash, and perform bookkeeping activities for all financial transactions (including credit cards) within a highly controlled environment.

Property and personal asset management

For families with multiple real estate holdings or ongoing real estate development or remodeling projects, a personal CFO can manage all aspects of property readiness and phases of construction and renovation, including contract management, budgets, and general oversight. Needless to say, that can take an enormous load off of a family.

Beyond real estate, a personal CFO can help manage the financial aspects of various personal and passion assets, including art, jewelry, vehicles, aircraft, or boats.

Payroll and HR management

As many HNW and UHNW families employ household staff, a personal CFO can provide support for recruitment and onboarding, as well as administering payroll and benefits, including coordinating with a third-party payroll administrator. In addition, a personal CFO can conduct annual reviews of household employees to ensure payroll is benchmarked to current market rates.

Loan and insurance management

With multiple homes, personal assets and often business interests, most HNW families have complex insurance and lending needs. A personal CFO is there to oversee and manage relationships with insurance companies, such as reviewing policies to ensure alignment with a family’s goals and see that there are no gaps, as well as to review, facilitate and manage loans and other lending arrangements.

Cash flow management

Maintaining healthy cash flow is fundamental to financial stability for any successful individual or family. A personal CFO monitors your income and expenses, helping you budget effectively and avoid unnecessary debt. That includes analyzing your spending patterns and advising on adjustments to help ensure that you are living within your means, while still enjoying your lifestyle.

Similarly, a personal CFO is often responsible for creating budgets and financial forecasts to help ensure you stay on track with your spending, saving and investing, instilling a sense of confidence that you are on the right financial path.

Philanthropic management

As a result of their good fortune, many HNW families are philanthropically minded. To facilitate their good intentions, a personal CFO will often be tasked with managing charitable activities, including gifts, contributions, and foundation operations, to ensure a family’s philanthropic vision is appropriately and effectively enacted.

How to know when you need a personal CFO

While a personal CFO might seem like a luxury reserved for only the ultra-wealthy, more and more HNW families and individuals with financial situations that have become too cumbersome to manage themselves are enjoying the benefits of having a personal CFO. In fact, a personal CFO can be advantageous for individuals and families at various stages. The following are reasons that it might be time for a personal CFO:

An overly complex financial situation

As any successful family knows, managing investments, taxes, and estate planning requires specialized knowledge and expertise. A personal CFO brings this experience to the table, helping a family to navigate the intricacies of financial management with confidence and precision. If your financial picture has simply become too complex to manage on your own, it may be time for a personal CFO.

Time constraints

For many people, managing finances is a time-consuming task that detracts from other important aspects of life, such as career, family, or personal interests. A personal CFO takes on the burden of financial management, freeing up your time and allowing you to focus on what matters most to you.

Major life changes

There are certain significant life events that can trigger the need for the services of a personal CFO. For example, a terminal illness or the death of a spouse can necessitate working with a personal CFO, especially if the person who is ill or recently passed away managed the details of the family’s finances. A personal CFO can step in to take over that important role.

For similar reasons, a divorce can prompt interest in engaging with a personal CFO. If one spouse has not historically been involved with managing the family’s money, a personal CFO can be invaluable once a divorce is finalized and a couple’s finances are no longer comingled.

Disability can be yet another reason to explore a personal CFO. The early onset of Alzheimer’s disease or a stroke are just two common examples where someone who previously was able to manage their finances now requires the services of a personal CFO.

FOMO on maximizing wealth potential

A personal CFO’s expertise can help optimize your financial resources, leading to increased wealth accumulation over time. A personal CFO will identify opportunities for growth and efficiency that you might overlook, helping you achieve your financial goals more effectively when it comes to areas such as financial forecasts, personal asset management, cash flow, and budgeting.

Support in creating a long-term vision

A personal CFO focuses on the long-term financial health of you and your family. That long-term vision helps to ensure that your financial plan evolves with you, adapting to life changes and economic shifts, potentially for generations to come. If you need support in developing a roadmap to achieve your desired legacy, a personal CFO can help.

Hiring direct vs. outsourcing to a firm

As mentioned, personal CFO services can be provided by an individual or a firm. We are of the opinion that outsourcing CFO services to a firm often comes with benefits over hiring an individual for these reasons:

• Greater Internal Controls: Working with a firm, with numerous professionals managing one account, inherently has more junctures for checks and balances than a single individual otherwise would. These controls help to ensure that the work is being done correctly, in addition to protecting the hiring individual or family against any malfeasance.
• Team-based Approach: The lives and circumstances of UHNW individuals and families bring significant complexity. Relying on a single individual to manage all areas of lifestyle services comes with a degree of risk. Working with a team accustomed to dealing with myriad requests and issues offers security through a larger talent pool of expertise.
• Longevity of Service: Working with a single individual comes with key-person risk. Should something occur that causes the acting personal CFO to leave or prohibits them from serving you any longer, you could be left in the lurch. Firms and multi-family offices come with the security of continuity of service. Should something happen to an individual working on an account, there are other trusted experts available—who are already familiar with the account—to step in, seamlessly.

How to choose a personal CFO

Choosing a personal CFO involves several key considerations. First, assess their knowledge and experience in financial management. A personal CFO should have a proven track record of working with individuals or families similar to yours.

Of equal importance is the candidate’s compatibility with your personal values and goals. The ultimate success of a personal CFO depends on the cultural fit with you and your family and how well the individual understands and aligns with your vision and how you want to work together. A personal CFO should be able to communicate clearly, be transparent about specific strategies and fees, and be proactive rather than reactive in anticipating and responding to your needs. Taking the initiative to alert you to an issue or opportunity well before it is on your “radar” is what a good personal CFO does.

Also, consider how a personal CFO candidate approaches risk management. A good personal CFO will balance your financial ambitions with a prudent approach to risk.

Finally, delve into references and seek testimonials from previous clients. Doing your due diligence and meeting with potential personal CFOs in person is essential to build both your confidence in their abilities and to set the relationship off on the right foot.

In summary, a personal CFO can provide much-needed confidence for successful families whose financial pictures require robust and continual oversight. Knowing that a knowledgeable professional is overseeing your financial affairs, and who is there to proactively address any issues and risks, is invaluable to successful families.

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