Oprah Winfrey Opts for Her Own Private Financial Adviser (Published 2010) (2024)

Oprah Winfrey has been a pioneer in television, her signal achievement being her syndicated talk show as the basis for a media empire. But when it comes to overseeing her vast personal wealth, Ms. Winfrey recently made a choice that harks back to a different age: opting to have her fortune managed by what is known as a family office.

Last month, she hired Peter Adamson, a chief investment officer who had previously overseen the investments for the family office of Eli Broad, the founder of KB Home and SunAmerica, to manage her holdings, estimated at more than $2 billion. The hiring of Mr. Adamson was big news in this rarefied world, but it surely left many of Ms. Winfrey’s fans wondering what, exactly, she had done.

Traditionally, a family office was a private entity meant to serve all the personal and financial needs of one wealthy person. The early model was what John D. Rockefeller established in 1882 to manage his family’s wealth but also to maintain a sense of family cohesion.

But what Ms. Winfrey is doing goes against current trends. Like everyone else in the downturn, the very wealthy lost money, but they also became more aware of expenses. As a result, many family offices, which cost millions if not tens of millions of dollars annually to run, are looking to enter partnerships or merge with other family offices to save on operating costs and increase the range of expertise of the people managing their fortunes.

John Benevides, president of the Family Office Exchange, an adviser to wealthy families, estimated that a third of the 2,500 to 3,000 family offices in the United States were contemplating some change. And 22 percent were considering reducing what the family office did or closing it, he said.

So what is the lure of a family office for someone like Ms. Winfrey? In two words, privacy and control.

“Sometimes they care less about the economics than control,” said Robert C. Elliott, senior managing director at Bessemer Trust, which was founded in 1907 to manage the Phipps family fortune. The founder, Henry Phipps, was Andrew Carnegie’s partner in the Carnegie Steel Company.

Generally, someone needs at least $500 million to set up a fully functioning family office. This would include investment, reporting and accounting services as well as general lifestyle management, such as maintaining homes, yachts and private planes. The height of the bar to justify the costs of a family office explains why many single-family offices want to merge.

Mr. Elliott said Bessemer, which began managing money for other families in 1975, took in two family offices so far this year and expected to bring in two more soon. “Investment returns are driving it,” he said. Maria Elena Lagomasino, chief executive of GenSpring Family Offices, said that five years ago families were happy to stay separate and never talked about giving up their independence. But that is no longer the case.

“The way it comes out is, ‘I’d like to rethink what we’re doing and maybe there’s a better way, and I feel that you’re going to be around,’” she said. “I wasn’t having those conversations at all two years ago. We’re having a lot of them today.”

Yet even if they did not merge their family offices, many wealthy families worried this year that their privacy could be breached in a different way. Family offices have long received special exemptions from the Securities and Exchange Commission. While the offices manage billions of dollars, they have not been subject to the same requirements that a money management firm would be. This is because they have been deemed private advisers, acting on behalf of a family, not public ones working for various clients.

In December, the House of Representatives voted to end the exemption for family offices in its version of the financial overhaul bill. The Senate version maintained it. Still, what bothers the families is not the reporting requirements or the costs of complying with S.E.C. rules but the public disclosures that come with them. “The loss of confidentiality is what upsets our clients,” said David Guin, head of the United States securities group at Withers Bergman L.L.P. “One of the things that goes on the investment adviser form, which is publicly available on the S.E.C. Web site, is the amount of assets under management. Anyone could find out what the family is worth — it would include ownership and control and trading strategies.”

Mr. Guin said he hoped the exemption would remain as the House and Senate bills were reconciled. If it does not, one way a family office could retain a level of privacy would be to join with a multifamily office, which reports on the assets of many families bundled together, he said.

In many ways, this consolidation of family offices is a generational issue. People with family offices like Ms. Winfrey, Bill Gates and Mayor Michael R. Bloomberg of New York are the ones who created the wealth, just as Rockefeller and Phipps did. Yet as the Phipps did with Bessemer Trust, the Rockefellers opened their family office. It has been managing other wealthy people’s money since 1980.

Family offices are lobbying in one area that affects everyday Americans. The leaders of 10 family offices signed on to the Fiduciary Statement, which advocates requiring all people calling themselves advisers to put their clients’ best interests first. Currently, an adviser at a brokerage is bound by the looser suitability standard. The differing standards are also part of the financial overhaul legislation.

“We’d like everyone to have our standard, which is biased toward us, but it’s troubling otherwise,” said Ed Lazar, a signatory and the president of the Threshold Group, which oversees the fortunes of the Russell family of Russell indexes and the Grace family of Bethlehem Steel. “We want everyone to have the same standard and sit on the same side of the table.”

And having that unconflicted advice is at the heart of what Ms. Winfrey or any family would want.