Even richest families can struggle to stay ahead.

In the 1990s, billionaire entrepreneur Jim Clark, founder of Netscape Communications, popularized the term "family office" to describe the range of services needed by someone with more than $100 million in liquid assets.

After buying and selling two other companies--Healtheon and Silicon Graphics--Clark realized he was employing dozens of people to handle his monumental wealth. So he created another company, myCFO.com, now part of Harris Bank, to offer services needed to run a "family office"--everything from paying the bills to purchasing a yacht to setting up a foundation.

A family with $100 million or more of liquid assets ranks on the top rungs of the wealth ladder. That's when managing money gets so complex that it can take as many as 30 advisors, tax specialists and attorneys just to handle the paperwork.

"A family office is when you have so much money, you need a whole team, not to mention really sophisticated global custody software," said Hal Harley, managing director of Deutsche Bank Private Wealth Management in Los Angeles.

These days, family offices typically exist in cyberspace and are run by banks and trust companies such as J.P. Morgan Private Bank, Northern Trust and Mellon Financial Corp. Most investment houses and trust companies differentiate themselves by the use of sophisticated software tools. Technology is a key factor in holding down commission costs, in switching seamlessly from a poor-performing investment manager to a better one, and in capturing the data needed to track everything from stock splits to derivative sales.

"A family office is for people who have a lot of money and a lot of family," said Frank Ulf, chainnan and chief executive of Covington Capital Management, a boutique wealth advisory firm in Los Angeles.

"Managing money for a family gets a lot more complicated as you get multiple generations," said Ulf, the former chairman of U.S. Trust Co. of California, a unit of Charles Schwab & Co. "The first generation worked hard to create the estate, and the fourth generation tends to spend it."

Wealth democratization 

In the last 10 years, the amount of wealth created in the United States has exploded, changing the definition of what it means to be exceptionally rich.

Today, it takes at least $100 million to set up a family office, compared with $50 million in 1990. The cost can be substantial because of the amount of services needed to manage assets in a global economy.

The Family Office Exchange LLC, a nonprofit group that offers advice on whether a family office makes financial sense, estimates there are 2,500 to 3,000 family offices in the United States. If smaller offices are factored in, the number jumps to roughly 6,000, with a growth rate of 10 percent a year.

The Exchange offers consulting services to about 350 family offices, which share information about their experiences with wealth advisors. The group offers a list of dozens of wealth managers, investment houses and software companies that all have a piece of the highly fragmented wealth management pie.

Because of their size, family offices often play a visible role in the stock market, usually with the sale of large blocks of shares, and an even larger role in alternative investments such as hedge funds. More importantly, family offices get to pick from the top money managers in the country, rather than being forced to settle for the house brand.

Trust factor

Many trust companies including Northern Trust, U.S. Trust and Bessemer Trust, have been around for more than 100 years and control a large share of the family office market. Old-line families such as the Rocketellers and Whitneys were among the first to create so-called family offices to manage multigenerational wealth.

In 1971, Mellon Financial Corp. created the Mellon Family Office, the first group in the United States to focus exclusively on the requirements of families with tremendous wealth. Mellon now provides services to 120 family offices in the U.S. with total assets of $30 billion, or roughly $250 million on average per family.

"Geographically, California and the West Coast are the fastest-growing segment for family offices because of the higher number of entrepreneurs and new wealth creation," said Donald Heberle, executive director of private wealth management at Mellon.

The economics of setting up a family office only start to turn in a family's favor once they have $100 million in investable assets. At that point, the sheer complexity of managing multiple trusts and partnerships, tracking investments in foreign countries and currencies, setting up foundations, and paying taxes in several jurisdictions requires highly sophisticated software. Wealth advisory firms often tout global custody software as a huge differentiator with competitors. After all, what's the point of having so much wealth if you can't see what it's doing on a computer screen?

Heberle emphasizes that working with families requires a unique skill set not only to prevent family feuds about money, but to educate the next generation and get them involved in the decision-making process that is usually part of a private foundation.

"The creator of the wealth usually wants to make sure that a foundation will last beyond their lifetime, and that the kinds of causes they support get carried on as well to the next generation," he said.

Trusts are one of the most often-used investment vehicles for estate planning and tax purposes in which the assets of a family will be passed down and distributed to the next generation.

"Often you'll have grandparents who want to leave money to their kids or grandchildren, and they put it in a trust to be distributed at a certain age, because you don't want a child who is 10 years old to inherit it all at once," said Dianne Prust, vice president of Northern Trust in Los Angeles.

New York's Bessemer Trust, the successor to the Henry Phipps family office, opened its doors to the public in 1974 and now manages $43 billion for roughly 1,800 families worldwide. It only accepts clients with a minimum of $10 million in investable assets.

Jeffrey Glowacki, principal of Bessemer Trust in Los Angeles, said the company's singular focus on high net worth families also avoids the conflicts of interests that occur at traditional banks or investment houses, which sometimes get wealth management business because they started off as a lender. Bessemer, which specializes in family business planning, strategic philanthropy and fiduciary counseling, has a 3-1 ratio of employees to clients, one of the lowest in the industry.

"We see a lot of complicated problems that wealth brings to individuals, and we see those problems over and over again," he said.