How to Start a Family Office: The 2023 Familoff Breakdown

Many wealthy families have turned to the concept of a family office as they grapple with complexities such as wealth preservation and succession planning. Unfortunately, figuring out how to start a family office is not without its challenges, requiring careful thought and planning for it to be successful.

The Growth of Family Offices

In the last twenty years, family offices have seen an incredible boom in popularity. Initially thought of as a concept exclusive to the few ultra-wealthy individuals, there are now over 10,000 around the world. This is largely due to the emergence of new entrepreneurial wealth within the tech sector, combined with generational shifts of power where next-generation leaders have become the custodians of their families’ legacies.

Furthermore, worries about capital market uncertainty and concerns about responsible investing and cybercrime have created further demand for a more personalized and institutionalized approach to financial management.

But what is a family office?

According to the Family Office Exchange (FOX), a family office is “a unique family business created to provide personalized wealth management solutions, respecting the identity and values of the family“.

Generally, these offices are founded as a result of running a successful family business. It offers families the same services provided by private banks and investment firms but with a dedicated team solely focused on meeting their individual requirements.

The Four Types of Family Offices

When choosing the ideal family office for them, families must take into account the size of their wealth, the complexity of their structure, and which services they need. Making sure that all these factors are taken into consideration is essential in ensuring the best fit for their specific requirements.

There are four types of family offices that are utilized. They are:

  • Single-Family Offices (Traditional)
  • Multi-Family Offices
  • Outsourced Family Offices
  • Do-It-Yourself Family Offices

Below, I will dig into each one, explaining what they are and how they work.

Single-Family Offices (Traditional)

Wealthy families can opt for a single-family office to separate their personal affairs from the family business, while also providing privacy, confidentiality, and customized service, with an aligned investment philosophy. Setting up and running a single-family office is usually the most costly, making it best suited to those with very large estates.

For more information about single-family offices, please see our article What is a Single-Family Office? A 2023 Comparison Guide.

Multi-Family Offices

For those with a smaller estate and less complex needs, multi-family offices can be a more affordable yet still professional option. Multi-family offices come in two forms: family-owned and commercially owned.

Family-owned MFOs are created by one or more of the founding families, while commercial MFOs are established by an external firm. Both offer financial management services to multiple families, though they may be less personalized than single-family offices.

For more information about multi-family offices, please see our article What is a Multi-Family Office? A 2023 Comparison Guide.

Outsourced Family Offices

For families wishing to save on costs, remote outsourcing of family office tasks is a great option. Virtual family offices make it possible for services to be obtained only when needed, eliminating the need for permanent employees.

However, this solution works best for those with simpler needs and who are comfortable with modern technology.

Do-It-Yourself Family Offices

Here at Familoff, we’ve developed an entirely new type of family office – the Do-It-Yourself Family Office. We believe that effective family lifestyle and financial management should not be available only to those with great wealth. Our DIY approach makes sure that everyone can experience the advantages of a professional family office service.

If you’re looking to take the benefits associated with a family office and apply them to your own life, I highly recommend getting started today.

The Roles of Family Offices

A family office offers a range of services to support and manage long-term wealth, promote family values, plan investments, ensure privacy and confidentiality, handle succession planning and management, manage taxes and finances, and comply with regulations.

Understanding these offerings is key in determining whether a family office is right for your family. Tasks may include, but are not limited to:

  • Building formal governance structures to guide long-term objectives
  • Creating and monitoring investments to meet impact goals
  • Managing trusts and estates for future generations
  • Budgeting for individuals and businesses
  • Filing tax returns correctly and on time
  • Knowing the existing compliance regulations

Making a family office work for your needs

Properly managing a family’s financial legacy is both an important and delicate responsibility. Establishing a family office can provide structure and institutionalize the management of wealth while minimizing risks and protecting the wealth across generations.

Benefits to establishing a family office may include improved governance, increased transparency, greater access to sophisticated information and resources, enhanced communication between family members and advisors, as well as streamlined succession planning.

But it’s critical to consider potential downsides such as costs, inadequate structures, and processes, lack of experienced personnel, or even taking on too much risk in order to achieve desired results. To best reap the rewards from a family office, make sure you have the right strategies in place.

How to Start A Family Office: Avoiding Pitfalls

Many family offices fail to deliver on individualized expectations. There are four extremely common pitfalls that should be avoided when developing a family office, either through conventional methods or via the Familoff method:

  • Failing to treat a family office like a business
  • Lacking purpose in the family office
  • Partial or full lack of competent governance
  • Inadequate data security and risk management

Failing to treat a family office like a business

Establishing a successful family office requires operationalizing it, setting up policies and procedures, and tracking key performance indicators. This helps ensure that the goals and objectives of the business are met and that all activities are held accountable for.

Lacking purpose in the family office

A long-term strategy and a clear vision are necessary for the family office to maintain its structure, decision-making capability, and overall effectiveness. Without these components in place, the family office’s operations may be severely hindered.

Partial or full lack of competent governance

To ensure success and efficiency, family offices must have well-defined governance measures in place. These may include delineating roles and responsibilities, setting authority levels, developing decision-making processes, and establishing a strategic plan.

Without these controls, family offices tend to be inefficient and underperform.

Inadequate data security and risk management

Natural separation of sensitive information is no longer enough to protect it from data breaches, which can be costly. To prevent this, family offices must have policies and systems in place that reduce the risk of a breach.

How to Start A Family Office: The Five Facets

The five facets associated with starting a family office are determining feasibility, defining processes and structures, building, testing, and a pre-launch review.

Determining family office feasibility

Before launching a family office, it is important to make an informed and well-justified business decision. A good way to do this is by creating a business case with the help of an expert advisor. It is also essential to consider the long-term vision and purpose of the family, its wealth, and future plans.

This can help guide decisions regarding staffing, governance, technology, advisory services, operations costs, and other complexities that come with setting up a family office. For some wealthy families, having a family office can be hugely beneficial. However, it is not necessarily suitable for all so careful consideration needs to be taken.

Defining processes and structures

Completing a more comprehensive business plan based on the feasibility study will offer a roadmap to implementation. This step is essential in designing the right structures that meet the family’s needs and have an accurate view of associated costs.

Further considerations include staffing – deciding which roles should be outsourced or insourced, defining role requirements, and hiring vendors as necessary. Additionally, legal, tax, and governance frameworks should be established, along with operational and reporting process flows.

Lastly, identify facilities needed, outline technology and system requirements, and produce an operational and capital expenditure budget.

Building out the family office

With a sound business plan established, it is time to refine the operational models and processes and secure the necessary resources.

This includes finalizing frameworks and the operating model, finalizing job descriptions and recruiting staff, outsourcing services as needed, securing premises, selecting and securing a technology partner for the family office, and ensuring that data security measures are in place.

Testing the family office

Prior to launching a family office, it is critical to ensure that all designs implemented on paper are operational in reality. This means testing the IT infrastructure, systems, and processes for strength and with cyber threats in mind.

Additionally, ensure that the facility meets expectations and has contingency plans ready to respond to any major disruptions.

Performing a pre-launch review and launching

Once testing is finished, a family office can begin operating. A phased approach to service delivery is not necessarily required if the correct preparation has been done and the investment into a family office should be evaluated continuously to ensure it meets the expectations of the family.

Performance tracking is essential and periodic reviews on people, processes, vendors, and technology should take place against family goals and best practices. Continued refinement and improvement will be necessary as communication effectiveness, digital capabilities, and cyber-security protocols often need to be improved upon in order for the family office to remain competitive and sustainable.

Final Thoughts on How to Start A Family Office

When a high-net-worth individual establishes a family office, it is not solely to manage and raise wealth. Other services that come with handling large amounts of money can be provided by the family office.

Wealth advisory firms usually provide the best option for those with significant wealth due to their professional advice and services that cater to their needs. Utilizing Familoff can also be beneficial in helping navigate life like a family office initially.

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