What is a family office? A family office is a professional organization focused on providing bespoke financial advice and services to individuals with high net worth. These advisors offer an array of tailored investment strategies, estate planning advice, and tax optimization plans. These plans are designed to help preserve and foster the growth of an HNWI’s (high net worth individual’s) wealth.
Family offices stand apart from the traditional wealth management industry by providing comprehensive solutions to the financial and asset management needs of wealthy individuals or families. These professionals provide a holistic approach to their client’s finances. They utilize a diverse suite of services tailored to meet their specific goals and objectives.
Many family offices provide a range of services beyond financial planning and investment management. Some of these include budgeting, insurance, philanthropic support, wealth transfer planning, tax services, and more.
Focusing on Understanding Family Offices
For those High Net Worth Individuals (HNWIs), family offices can offer a range of services tailored to their needs. Investment management, philanthropic advice, and succession planning are just some of the services provided by these family-run operations.
To manage complex financial and asset scenarios, clients may benefit from a dedicated team of specialists. Alongside this, family offices also take care of non-financial matters such as private schooling, travel itineraries, and other household arrangements.
SFO vs MFO: A Quick Comparison
Single Family Offices (SFOs) cater exclusively to a single ultra-wealthy family. Meanwhile, Multi-Family Offices (MFOs) are more in line with conventional private wealth management practices. MFOs aim to build their business by providing services to multiple clients.
The increased popularity of Multi-Family Offices is largely due to the economies of scale that they bring. MFO usage allows for cost-sharing among their diverse clientele.
The services provided by a family office can vary significantly, ranging from providing high-level advice and guidance to organizing lifestyle needs. Importantly, what a family office does is tailored to the specific needs of its individual client.
Common Responsibilities of A Family Office
Working with ultra-wealthy families to provide tailored wealth management plans requires expertise and capabilities that no single professional advisor can offer on their own.
Establishing a successful wealth management plan for ultra-wealthy families necessitates the collaboration and coordination of a number of professionals across legal, insurance, investment, estate, business, and tax disciplines.
Family offices deliver comprehensive financial planning services, integrating asset management, cash flow management, risk management, and financial planning with lifestyle management and other services. This integrated approach helps ultra-wealthy families negotiate the complicated terrain of wealth management.
Estate and Legacy Planning
Maximizing legacy for ultra-high net worth families can be challenged by many factors. Just a few of these factors include estate taxes, laws regarding inheritance, and internal family or business issues.
To ensure a successful wealth transfer, families must consider every aspect of their wealth. This includes business interests, estate disbursement, family trusts, and philanthropic ambitions, as well as determining family governance.
Family offices must coordinate efforts with a multidisciplinary team of advisors in order to craft an optimized wealth transfer plan that preserves the family’s legacy.
Get more information about Estate and Legacy Planning here.
Not only do family offices provide support for the wealth transfer plan, but they also act as a personal assistant to the family, taking care of everyday needs and making sure their lifestyle is taken care of.
Family offices can provide a wide range of services, such as background checks for staff members, personal security for home and travel, managing aircraft and yachts, planning and booking travels, and streamlining business operations.
Get more information about Lifestyle Management here.
Investment and Asset Management
A family office can provide a variety of services for the family, such as managing investment portfolios, dealing with commercial real estate transactions and property management, engaging in private equity and hedge fund investments, as well as investing in venture capital.
Get more information about Asset and Cash Management here. Get more information about Real Estate Investing here.
Wealth Education Through Generations
A family office is responsible for teaching younger members how to responsibly utilize and manage their wealth, according to the values of the family.
The office can help instill an appreciation for the wealth in upcoming generations and with proper education, it will be able to preserve unity within the family, avoiding any form of discord related to the finances of the family.
The Four Types of Family Offices
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)
An established traditional family office provides a variety of services to protect and extend the wealth of the family. It is typically staffed with professionals, such as financial advisors, tax experts, estate planners, accountants, and others who are experienced in managing family funds.
All the staff members are employed by the family, minimizing any potential issues of bias towards products and services that could arise from working with financial institutions. The ultimate goal is to provide the family with the highest quality financial service available.
For more information about single-family offices, please see our article What is a Single-Family Office? A 2023 Comparison Guide.
An established multi-family office offers a variety of services similar to that of a traditional family office. Employing a range of experts, tailored wealth management solutions are crafted to fit the unique financial and domestic needs of each family.
With offerings extending beyond investment management, multi-family offices provide services such as bill payment, wealth transfer strategies, philanthropic advice, and wealth education. Typically, they charge a percentage of the assets under management in connection to their services.
Cost-wise, multi-family offices can be more affordable than traditional family offices due to their multiple client base. However, this often means that a family has a lesser degree of control over the provider.
For more information about multi-family offices, please see our article What is a Multi-Family Office? A 2023 Comparison Guide.
Outsourced Family Offices
An outsourced family office is a collaborative network of experienced service providers, such as financial advisors, lawyers, and accountants. Typically, one of the professionals acts as the coordinator for all communication and initiatives.
What sets multi-family offices apart from other service providers is their ability to consult with each other about one family’s financial affairs.
An outsourced family office can manage a range of tasks usually handled by traditional and multi-family offices, such as philanthropic planning and wealth education for the family. This type of service is typically less expensive than a traditional family office; however, the family will have significantly less control over the professionals.
Do-It-Yourself Family Offices
I admit I added this one in here. The Do-It-Yourself Family Office is a completely new category, developed right here in Familoff. The way I see it, the structure and format of how family offices effectively utilize every aspect of a family’s lifestyle and financial management is not something that should be attainable only for the ultra-rich.
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.
Determining Family Office Complexity
The overall complexity of a family office is determined by the specific goals of the individual wealth owners. In general, the complexities can be separated into six different categories: investment goals, financial goals, households, structures, entities, and advisor relationships.
- Investment Goals have complexity drivers based on the number of investment advisors, complex alternative asset holdings, and pooled investment vehicles.
- Financial goals have complexity drivers based on clear personal goals for financial security, comparison of personal goals to group goals, and annual monitoring of goals to completion.
- Households have complexity drivers of geographic diversity, the number of involved households, and specialized reporting needs.
- Structures have complexity drivers of complicated ownership structures, multiple owners per structure, and a lack of a mechanism for a smooth exit.
- Entities have complexity drivers of complicated legal structures, large numbers of entities, and extremely complex entities, including foundations and businesses.
- Advisor Relationships have complexity drivers of diverse ecosystems of providers, integrated and customized solutions, and constant needs for communication.
Determining what the complexities are as soon as possible, and working to alleviate them in the most effective method, are strong catalysts for overall success or failure in the goals of a family office.
Frequently Asked Questions About Family Offices
There are many questions that arise with the concept of a family office. While it may seem like a simple enough term, true family offices can be one of the most complicated strategies that ultra-high-net-worth individuals deal with. Here are some of the most common questions.
What is a family office?
A family office is a professional organization focused on providing bespoke financial advice and services to individuals with high net worth.
These advisors offer an array of tailored investment strategies, estate planning advice, and tax optimization plans designed to help preserve and foster the growth of an HNWI’s (high net worth individual’s) wealth.
When does creating a family office make the most sense?
Establishing a family office is an involved process that can help manage and preserve family wealth. Typically, families with more than $100M in investable assets may opt to create a dedicated single-family office. They do this to gain greater control over their assets, enjoy collective buying power of the family’s combined resources, maintain privacy and have a devoted team focused on providing key services and aiding in the pursuit of long-term objectives.
Furthermore, creating a family office is also one way to keep the family together.
How many family offices are there?
Though there is no exact data available, Family Office Exchange estimates that the number of single family offices in the U.S. ranges between 2,500 and 6,000, with a further 5,000 existing as informal entities within privately held businesses across the U.S., Europe, and Asia.
What is the cost of a family office?
The cost of establishing a family office varies depending on factors such as the size of the family, the number of staff employed, and the types of investments made.
Cost complexity is a major factor when setting up a family office. To accurately calculate the total cost of wealth management, one would need to take into consideration expenses such as the cost of running the family office, fees paid to advisors (e.g. lawyers, accountants), and investment costs (e.g., outsourced CIO services, investment consultancy, investment management fees, custody).
It is a common misunderstanding that the size of an individual’s assets is the primary factor when determining their wealth management needs. This could not be further from the truth – it is the goals and circumstances of the family which dictate the complexity of their wealth management requirements.
Factors to consider include, but are not limited to, how many family members or households there are, what type of ownership and legal structures exist, what kind of investments have been made, and which entities they are stored in.
Is a wealth advisor the same as a family office?
Whilst wealth advisory firms offer some of the services which a family office can provide, such as portfolio and investment management, they tend to have many clients rather than just one – with the exception of multi-family offices.
Additionally, a family office is able to offer a much broader range of services to meet all of the wealth-based needs of ultra-high-net-worth families.
Final Thoughts on Family Offices
When an ultra-high-net-worth individual sets up a family office, it is for multiple reasons beyond just managing and growing their wealth. Other services are available which can assist the family with the complexities and demands which comes hand in hand with having such large sums of money.
Wealth advisory firms are often the most suitable option for highly affluent individuals, rather than a family office, as they offer professional guidance and services which meet the needs of most people with significant wealth. Conversely, utilizing a service such as Familoff can go a long way in getting started navigating your life like a family office.