“An old Chinese proverb “The best time to plant a tree (– or build a resilient plan for your family) is 20 years ago. The second best time is today’.”
At the top level of private wealth comes a structure called the family office. This is when a wealthy family incorporates its wealth into a separate legal vehicle, sometimes employing in-house staff to manage it, or other times employing external consultants.
A family office acts as a Personal CFO or Chief Advisor to wealthy families, with a dedicated team of professionals who oversee and manage the complete financial affairs of client families.
A family office is a private company that manages investments and trusts for a single wealthy family. The company’s financial capital is the family’s own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning. A family office can cost over $1 million to operate, so the family’s net worth usually exceeds $100 million. Recently, some family offices have accepted non-family members.
More recently the term “family office” or multi-family office is used to refer primarily to financial services for relatively wealthy families.
To enhance their appeal to potential clients, family offices strive to be an all-contained, one-stop-shopping experience to a degree that goes far beyond what the typical integrated, full-service financial firm offers. A prime example is tax preparation, a line of business that major financial services firms typically avoid at all costs, fearful of the potential liabilities. Another is bill payment, in which the firm assumes this responsibility on behalf of the client.
Family offices also tend to offer an array of concierge services that are totally unrelated to their primary function as financial services providers. However, these activities vastly increase their value to wealthy clients who will pay to be relieved of these responsibilities. Some family offices act as travel agents for their clients, or secure hard to obtain event tickets. Others may post bail for unruly clients who land in jail. The list of these ancillary services is potentially limitless.
As of 2011, the Family Office Exchange estimated that there were between 3,000 and 5,000 family offices in the U.S., with an average of $400 million in total client financial assets each.
Benefits of the Family Office approach:
- Advice is provided with a complete understanding of all the family assets and liabilities
- Services are provided to the entire high net-worth family
- It ensures all advisors work together in a coordinated manner toward an integrated wealth strategy
- It provides benefits of combined purchasing power, allowing for reduced costs
- Investments are managed in the context of the overall family balance sheet
SOME MORE BENEFITS
1. It provides integrated plan for family’s complete financial affairs, including investments, wealth transfer strategies, proactive tax planning and optimal ownership structures.
2. A comprehensive approach to risk management, so we know our family and wealth are protected.
3. A well thought-out investment policy and process that includes selection and oversight of money managers, effective diversification and consolidated performance reporting.
4. Time saving and complexity management, by having a family office act as the quarterback to coordinate and oversee all the components of integrated financial affairs.
5. The cost saving benefits of pooled purchasing power (with full confidentiality).
6. Coordination of professional advisors – including lawyers, accountants, investment and insurance advisors – to ensure that our family’s objectives are met.
7. A strategic approach to family philanthropy.
8. The confidence that, if something happens to the main family decision maker, there will be someone in place who knows the family and the family wealth to help them manage through the transitions and into future generations.
9. The proactive, personalized and highly responsive service of an employee-owned, boutique firm.
Types of Family Office
A single family office (SFO) is dedicated to just one family. A multi-family office (MFO) serves several.
Some venerable family offices, notably the Phipps family‘s Bessemer Trust, have accepted clients from outside their founding families, thus converting from single family offices to multi-family offices. The primary motivation for doing so has been to spread the considerable operating costs of the family office over a wider base of clients and assets.
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