What is a Family Office?

Published: Feb 21, 2022

You’ve determined you are a Family Enterprise.  You possibly have some liquidity and additional assets outside an operating business. Do you set up a family office or not?  You may want to first define what a family office means to you.  The definition of family office varies depending upon whom you ask. Some may say that when you meet one family office, you have only met one family office. That is because each family will customize their family office according to their family’s personal needs.

There are single-family offices and multi-family offices. A single-family office has in-house specialists that service one family. To cover the cost and benefit from such services it is estimated that one would go the single-family office route when managing assets of 200-250 million plus.  On the other hand, a multi-family office is a group of professionals who service multiple families. Families with assets of 30-50 million are serviced by a multi-family office with shared costs of managing wealth and taking advantage of economy of scale.

Generally, family offices begin as an extension of the family business as the services to the family members expand due to having investments as a result of a sale of the business or profitability of a business that now pays its shareholders dividends that accumulate year to year and its management is required.  There is the question of what is at the center of your family office? Are you focused on the money or is the focus on the family?

For some, Family Offices are designed to prepare family members to collectively manage, sustain and grow their wealth across multiple generations.  For others, the role of the Family Office is to act as a “guardian” of the assets, to manage the assets that the family members own. There is here a distinction between being owner of wealth and a manager of wealth.

The higher purpose of a Family Office is to nurture the culture of stewardship and bridge the generations in order to create continuity and cohesion for families around their wealth, where wealth is defined as capital and capital is defined as (F-I-S-H): Financial, Intellectual, Social, and Human capital. (You’ll learn more about this in another article)

The Family Office provides the holistic approach and acts as the quarterback to a variety of needs. They can aid the families in managing the numerous risks that affluence exposes families to, including and not limiting to 6 major areas:

1. Family Continuity or Family Legacy and Leadership

  • Governance (decision making process)
  • Education program or learning path for next generation
  • Facilitate family meetings
  • Leadership mentoring
  • Conflict mediation
  • Communication
  • Values, mission, and goals statement
  • Family constitution

2. Integrated Planning or Tax and Financial Planning

  • Tax and Estate planning, including Wills
  • Financial planning
  • Shareholder’s agreement
  • Ownership structure (holding companies and trusts)
  • To work along- side existing lawyers and accountants
  • Thought leadership
  • Legacy planning
  • Financial independence

3. Risk Management or Strategic Wealth Management

  • Asset protection
  • Insurance (life/property/casualty)
  • Fee management
  • Tax risks
  • Wealth transfer risk
  • Reputation risk (privacy settings)
  • Work along-side existing managers/advisors

4. Investment Management or Investment Planning

  • Asset allocation (based on personal goals and needs)
  • Investment policy statement
  • Liquidity needs
  • Manager research – selection – monitoring – analysis
  • Active tax management
  • Reporting
  • Performance review
  • Back-office support

5. Philanthropy

  • Strategic
  • Goals
  • Charitable gifts
  • Private vs. Public foundations

6. Family Administration or Trust and Estate Services

  • Cash management
  • Bookkeeping of holding companies
  • Accounting
  • Portfolio accounting
  • Consolidate the information for the client and the CA firm
  • Family bill payments
  • Concierge services

By focusing on these critical risk areas, the family will gain in having:

  1. Shared vision for the future
  2. Effective decision-making process
  3. Transparent family communication
  4. Proper ownership structures
  5. Appropriate diversification of assets
  6. Opportunity to learn and be educated

It all starts with having the first conversation. When you engage the next generation, you are one step closer to achieve long-term wealth preservation for the next generation.

Decision Tree Question: Are you setting up a family office?

Source of information:

“The Complete Family Office Handbook” by Kirby Rosplock

“How to start a Family Office” by Richard C. Wilson

“The Legacy Family” by Lee Hausner

“Family Wealth” by James Hughes

“Family Wealth Management” by Tom McCullough

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