Think of any of the world’s wealthiest families and the chances are their wealth is managed by a family office. But what does this term mean, and are these kinds of services solely the preserve of the ultra-wealthy?
As the name suggests, a family office is an institution which has been set up to serve the needs of a family in managing and administering their affairs. Their financial affairs and investment portfolios will figure highly of course, but what also comes under the family office’s auspices will also often include the management and succession for one or several family businesses; wealth planning and structuring so that funds can transition down the generations tax-efficiently; accountancy and legal services; governance for how decisions are made among the family members; and lifestyle management as well. Running a portfolio of residences, chartering jets, hiring staff and looking after luxury purchases like paintings and cars are all par for the course for family offices working for the one percent.
Coming back down to earth, family office services are actually highly relevant to those in the wealthy, rather than super-wealthy category. As every business person will know, deciding whether to pass a concern onto the next generation or to sell it and invest the proceeds for the family is a question fraught with all manner of complexities. How to hold, invest and distribute what may be considered family wealth is no easy matter generally – and one which becomes increasingly complicated as the family grows and potentially disperses across the country, or even the globe. Even when just two or three generations are involved, you may have a huge variety of personalities, financial objectives and life plans in play. Educating inheritors about the responsibilities of wealth is naturally a top priority.
In its most rarefied form, a family office will hire investment strategists, specialist portfolio managers for each type of asset held, lawyers, accountants and more to arrange the family’s affairs optimally. Tax mitigation and investment growth are of course key, so too is promoting harmonious relations. After all, what use is having family wealth if relationships are soured by having it?
Because of all of this expertise being required, establishing and maintaining what is known as a single-family office is very far from cheap. The traditional wisdom is that a family needs to have in excess of $100m in assets to make this a practicable option. For this reason, multi-family offices sprang up allowing one institution to serve a number of families, pooling expert resources among them and very often enabling them to invest on a collective basis.
A third very common option are the family office services offered by wealth managers and private banks. For many, this might be a very attractive option. Here, a family can access all the services and experts they may require while also having the research capabilities and infrastructure backing of a bigger institution, except at a lower cost than buying this all in themselves. You might think of this as the ultimate “one stop shop” for families of significant wealth and complex business and investment interests.
Having a family office can be wondrously effective in helping a family to manage all of its interests optimally, and invaluable in ensuring that wealth is maintained and grown across the generations, rather than being divided and depleted, as so is often unfortunately the case. Establishing a single-family office is however a hugely expensive and involved affair, and one that is only really open to families which are very wealthy indeed.
For most, a multi-family office or the family office divisions of wealth managers and private banks is likely to be a more viable option. Many of the institutions on our panel of leading firms offer family office services, and they may require lower levels of assets than you might think. If these offerings are of interest to you, simply let us know when carrying out your wealth manager search or get in touch with our friendly team to learn more about your options.