Family Office: Overview, Responsibilities, Types and FAQs
A family office is a private wealth management advisory firm that serves individuals and families of various backgrounds and affluence. These family offices differ from traditional wealth management offices in that they offer a total package solution for individuals and families looking to manage their finances, assets, and investment needs.
Family offices provide clients with a wide range of services, including budgeting, tax services, charitable giving, insurance, wealth transfer planning, and more.
Generational wealth, assets, and familial businesses may require pre-set structures for succession planning, such as wills, trusts, or other alternative written or legal structures to protect these assets and ensure that the generational wealth continues to grow for the family without any setbacks. Given the complexity of these situations, clients may utilize a family office to help manage their assets and align their best interests with their goals.
Importantly, what a family office does can differ widely. While one client may need a family office for high-caliber advice from a range of experts, another may need a family office to organize their lifestyle needs and everything else in between.
The Responsibilities of a Family Office
Providing services and financial advice to ultra-wealthy families under a comprehensive wealth management plan is far beyond the capacity and capability of any one professional advisor.
One professional financial advisor is often not equipped to provide a comprehensive wealth management plan that encompasses all of the functions under the family office umbrella. A collaborative, well-coordinated effort by a team of professionals from the legal, investment, estate, insurance, business, and tax disciplines can help with all aspects of finance and wealth planning.
Legacy Planning and Management
After a lifetime of accumulating wealth, families can be confronted with several obstacles when trying to continue and maximize their legacy. These obstacles can include estate taxes and laws and family or business complications.
Given this complexity, a comprehensive wealth management plan can be used to take into account all facets of the family’s wealth, including the management or transfer of business interests, administration of family trusts, the disposition of the estate, and family governance.
To ensure the family’s wealth management plan is optimized and well-coordinated for its legacy, family offices work collaboratively with a team of advisors from each of the necessary disciplines and departments.
Investment Management
A family office may be responsible for investment portfolio management, commercial real estate purchase and sale, private equity deals, hedge fund investments, property management, and venture capital investments.
Family Wealth Education
A family office can be responsible for educating younger family members on the proper way of handling generational wealth. This can include informing family members how and when these funds should or should not be used, based on the family’s values. This can help instill financial continuity and growth into the next generation and give them an appreciation for their wealth and its various needs. With the proper education, a family office can help maintain a family’s vision and unity and prevent dissonance and arguments over how funds should be spent between family members and generations.
Helping you achieve your evolving financial objectives
Types of Family Offices
Traditional and Multi-Family Offices
A traditional family office has a staff of disciplinary experts who take on the responsibility of protecting, managing and growing the family’s financial wealth. This staff may include a financial advisor, tax specialist, estate planner, accountant, and more. All are employed by the same family office, so there are no arising conflicts of interest that might be found when taking services from multiple financial institutions simultaneously. The overarching objective is to serve the family’s demanding financial interests, and that same level of commitment can be found with one office rather than attempting to find that arrangement with other institutions. A multi-family office is a firm that manages the wealth of more than one family. It offers the same types of services that a traditional family office offers just for multiple clients instead of just one family. Both offices have a variety of experts who tailor personalized wealth-related solutions for each family’s financial and household needs.
Beyond investment management, these offices both provide financial and wealth planning services, investment strategy, family governance, transfer of wealth, philanthropic advice and management, wealth education, and more. Multi-family offices usually charge a small percentage of investment portfolio assets under management for their services. They can be less expensive than traditional family offices but less personalized because they work for more than one family. All time, resources, and professionals must be shared with other families meaning that multi-family offices have less control than traditional family offices do.
Outsourced Family Office
An outsourced family office is a network of appropriate service providers, financial advisors, lawyers, and accountants, who collaborate on behalf of a client. This family office isn’t an office at all or a single organization but a collaborative effort across several supporting players. A financial adviser handles the investment portfolio, an attorney handles the estate plan, and a CPA handles tax strategy and pays bills, among many other roles. Other services can be provided at additional costs, allowing the family to pick and choose what services they are looking for from each institution. Typically, a selected professional is appointed to coordinate all communication and efforts.
These professionals work for different departments at different financial institutions. However, they are authorized to consult with each other about the intricacies of a family’s financials and assets. Because these professionals come from various firms, this is the factor that separates them from other professionals who provide the same services in a singular office.
An outsourced family office can handle many of the same matters that traditional and multi-family offices handle. These might include philanthropic planning and family wealth education. This type of family office is usually less expensive than a conventional family office. However, the family also has far less control over the professionals and the plan provided to them for their finances, business, or assets. An outsourced family office lacks the total control and coordination of a traditional or multi-family office, but it is the least expensive approach.
Family Office Creation
Families may create a personalized family office to support their overall financial needs after the sale of a family business or another significant investment liquidity event. Every family office is as unique as the family it serves. Services your family office could provide include tax planning, estate planning, philanthropic planning, family education & multi-generational planning, and other lifestyle management services.
Managing family wealth is a complicated undertaking, and starting a dedicated family office is one way to manage this complexity. However, due to the complex nature of financial and wealth planning, it is always advised to hire a family office to manage and invest your finances for you to take this responsibility off your shoulders and to focus on what is more important in your business or personal family life.
Frequently Asked Questions
What is the purpose of a family office?
A family office allows a family to instill finances and personal information in one secure place and is accessible only to a limited number of professionals working under the family office. The family office serves as the family’s guardian and gatekeeper of financial privacy.
What qualifies as a family office?
A family office is a private wealth management advisory firm that serves individuals and families of various backgrounds and affluence. These family offices differ from traditional wealth management offices in that they offer a total package solution for individuals and families looking to manage their finances, assets, and investment needs.
What are the benefits of a family office?
Benefits of a family office include integrated specialized plans for your family’s complete financial affairs, including wealth transfer strategies, investments, proactive tax planning, and optimal ownership structures.
How does a family office make money?
Offices are compensated per their arrangement with the family, usually with incentives based on the profits or capital gains generated by the office to the overall net worth of the client. Family offices are often built around core assets that are professionally managed.
What is the difference between private equity and a family office?
Private equity funds generally deploy capital, increase value, and exit an investment during a three to five year time horizon. Family offices, in contrast, can employ longer-term investment objectives and are not looking for investment exits but to increase the value of a client’s wealth and investment worth.
What is the difference between a hedge fund and a family office?
A hedge fund invests in undervalued assets believed and analyzed to have huge upside potential. Hedge funds invest funds but do not provide any other services, specializing only in investment management. Family offices, on the other hand, provide complete financial planning that covers all aspects of your money, from investing to budgeting to estate planning and more.
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- Kolesnikov-Jessop, Sonia (September 6, 2011). “Setting Up an Office to Manage a Wealthy Family’s Affairs”. The New York Times. Accessible From: https://www.nytimes.com/2011/09/07/business/global/setting-up-an-office-to-manage-a-wealthy-familys-affairs.html
- Steinberg, Julie; Greene, Kelly (May 17, 2013). “Financial Advice, Served Rare”. The Wall Street Journal. Accessible From: https://www.wsj.com/articles/SB10001424127887323551004578441002331568618
- Adam Hayes (August 21, 2022). “What Is a Family Office?”. Investopedia. Accessible From: https://www.investopedia.com/terms/f/family-offices.asp
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