Family offices have become the new trendy word in the world of wealthy families, especially those who have amassed significant wealth. They believe that a single-family office can help them grow, preserve and avoid the conflict of interest inherent in any wealth manager. Before jumping in, you need to understand if such a vehicle fits your objectives and whether you can design it to accomplish your family’s goals and represent their values.
In many cases, single-family offices are created by the patriarch or matriarch with the purpose of managing the family’s assets and in some cases oversee their business interests. They represent one family’s culture, values, outlook and desires – an important distinction from multi-family offices, which are structured to serve many unrelated families with different goals and objectives. We believe it important to make the distinction between family offices and gatekeepers, which are accountants, attorneys or a confidant of the patriarch or matriarch.
In recent years, family offices have become a status symbol for the wealthy. As a result, large financial institutions, Registered Investment Advisors (RIAs) and accounting firms are marketing “family office services.” However, these firms and professionals typically focus on specific services, such as making investments or paying bills, rather than delivering a true single-family office offering.
Having worked with numerous multi and single-family offices from different countries and multiple continents, it is my opinion that a one-size-fits-all structure is less than ideal to match the ever evolving needs of a family’s goals and desires. We should also recognise that every single-family office is unique.
A Step-by-Step Approach
The singular most important question is: Do I really need a single-family office? Although we believe that there is a minimum asset size to warrant such a setup, you should not base it on asset size alone. What will their day to day be? Is it a full-time job? Does the benefit outweigh the cost? There are many aspects that need to be considered.
Once convinced that this is the right approach, you then need to focus on the following details: sourcing and choosing the right people, investment policy, internal protocols, what systems you require, remuneration and how to avoid conflicts of interest.
We believe it is important to sit down with the current and next generation to review what services they are expecting from the family office and why they believe it is the right solution. Once we have an understanding of the requirements, we can easily determine if this is the right approach for the family. Part of the review is to establish the asset size that the family office will handle, but again having sizable wealth doesn’t translate to requiring a family office.
With a foundation in place, we can recommend if a family office is suitable and start by identifying a CEO and CIO, the two most important roles in a family office. In some cases, these two roles can be combined. Once we have engaged the right CEO, one can start to build out the internal protocols, choose the systems and build an investment policy, this should never be done without the inclusion of the CEO.
In any case, it is vital to engage an objective professional with a deep knowledge and understanding of family dynamics, finance, fees and services when setting up a cost-efficient single-family office. Whether the goal is growing or protecting family wealth, the benefits of a well-constructed single-family office can last for many generations.