Should I create a family office to manage my wealth and investments? This is a question that many wealthy families with over $100 million in investable assets ask themselves. For some families, it’s a reasonable consideration. For others, the idea of a family office may sound alluring, but in reality, it is not the right solution for them, their children or future generations. This article explains family offices, what it takes to create one, who should consider creating one and who is better suited to work with an established multi-family office focused on ultra-high-net-worth clients.
What Is a Family Office?
In its most general form, a family office is a wealth manager created by a family to meet its unique wealth and investment needs.1 Family office investment services include asset allocation and third-party investment manager selection at a minimum, and larger family offices sometimes offer internal investment management as well. The first hire is oftentimes a chief investment officer (CIO), who, for smaller family offices, often serves as the day-to-day CEO as well. Larger family offices typically have a CEO, a CIO and investment teams that the CIO hires and manages. They also have operations professionals who focus on investment implementation, trading, reporting and systems to manage these and other processes.
Many family offices also have wealth planning and ancillary services related to accounting or other financially related activities. Those that offer wealth planning and accounting have lawyers, who advise on trusts and estates or family entities like limited partnerships, as well as accountants on staff. Others have professionals focused on a wide array of services from bill pay to aircraft financing and maintenance, depending on the needs of the family members and what services they want to pay for. The number of professionals employed also depends on the level of insourcing vs. outsourcing.
A huge benefit of having a family office is the ability to choose the services that the family wants to include. Having a dedicated staff and tailoring all services based on one’s interests allows for a truly personalized, integrated client experience. The wide range of asset levels of family offices – from $100 million to billions of dollars – coupled with the variety of services found at different family offices and the variation in number of family members served – from just a few to hundreds across multiple generations – has resulted in the oft-repeated phrase, “If you’ve seen one family office, you’ve seen one family office.”
All of this leads to the question: Who should consider creating a single family office, and who is better suited to work with an established multi-family office focused on ultra-high-net-worth clients?
Seven Questions to Ask Before Creating a Family Office
Let’s define family offices as a substitute for a private wealth manager for the purposes of this discussion. In that case, the decision to create a family office comes down to seven questions:
1) What are your asset levels?
2) What services are you seeking?
3) How much are you willing to spend to receive those services?
4) How important to you is client service?
5) Do you have an interest in “creating a sustainable business”?
6) Do you have the time to devote to the creation of a family office and successors who will continue to oversee it?
7) Do you have a strong point of view on investing and an interest in being involved in investment decisions for you and your family?
Asset Levels and the Cost of Services
To begin, let’s review the trade-off between a single family office and a multi-family office for questions one through three by examining Exhibit 1. If you would like to start a family office and require a number of services, you need to be willing to spend a sizable percentage of your assets – which is analogous to a fee charged by a multi-family office – to receive the services you seek. A family with $50 million or $100 million in assets can likely receive most of those services for less money by hiring a multi-family office, which typically benefits from greater asset levels and scale and may in addition provide access to a broader service suite.