We are often asked about the following topics related to family offices:
Why Establish a Family Office?
- Business and family succession.
- Formalization of family leadership.
- Multi-generational wealth transfers in a formalized plan.
- Privacy regarding family assets, tax planning, and personal information.
- Harmonize family investment and philanthropic strategy and goals.
- Creation and maintenance of Governance documents.
- Eliminate investment advisor duplication, overlap of similar strategies, and cross-purpose advice.
- Potentially lower total professional fee costs, and higher investment returns.
- Consolidated Risk management.
When a certain level of wealth is achieved, managing it effectively, protecting it so it will be available for future generations, and providing education and governance so that no generation squanders it becomes a time consuming and demanding job.
Extreme wealth and extreme responsibilities go hand in hand. The higher the net worth, the greater the obligations. Once extreme levels are reached, it becomes overwhelming for a busy family to coordinate with multiple investment advisors, trust & estates attorneys, accountants and philanthropic organizations.
While all of these disciplines are a critical component, they need to be working under a uniform vision and a set of well-defined goals. And there must be someone who takes the lead in coordinating the various disciplines and ensuring that the vision and goals are achieved.
Additionally, family offices can often operate with much more speed and flexibility than traditional investment firms. Unlike institutional funds, many family offices do not have a formal mandate or even an investment committee. The general goals come down to the determination of the principals, and as such, investments can be made much more quickly, and unique structures can be deployed.
Most importantly, a family office also helps protect the family’s most valuable asset: time.
What Services Can a Family Office Solution Quarterback?
The head of the family office often serves as a liaison between the family members and the various service providers. This person is an expert in many disciplines and is responsible for gathering information, advising on decision making and then implementing the plan of action decided by the family members.
Family office services can include:
- Assistance in crafting the family office mission statement, goals and purpose.
- Developing a framework for preserving and growing wealth including asset allocation and financial planning.
- Constructing an Investment Policy Statement. Manager review & selection. Tracking & monitoring of investments.
- Coordinating any pre-existing advisors to eliminate any unintended overlap of strategies and exposures.
- Single dedicated family contact to eliminate redundant communications with private banks, advisors, and other services.
- Cash management.
- Coordinating tax strategy with accountants.
- Coordinating estate planning & generational wealth transfer with estate planning attorneys.
- Coordinating insurance and risk management policies with brokers and advisors.
- Coordinating and monitoring charitable giving that has been directed by the family.
- Liability management (loans & borrowing).
- Coordinating cybersecurity, reputation management, personal security service providers.
- Managing a formal communication process on opportunities available to all family members (i.e. new investments, service provider relationships).
- Assisting with family governance of assets and conflicts.
- Educating the next generation on financial matters.
- Bill payment, bookkeeping.
- Coordinating management of properties, yachts, planes, other luxury items.
- Management of personal staff.
- Aggregated record keeping & reporting of assets and net worth.
- Foundation administration.
- Property management.
- Sourcing and evaluation of specialty deals, co-investments and events with other family offices.
- Protection from wealth-compromising mistakes, such as next generation reckless spending, inappropriate investments, or inadequate insurance.
- First line of defense to insulate family from unwanted solicitations from asset managers, service providers, and charities.
The family office quarterback should have an existing, reliable network of accountants, attorneys and other service providers with the experience to handle complex situations, and also be sufficiently knowledgeable to sit on the client’s side of the table, communicate with external professionals, and provide appropriate guidance.
Deciding between creating a SFO, joining a MFO, or establishing a Hybrid FO:
Assets of $50mm or less: A multi-family office is usually the optimal choice.
Assets of $100mm or more: A stand-alone single family office is a viable option, but not the only option, particularly if costs are a concern.
Assets of $50mm or more: Hybrid options are a viable alternative.
How Do True Family Office Investment Portfolios Differ From Portfolios Managed By Large Banks or RIAs?
The large financial firms are often thought of as the Henry Ford of investing: “You can have any color car you want as long as it's black.”
The larger the financial institution, the more scalable and generic the portfolio tends to be.
Boutique Multi-Family Office portfolios provide superior protection and growth of capital as they prioritize minimizing drawdowns and maximizing alpha instead of maximizing the firm Assets Under Management.
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