Family Money Values

The Family Office

by · March 27, 2012

Part of our mission here at Family Money Values is to research and share information about tools and techniques used by multi millionaire and billionaire families – so that the rest of us are aware of those and can consider ways to modify those tools and techniques for our use.

Today, we will explore the family office.

What is a family office?
A single family office is a business run by and for the family which centralizes the management of the family wealth to transfer it across multiple generations. Functions can include management of investments, taxes, philanthropy, trusts and legal matters.

Only the wealthiest of families typically consider a single family office due to costs and lack of the need. Single family offices are privately held and thus not regulated by the government – BUT the recent 2012 Dodd-Frank legislation greatly narrowed the exemption to being regulated. According to Investment News “The new SEC definition requires that advisory services be provided exclusively to family members. In-laws, family friends and most employees of the office are out, meaning no more co-investing opportunities for outsiders.”

The Rockefellers established the first family office in 1911.

A multi family office is an organization that provides services similar to single family offices, but with the main focus on asset management services. In this type of organization, a family is one of several families that are served by an office. Multi family offices are public institutions, not privately held, and as such are regulated.

Who uses a family office?
Single family offices are used by uber wealthy clients (families having at least a half a billion). According to the Wall Street Journal, European families with their own investment offices include the Sainsburys, the Pears and the Guinnesses.

In the US, Oprah Winfrey set up a single family office in 2010 to manage her 2 billion plus estate. Other people with family offices include Bill Gates and Mayor Michael R. Bloomberg of New York.

Multi family offices are used by wealthy clients who can’t afford or don’t want their own dedicated family office. These families typically have investible assets in the level in the neighborhood of 55 million dollars.

Examples of a few multi family offices include GenSpring, Rockafeller Financial and Northern Trust.

Bloomberg reports “There are about 3,000 single-family offices in North America managing $1.2 trillion, according to estimates from Family Wealth Alliance LLC, a research and consulting firm in Wheaton, Illinois, which studies the industry. About 150 multifamily offices oversee an additional $450 billion. Both types of firms generally provide investment management and financial planning for their clients.”

The Wall Street Journal also reported on the number of family offices, based on estimates from Wharton: “Wharton Global Family Alliance, a specialist unit at the Wharton School at the University of Pennsylvania, estimates there are around 1,000 single family offices in the world. Paul Pratt, managing director of the London branch of the Family Office Exchange, an advisory consultancy, thinks this is an underestimate. He says: “A more realistic estimate is likely to be closer to 1,000 just in Europe.”

What does a family office do?
Family offices generally provide personalized, private and holistic wealth management. They may also provide personal services to family members, such as managing household staff, making travel arrangements, doing property management, providing financial education to family members and etc.

“This would include investment, reporting and accounting services as well as general lifestyle management, such as maintaining homes, yachts and private planes”,according to the New York Times.

Concierge Services extended primarily by family offices to family members can include things such as arranging for travel, assisting with a search for an appropriate college for a student, helping pick out a large item purchase, such as an airplane and etc.

Why would you need a family office?
Many who do use a family office cite the desire for privacy and control.

Prior to the Dodd-Frank legislation in 2012, family office advisory services were not subject to SEC regulations. As noted above, now a stricter policy dictates that many existing family offices may have to either report or change organizational structures to a private trust to avoid having to publicly disclose family wealth amounts.

If you have half a billion or more you might want a family office if:

  • You want services rendered to all family members from a central organization
These services include arranging family meetings, travel, housing, travel, reviewing and advising on schools children should attend, security and healthcare arrangements, educational services, residential property management, bill paying, social event planning and execution and more.
  • You want exclusive control over private wealth management to preserve your family wealth
This includes the full range of wealth management, structuring, financial planning, estate planning, risk management, access to the highest end investment managers and etc.
  • You want a central office to administer and report on your wealth structures
Wealth at this level may require multi tiered organizational structures such as holding companies, multiple trusts, partnerships, agreements, contracts and etc which are in or cross multiple countries, states and other jurisdictions. Running these various entities and reporting on them to the family is done by the office.
  • You want to get access to managers with expertise in specific areas
Examples include expertise in specific countries, industries, geographic regions and etc

If you just have a few million, you might want a multi family offices if:

  • You want to gain access to the level of service offered by a single family office without the associated costs, including a focus on multi generational planning and activities.
  • You want to gain access to open architecture type wealth structuring
Managers are not typically paid from selling certain products so they can offer more objective choices as opposed to private banks which often corral clients into bank products
  • You need to gain access to all of the equivalent services and products offered by private banking plus more alternative investment types

The Family Office Exchange lists the following as reasons to establish your office:

  • to have a central source for all of the family’s financial matters.
  • to provide pooled purchasing power across a family group.
  • to have a dedicated team of professionals who are focused on your family’s goals.
  • for continuity from generation to generation on issues of family heritage, the family trusts, family values, or family philanthropy.
  • to have professional advisors who can educate family members about their responsibilities of ownership and governance.
How much does a family office cost?

Single family offices can cost upwards of a million dollars a year to run. Multi family offices provide services similar to single family offices for more than one family.

Merrill Lynch surveys found that the average cost of running a fully functional single family office in Europe can cost around .6% of the assets under management – with the bigger fortunes being more cost effective.

Multi family offices typically charge about 1% of assets under management according to The Family Office, Granting Every Wish. The catch is, most multi-family offices won’t manage your assets unless you have at least $10 million! However, there are services that can be had on an ad hoc basis – such as those offered by Aston Pearl for $400 – $600 an hour. What do you get for that? You could have them prepare a manual for your household staff, or find care taking for a disabled relative.

Most of us will never need a family office, not even a multi-family office, but it is interesting to know that they exist and are used.

Do you know anyone with their own office? What functions of a family office would you like to use?

Tags:

You may also like...