Finding The Right Family Office

Adrienne

2 months ago

For high-net-worth individuals and families, a family office can optimize giving, investing and more.

The term “family office” is frequently used, but what exactly does it mean and how are these services delivered? Each high-net-worth family needs a full complement of professionals to manage their needs. What does this look like? There are probably as many configurations of a family office as there are families that use them. Here, we explore some of the many functions a family office may fill in the lives of wealthy families.

What is a Family Office?

Typically, when we talk about family offices, we think of one or more financial professionals working with wealthy individuals to help them manage their financial lives. This may range from a single “personal CFO” or even a bookkeeper to a team of dedicated employees or an outsourced resource like an accounting firm or multi-family office.

Who Might Need a Family Office?

Typically, wealthy individuals and families with multiple business interests and a complex ownership structure, including trusts, corporate entities and partnerships, might be well served by a dedicated team. If the beneficial ownership of the assets includes various family members and different generations, then a family office may be an excellent way to optimize investing and reporting.

Financial Reporting

At a minimum, most family offices will provide a level of financial reporting and bookkeeping. This will often include paying bills, coordinating insurance and reconciling bank and other financial statements. Depending on the level of assets and complexity, this financial reporting function may be split among a bookkeeping staff and a true accounting/tax staff. Even if the actual tax compliance work is outsourced, many family offices will have CPAs on staff to coordinate tax documents, review returns and schedule payments. These same professionals may also provide tax planning to family members.

Financial reporting often includes balance sheet and cash flow reporting, broken out by legal entity. In situations where there are multiple family members with split ownership of investing entities, rolled-up reporting by family members is often desired. Cash flow projections and budgeting services are also quite common. For very sophisticated offices, asset allocation and investment performance reporting will also be provided to the family.

Investment Oversight

Investment functions provided by family offices vary. In some situations, the family members will direct their own investments. In other cases, the family members may have a particular area of investment interest, for example, real estate, and then have investment professionals on the family office team who will either oversee outside managers or directly invest assets themselves, or both. Very large family offices will often resemble major investment firms, with a Chief Investment Officer and managers who specialize in particular asset classes.

Legal Services

Family offices are often a compliment to the family’s legal team. Larger family offices may have in-house counsel who coordinates the delivery of legal services to the users of the family office. Like the investment function, for very large family offices, a staff of practicing attorneys will perform most basic legal services but work with outside counsel for complex matters, allowing the outside counsel to practice at the higher levels.

Philanthropy

If a family is particularly philanthropic, it may have a private foundation or a very large donor-advised fund. If they’re running their own family foundation, there is usually some level of staffing by philanthropic professionals. This can range from grant-making to full-on compliance services. Of course, the very largest private foundations will have staffs that rival large public nonprofits. Once families are beyond the first-generation wealth creators, it is rare that they don’t use some type of professional philanthropic assistance.

Family Governance and Family Continuity

The family office may replace the governance structure once provided by an operating business. Whether or not this is the case, multi-generational families of significant wealth tend to benefit from the structure provided by a family office as they can provide a framework for the family to make decisions concerning shared assets and philanthropic goals. In addition, teaching younger generation family members about finances is frequently an important job of the family office.

Types of Family Offices

As mentioned earlier, the term “family office” can be used to describe everyone from a bookkeeper to a full-time staff covering multiple disciplines. It is generally only the very wealthiest individuals or families who can afford the costs associated with building all the capabilities in-house.

There are several stand-alone multi-family offices around the United States. These multi-family offices usually provide the services already mentioned, but are typically more economical and can be a more effective choice than a single-family office thanks to their proven infrastructure and access to diverse and comprehensive expertise. Most of these were established by a single family who then expanded their services to include other wealthy families. Multi-family offices are also often set up as trust companies, so they are able to also serve as a fiduciary for the family by acting as the trustee and executor. They typically serve a limited number of individuals and families and offer bespoke solutions depending on the needs of each client’s family.

There are also registered investment advisory firms that offer family office services. Typically, however, they are unable to serve as a trustee as their business models center around providing investment management. Several national banks offer divisions that provide family office services, often tied closely with banking and investment products.

Next Steps

Each individual and family will need to carefully consider the assistance they require prior to either launching their own family office or securing outsourced support. It is not uncommon for each generation of a family to either reaffirm the choice made by the preceding generation or strike out on a different path. After all, as a family gets generationally further from the wealth creators, the wealth typically becomes dispersed and various family members will have different goals and objectives.

For those families who make the choice to have family office services, whether they build their own or outsource, a clear understanding of what the family is seeking from the provider and ways to measure against the expectations will be essential.

Featured in Mountain Home Magazine.

Written by Thomas J. Frank Jr., Executive Vice President and Northern California Regional Manager at Whittier Trust. Tom is based out of the San Francisco Office and oversees the investment team for multiple Whittier Trust offices.

For more information, start a conversation with a Whittier Trust advisor today by visiting our contact page.