One of the many consequences of the world-wide increase in
wealth over the past half century has been the increased focus and
interest in family offices.
While higher profile than ever before, there is still limited
understanding as to what they are and how they operate.
While by no means the sole definition, a very useful one is
provided by the Family Office Council, a membership group for
single family offices, which defines a single family office (and
our focus here is on those and not multi-family offices) as a
private organisation that manages the investments for a single
wealthy family. The assets are the family's own wealth, often
accumulated over many family generations. In addition to investment
management some family offices provide personal services such as
managing household staff and making travel arrangements. Other
services typically handled by the traditional family office include
property management, day-to-day accounting and payroll activities,
and management of legal affairs. Family offices often provide
family management services, which includes family governance,
financial and investment education, philanthropy coordination, and
This definition is a very useful starting point to explore some
important preliminary issues relating to family offices.
First, the definition makes clear the exceptionally wide range
of matters that a family office can potentially cover –
everything from investment management to family governance to
employing and managing household staff. But this doesn't
mean that all family offices do all of these things – in
fact, quite the reverse. In our experience, every single
family office is different and reflects the needs and interests of
the family that it serves. In our view, the important lesson
from this is that a family office can do an almost limitless range
of things, but whether it should do all those things is a matter to
be considered very carefully at the outset.
Secondly, having determined what range of services the family
office will provide, the next issue is how will it provide
them? By way of example, will it employ its own full time
staff to do everything, or will it outsource everything to third
party specialists, or some combination of these? In our
experience, most family offices make a pragmatic compromise on this
issue and employ its own staff in critical roles and outsource for
those matters where in-house expertise is either not available or
not efficient. For example, a family may determine that it is
better to employ their own team of investment professionals, but to
outsource to third party providers accounting and corporate
Thirdly, the definition refers to a private organisation.
This rightly reflects the fact that a family office may take an
almost unlimited range of legal forms – from a conventional
company limited by shares to a protected cell company to a limited
partnership to a limited liability partnership to a unit trust to
some other form of trust to a foundation or to some combination of
these. There are an almost limitless range of factors which
impact upon the choice of legal structure, but some the principal
ones we see include – the purpose of the family office (if
the family office is directed at only specific purposes, certain
structures may not be suitable), simplicity (as a general rule it
is usually best to adopt the simplest possible structure consistent
with achieving the desired purpose), tax (the on-shore tax position
of family members may restrict what structures may be available,
especially where family governance will involve family members in
decision making), regulation (while family offices normally fall
outside financial services regulation (because by definition they
are not providing services to the public) the increasing scope of
regulation means that this is no longer an absolute given and so
regulation does still need to be considered).
While this will never be a mainstream issue, it remains a
fascinating, growing and important area for those who are focused
on the private wealth sector.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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