The term: "Family Office" is becoming harder to define these day's. Originally, we had the "Single Family Office", now with many opting to merge with other Ultra-Rich Families, commonly called "Multiple Family Offices" which again becomes further confusing with "Top-End" wealth management companies turning themselves into Multiple-Family Offices. To complicate the matter even further, we have ultra-rich families avoiding the above expensive concept, and opting to set-up an "Investment Vehicle" (private investment company) and referring that investment vehicle as their "Family Office" to invest in predominately, Hedge Funds, Fund of Funds, Private Equity, Equities, Futures & Options, Derivatives, Government Bonds and Real Estate to name but a few.
The first wave of single "Family Offices", were first formed back in the 1800's predominately within the USA and in Brazil (Sao Paulo – Cotton Barons).
The European Aristocratic Families had similar set-ups, commonly called (The Estate Office, land owners office) which go back much further.
Ultra-successful Entrepreneurs, who are either still at the helm of their original business or have since sold-out their business interests have decided not to divide the immediate break-up / proceeds of their wealth to family siblings but to form a "Family Office" which employs in-house professional and financial experts to manage, create and sustain the wealth on behalf of existing family members and for future generations of the family.
This may prevent family members from squandering the family fortune and enabling family members to maintain a functional purpose in life.
In addition, there is of course "The Privacy Issue".
Choosing the right Family Office
The first decision to be made is which type of family office is to be chosen and which advisers are to be trusted.
Complex structures and assets have to be permanently monitored, controlled and managed. Often families have the necessary expertise and time among their own family members to take care of their own affairs. Sometimes a better solution is a family office which handles large and complex structures. Such family offices manage und coordinate not only the assets, but have also expertise in other fields and guarantee independent and complete and comprehensive advice.
Families have the ability to receive comprehensive family care and wealth management services through a variety of different structures.
They can become a client of a financial institution (Lawyer, Trust Company or International Bank) who provide a set of services that meet their needs (single family office), they can become a client of a Multi-family Office, or they can establish their own stand-alone family office.
Individuals and families who establish family offices are often presented with the idea by their bank, one of their trusted advisors, consultants or by a friend, who has a family office or is somewhat familiar with the concept.
The first questions often are: What are the benefits of having a family office? What are the typical services? How do you establish and manage a family office successfully? Are you independent? Are there hidden fees? Is there an exit strategy?
If the decision is made to establish a family office, many strategic questions need to be addressed. Most of the questions are about defining the roles of the family members, control, conflicts, structuring, etc.
In some cases a Multi-Family Office will be the best solution.
Families and individual private investors sometimes decide not to set up their own family office because they do not want to be responsible for managing a financial services business.
They prefer the continuity offered by an established institution (Trust Company, Financial Services Company, Lawyers or international banks) where they can evaluate the quality of financial services before they choose to become a client. The difficulty in selecting an external financial office lies in the many conflicts that arise and in identifying the questions to ask potential service providers and in interpreting their answers.
As an alternative, individuals and families can join Multi-Family Offices or a financial institution with a dedicated wealth management specialization.
Multi-Family Offices have historically provided families with comprehensive financial services and comprehensive family care.
Many of them have the highest level of confidentiality and are not product driven like financial institutions.
Multi-Family Offices may offer additional services and advantages like:
- Families have access to a wide array of integrated services that are not collectively offered anywhere else.
- Families participate in the cost savings and the benefits of group purchasing power.
- Families have the assurance of confidentiality in the management of financial and personal affairs.
- Families have the satisfaction of affiliating with an organization with goals that are aligned with those of their family.
Which kind of office the families may ever choose, it will be essential to focus on conflict of interests.
The following question should be considered:
Does the adviser have its own financial products, does he favour cross-selling of other services, are there any hidden costs or does he receive any commissions or other payments which should actually be credited to the family?
Evaluation of Family Offices
Family Offices have to be chosen very carefully. The evaluation has to be based on your specific goals and objectives of the persons involved.
Although Family Office Services are mostly based upon trust, one should make some background check on the Family Office:
- When was the company formed?
- Since when are they providing Family Office Services?
- Who owns the company?
- How is the Company structured?
- Has the ownership changed over the time?
- How is their internal and external audit structured?
- Is the Company regulated by Governmental Bodies?
- Are they member of professional associations?
- Are they offering exit strategies?
- Are they independent?
- Do they offer own financial products or do they conduct asset management?
- What business network do they have (can they grant advise at any time and at any place in the world through their partners and associates?)
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.