Family offices are private wealth management advisory firms that serve ultra-high-net-worth (UHNW) investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family. For example, many family offices offer budgeting, insurance, charitable giving, family-owned businesses, wealth transfer, and tax services.
Understanding Family Offices
Some high new-worth individuals may want to consider opening a family office. A family office provides a wider range of services tailored to meet the needs of HNWIs. From investment management to charitable giving advice, family offices offer a total financial solution to high net worth individuals. In addition, the family office can also handle non-financial issues such as private schooling, travel arrangements, and miscellaneous other household arrangements.
Family offices are typically either defined as single family offices or multi-family offices – sometimes referred to as MFOs. Single family offices serve just one ultra-affluent family while multi-family offices are more closely related to traditional private wealth management practices, seeking to build their business upon serving many clients. Multifamily offices are more prevalent due to economies of scale that allow for cost sharing among the clientele.
The Many Disciplines of a ‘Family Office’
Providing the advice and services for ultra-wealthy families under a comprehensive wealth management plan is far beyond the capacity of any one professional advisor. It requires a well-coordinated, collaborative effort by a team of professionals from the legal, insurance, investment, estate, business and tax disciplines to provide the scale of planning, advice and resources needed. Most family offices combine asset management, cash management, risk management, financial planning, lifestyle management and other services to provide each family with the essential elements for addressing the pivotal issues it faces as it navigates the complex world of wealth management.
Legacy Planning and Management
After a lifetime of accumulating wealth, high-net-worth families are confronted with several obstacles when trying to maximize their legacy, including confiscatory estate taxes, complex estate laws, and complicated family or business issues. A comprehensive wealth transfer plan must take into account all facets of the family’s wealth including the transfer or management of business interests, the disposition of the estate, management of family trusts, philanthropic desires and continuity of family governance. Family education is an important aspect of a family office; this includes educating family members on financial matters and instilling the family values to minimize intergenerational conflicts. Family offices work collaboratively with a team of advisors from each of the necessary disciplines to ensure the family’s wealth transfer plan is well-coordinated and optimized for its legacy desires.
Many family offices furthermore act as a personal concierge for families, handling their personal affairs and catering to their lifestyle needs. This could include conducting background checks on personal and business staff; providing personal security for home and travel; aircraft and yacht management; travel planning and fulfillment; and streamlining business affairs.
What Does The Future Hold?
Moving beyond 2019, both single- and multi-family offices will continue to expand their focus to include much more than just wealth management, legal and governance. Other main areas that will see a lot of attention include working toward real-time consolidated reporting, developing soft factors like defining a clear mission and purpose and negating new risks like the complex universe of cybersecurity.
The rise of the family office is set to continue, along with plenty of changes expected within this sector. “We will see a move towards greater professionalization of the family office,” says Maslinski.
Family offices today must prepare to give advice on an ever-broader range of issues and, as such, need to ensure that they have the appropriate resources to meet this new demand. The objectives and role of the family office will need to be more clear than in the past.
Graham adds: “I’m convinced that a lot of people won’t be in this business in the long term because they don’t follow a client-led approach. The key to success is having very deep, involved relationships and understanding of clients, and being able to provide increasingly sophisticated services in a way, tailored to client needs.”
The combination of continued global uncertainty and new wealth sets the scene for sustained growth of the family office sector. As requirements become more complex and holistic, we can expect to see the family office offering evolve to include a renewed focus those elements that will help build strong family brands and manage solid reputations.