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High-net-worth families often reach a point where they want full-time professional assistance to centralize the management of the family’s wealth, investments, real estate, employees, and other affairs. For a growing number of wealthy households, establishing or joining a family office can provide this desired support.
A family office is a dedicated private wealth management entity established to oversee the financial and personal affairs of high-net-worth individuals or families. Setting up a family office involves the creation of a legal entity designed to offer comprehensive private wealth management services alongside various supplementary offerings.
Experts on the team handle and oversee everything from investments and reputation management, to hiring staff, estate planning, and charitable giving. Typically, the overarching primary goal is growing and protecting the family’s wealth for future generations.
The Family Office Exchange, estimates there are between 2,500 and 6,000 family offices in the United States, and that another 5,000 exist informally inside privately controlled businesses in the U.S.
There is no exact threshold for considering a family office because every family situation and structure is different. However, wealth of at least $100 million in investable assets is a good general threshold because the costs to operate even a small family office can quickly exceed $1 million a year.
The fundamental duty of a family office is to protect the family’s financial interests, safeguarding their assets from changing market conditions and protecting their wealth for future generations. Common family office responsibilities include:
Family offices take on a wide range of forms and structures. However, most fall into one of two broad categories:
Successful, high-net-worth families and family offices typically require a complex risk management program to best protect their assets, real estate holdings, leisure toys, and passions. In most family offices, these assets and personal exposures span multiple generations and are spread across the country and the globe.
Additionally, family offices need coverage that is not part of standard personal insurance programs, such as directors and officers, cyber, and workers’ compensation insurance. Family offices also have activities that may be deemed business-related in nature and necessitate an accompanying commercial insurance program. Family offices require a creative, thoughtful approach to risk management and will benefit from working with a risk advisor who specializes in family offices and is committed to frequent and open communication to ensure the needs of the family are being met.
Creating a family office is a complex process. The planning phase looks at investible assets, complexity of real estate holdings, family dynamics, geographic locations of family members, philanthropic and investment goals, and more. Foundational steps include:
While establishing a family office is a complex process, families quickly see benefits from consolidating their affairs and financial assets. With less administrative burden, families and future generations have more time for other high-value activities and pursuits.
Family wealth and investments typically perform better under the guidance and personalized approach of a dedicated family office. The experts employed by the family can improve the family’s risk profile by identifying risks and implementing mitigation measures. The family office team can also help protect the family and their assets from cyberattacks, financial crimes, lawsuits, insurance claims, and reputational damage.
Establishing a family office is not always feasible or the right approach. However, for those who create a family office, the benefits are far reaching.
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About the Author
Tim Devin is part of the Risk Strategies Private Client Services leadership team, overseeing the New York Metro Region and Family Office Practice. His 30-plus-year insurance career has included experience on both the insurance company and brokerage sides, which has served him well in managing the complex insurance needs of successful families. He is a Certified Advisor of Personal Insurance (CAPI) and specializes in providing risk management services to Family Offices.