Managing Your Legacy with a Family Office

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.

What is a family office?

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.

What are the core responsibilities of a family office?

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:

• Protecting the family's personal information, privacy, and reputation
• Providing structure and controls for family governance
• Securing insurance coverage for the family’s businesses and properties
• Coordinating with legal and estate planning professionals
• Acting as the human resources function for the family’s domestic employees
• Managing and protecting the family’s collections, including fine art, jewelry, and antiques
• Managing business succession plans
• Establishing philanthropic goals and guidelines, and overseeing charitable giving

What are the primary types of family offices?

Family offices take on a wide range of forms and structures. However, most fall into one of two broad categories:

• Multi-family office

  • Similar to traditional wealth management practices, a multi-family office is a firm that serves the needs of more than one family. Services may include managing investments, paying bills, overseeing domestic staff, advising on philanthropy, and other responsibilities. Since these firms work with multiple families, they can be less expensive than a single-family office. However, they also provide fewer controls and management resources.

• Single-family office

  • Ultra-wealthy families typically establish a single-family office to manage and preserve the family’s wealth. Staff typically includes a core team of financial advisors, estate planners, accountants, and other experts who manage the family’s finances, governance, and personal needs. Since they serve only one family, these offices offer a greater level of personalization and control.

What is the role of risk management and insurance in a family office?

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.

Factors to consider when setting up a family office

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:

• Assessment of family financials – It is important to assess the family's financial status to determine whether there is sufficient wealth to warrant the expenses associated with starting and operating a family office. If not, it may be more prudent to join an existing multi-family office.
• Establishment of goals and objectives – The family needs to discuss their wealth management aspirations, goals, philanthropic philosophy, and appetite for risk. Goals may include preserving wealth for future generations, reducing tax liabilities, diversifying investments, transferring wealth, planning for business succession, and more. Family members often have different business interests and points of view. Together, they need to define a set of guiding principles and shared goals for the family office. Businesses or management activities that do not align with these goals and principles may need to live outside the family office (or may need a separate family office).
• Formation of a team of trusted advisors – The family (or families in a multi-family office scenario) will then establish an expert team of advisors, including lawyers, accountants, insurance, and investment advisors to assist in setting up and running the family office.
• Creation of governance and procedural guidelines – The family and trusted advisors work together to establish rules and regulations, including investment strategies, reporting requirements, risk management, philanthropic guidelines, and internal controls. The governance team then monitors performance continuously to ensure the family office is meeting its objectives.

What are the primary benefits of a family office?

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.