What Is a Family Office – And Do I Need One?

Most familial wealth is short-lived, as it tends to decrease from one generation to the next. Can your family buck the trend?

A “family office” may be utilized to preserve and grow wealth in the present and for future generations. Additionally, if managed well, a family office can provide future generations with the infrastructure for successful wealth management.

In our three-part series, we discuss: what a family office is and whether you may need one; if you do need a family office, should you build or outsource it; and what family office structure might be best suited for your specific circumstances. In this article, we define the family office and explore scenarios where you may wish to have one.

What exactly is a family office?

A family office is an entity established to manage private wealth and family affairs. Just as importantly, a family office is designed to help ensure the transfer of wealth from one generation to another. While that definition may sound similar to investment management, there are important differences between the two:

• Investment management firms manage money for a broad client base. These firms focus on individuals, businesses and institutions, plus they must balance the needs of the many with a client’s individual goals.
• Investment and traditional wealth management services tend to be  narrow and offer less customization. Investment management and financial/retirement planning are generally standardized. These services alone, while necessary, may not be enough for families holding significant wealth.

On the other hand, the family office focuses on the goals of the few. A family office is a private and comprehensive wealth management advisory firm for high-net-worth individuals. This structure focuses on one or multiple families. The offerings of a family office are private, complete, thorough and customizable. It provides families with tailor-made options that include integrated tax planning, charity and philanthropy, family governance and, of course, wealth planning and preservation strategies. A true family office manages every aspect of an individual or family’s wealth—and offers expertise through internal specialists. 

Types of family offices

The family office can be broken down into various sub-categories. Here are the three main categories:

1. The single-family office. As the name suggests, this type of family office manages a single family’s wealth, affairs and tax optimization requirements. This structure is usually created by the founding family and offers a high degree of customization. Typically, the family has a complex multi-generational structure and focuses on several long-term goals, such as preserving and compounding familial wealth and successfully transferring wealth from one generation to another while maintaining privacy.
   
   
2. The multi-family office. This family office services more than one family and comes in two varieties: a multi-family office entity serving the needs of several families, and a family-owned multi-family office serving the needs of a select few founding families.
   
   • What makes the multi-family office different? -Abundance of talent, as a multi-family office offers access to a large pool of talented professionals-Wide variety of investment opportunities-Service options that help to deliver economies of scale  
3. The virtual family office. This niche option is growing in popularity, given advancements in technology. It’s a collaboration of multiple service providers—such as an investment manager, legal advisors, tax advisors and personal CFO services—who are typically organized through one lead advisor. Think of this as a multi-family office that chooses to outsource its services rather than provide a full set of amenities “in house.” These independent professionals are active in their own firms but coordinate with each other and work together on each client’s behalf.

Do you need a family office?

Now that we’ve looked at different family office structures, the question remains whether or not your family may need one. To help you decide, take some time to think about the following questions (and their implications):

• Can your base of wealth support the necessary team of investment and accounting professionals you’ll need (i.e., salaries, infrastructure, technology, etc.)?
• Do your children/grandchildren have the long-term plan or blueprint to manage your family’s wealth successfully?
• Is the next generation well equipped to manage significant wealth?
• Are you confident in your wealth transfer strategy and estate plan?
• Do you have the time and expertise to manage/expand your family’s holdings or financial affairs?
• Do you foresee a near-term liquidity event? Do you have a structured plan for such events?

These questions are an important starting point to identify whether a family office could help meet your financial objectives. Understanding the specifics of your situation and your goals also means you’ll gain clarity on the type of family office that best suits your needs. You’ll also need clarification related to whether it’s best to build a single-family office or outsource your family office to a multi-family office.

If you’re considering a family office to help execute on your wealth management and wealth transfer strategies, please consult with your Corient Wealth Advisor, who can provide insights based on your (and your family’s) unique circumstances and objectives. Also, read the other two articles in this series:

Should You Build or Outsource Your Family Office?

Which Family Office Structure May Be Right for You?

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