A family office is a company that’s privately held and manages the investments and wealth of high-net-worth individual families.

Why set up a family office?

The reason for setting up a family office is to help transfer the generational wealth of ultra-high net worth individuals and avoid inter-family disputes.

Factors for setting up a family office

Control having the ability to control the costs, practices, and policies that are affecting family offices is the most appealing aspect of creating one. Family office principals frequently have extensive experience in managing large organizations, specific management philosophies, and objectives regarding the desired people, costs, culture, practices, and scope of their family office.

Planning exercise

Like many well-run businesses, the clearer the goals and lines of accountability are defined, which will improve the outcomes. Family office management is advised to begin the process by addressing key questions designed to have a better understanding of how their families might benefit from a family office.

Personalized service

A family office can organize a family’s specific needs and preferences and provides personalized service. This results in a significantly higher level of service quality than a wealth advisor, or trust company.

Size

The beginning of most family offices begins with the hiring of accounting or legal staff, either from existing family-owned businesses or trusted service providers. The more the number of legal entities in a family office, then the greater the cost of accounting, legal, and compliance, which often is not appreciated by advisors.

Geography

Based on the family office’s location there is a direct impact upon tax exposure, regulatory requirements, privacy, proximity to family, availability of high-quality staff, professional services infrastructure, and cost. With the increasing globalization of wealthy families – residences, investments, business interests, and philanthropy – competition amongst jurisdictions is intense as countries modernize their trust, tax, civil law, regulatory, and fiduciary standards to keep up with the pace of evolving practices.

Scale

Large-scale economies are often present in family offices. Diseconomies of a large scale may also be present, these are serving to increase operating costs, sometimes to an unacceptable level.

Outsourcing

Family offices today have an increasing availability of outsources available. Many family offices have outsourced professional functions such as tax strategy, trust, estate planning, custody, and investment management. They may also maintain a small in-house accounting staff to do much of the day-to-day general ledger work, and have a tax firm prepare annual or quarterly tax returns.

Cost Guidelines

One needs to know the scope, direction, and complexity of the office. Regardless of the cost, the benefits for the family need to justify the expenditure of money. A couple of small to medium-sized well-run offices produce an abundance of benefits relative to the cost. There are also large, organizations that have failed to meet the expectations of the family. The most important thing at the end of the day is the value and benefit must be defined by the family office.