The Family Office

Many wealthy individuals reach a stage when they might benefit from the services of a family office to support them in their goals. Their affairs become so complex that they need a team to keep on top of it all, to handle the day to day matters as they arise.

 

FAMILY FOCUSED APPROACH

A ‘family focused’ approach recognises that the long-term preservation of wealth, typically across generations, is far more dependent on the family itself than on professional advisers and that engaging family members in the purpose and process of stewardship is a crucial ingredient of the service.

So part of the reason for a family office is to integrate a plan for the management and administration of the family’s affairs with a plan for family succession, which usually includes collective agreement on the purpose of the wealth and key objectives. It also includes family governance, essentially the framework for decision making, leadership and family communication. This is designed to unite the family in common purpose and minimise the potential for dispute.

In every family there will be some members who are actively interested in and motivated by the opportunity to manage and create wealth and others for whom wealth is simply a means of funding their lifestyle, thus being more inclined to rely on professional advisers. These differing perspectives need to be reconciled, which can have a major bearing on decisions concerning family assets.

The family office role thus demands a deep knowledge and understanding of the family, their aspirations, as well as the assets they own and expertise across all aspects of their affairs, sufficient to contribute to high level decisions. A benefit of a  ‘multi-family’ office is that they will also contribute great practical experience drawn from other families going through similar circumstances.

But this is only part of the reason for having a family office. A family office can provide so much more, and if required can manage aspects of the family’s life to free up more quality time or time to focus on core interests.

 

KEEPING ON TOP OF COMPLEX ARRANGEMENTS

Many entrepreneurs have numerous investments and ventures, held through different entities, with complex tax issues and sensitive family considerations. There comes a point when it is almost impossible to carry all the necessary background in your head and the need arises for more disciplined and well-structured processes and record keeping, supported by a group who understands all of the issues.

That group must be able to identify problems, offer opinions and bring a degree of expertise and experience. In some cases, such an individual can become indispensable, allowing the entrepreneur to focus on his or her core activity, without having to worry continually about the details of their financial and family arrangements. Crucially, such an individual also gives peace of mind to those who are concerned by the prospect of an unexpected event leaving their spouse or children with a complex financial situation, of which they have very limited understanding.

 

THE VALUE LIES IN THE COMBINATION

Overlaying this, some aspects of the arrangements may demand significant professional input and the family office procures such input either from within its own professional staff or a trusted partner.

It is this combination of managing family arrangements, providing expert administrative support, and bringing high levels of technical expertise and experience, that make the family office highly valuable and very different from a typical wealth manager.

 

FUNCTIONS OF A FAMILY OFFICE

The functions of a family office are, by definition, many and varied, to meet the needs and preferences of the particular family:

SOPHISTICATED ADMINISTRATION

A family office  provides extensive administration and reporting, which may require a sophisticated operating platform, depending on the nature of the family assets and structures.

This can cover numerous trusts and companies, bank accounts, investments, commercial ventures, properties, art collections and leisure assets. In many cases, the structures, the assets and the family are spread across a number of different countries, which adds to the complexity and the need for expert tax and legal advice.

FAMILY GOVERNANCE

The family office can have responsibility for operating family governance, ensuring a proper framework for making decisions, arranging and facilitating family meetings, and organising family communications, which will include trustees, directors, and professional advisers, as well as family members. This is far more than an administrative task, as it involves proposing and agreeing the agenda, providing relevant information and analysis, obtaining and interpreting professional advice, prior to the meetings.

ASSET MANAGEMENT

Family offices can also be responsible for the management of liquid assets, such as cash and investments, although the day to day running of portfolios is often outsourced to external professional managers. The investments may include private equity holdings, both directly held and through funds.

THE FAMILY BUSINESS

For those who have a family business, the family office can also play a role in helping to manage the relationship between the family and the business and, in particular, ensuring the interests of all family shareholders and beneficiaries are properly considered, when major decisions are taken.

PROPERTY, ART AND LEISURE ASSETS

Residential and commercial property have always played a central role for most families and the management of art collections has become an increasingly important function as the value of the art has grown. Many families also own boats, aircraft and other leisure assets.

PHILANTHROPY AND IMPACT INVESTING

Recognition of the need to focus more formally on their contribution to society has increased the emphasis on philanthropy and impact investing, both of which also play an important role in passing down values from one generation to the next and helping to shape the family culture.

 

MANAGING TRANSACTIONS

Some families are very active in terms of regular transactions involving commercial ventures, property, art and leisure assets, and their family offices should be equipped to manage these transactions, including appraisals, diligence, structuring and funding.

TAX AND FINANCIAL PLANNING

Overlaying all the above, will be tax planning and coordination of advice, which is an ongoing process, as tax will probably have a bearing on nearly every substantial transaction.

TOTAL RISK MANAGEMENT

The family office will operate a framework for risk management across the spectrum of the family’s affairs, including risks arising within the family as well as risks attached to particular assets. In the current environment, there is increasing focus on reputational risk and cyber security.

FAMILY EVENTS AND DISPUTES

The family office can also deal with the implications of all routine family events, such as births, marriages and deaths and may play a key role in the event of family disputes, divorces and other problems. This deep and often sensitive involvement in personal issues means they develop a very close understanding of the family itself, which is extremely helpful in their guardianship of the family wealth.

STRATEGIC REVIEWS AND SUCCESSION PLANNING

Finally, the family office can be involved in all strategic reviews and major decisions and could play a leadership or facilitation role. This will nearly always include developing and implementing plans to pass the legacy to the next and subsequent generations, which is one of the most important components of long-term wealth management.

ADVANTAGES OF MULTI FAMILY OFFICE

One of the main advantages of a multi family office is that it comes with economies of scale, and hence can offer a more sophisticated operating platform, much greater diversity of expertise and invaluable practical experience of other families, addressing similar issues.

The complexities of managing wealth in all its forms have increased dramatically over the last decade and require increasing input from specialist advisers. Having extensive expertise ‘in house’ can thus be much more effective in ensuring the correct advice is always sought and applied. In some cases they can apply the same advice across a number of families, also reducing costs.

For potential clients, the practical experience of other families is among the most attractive features of a multi family office, in that they are usually keen to learn how other families have dealt with similar situations and what lessons have been learnt.

The operating platform is of particular importance for those with diverse assets and holding structures, as it enhances efficiency and enables flexible reporting tailored to particular circumstances.

For international families with a wide variety of assets, held through multiple structures, the future must be for independent, global multi-family offices, which can genuinely meet their needs. This means being able to add value across the totality of their affairs, but nearly always working in partnership with other professional advisers.