What is a family office?

Ryan FelpsFamily Wealth

A typical middle class family in the United States has need for financial and legal advice but probably doesn’t need to form a family office. That family may engage the services of an accountant, an attorney, and a financial / investment advisor. It is likely the time spent by all of these advisors would not exceed 30 hours in any given year.

A family of ultra-high net worth often has far more extensive and complex financial and legal needs than the middle class family discussed above. A family of great wealth may…

  • Own or control one or more operating businesses
  • Manage several closely-held real estate ventures
  • Require significant diversification of its extensive liquidity
  • Face complicated estate planning and tax issues
  • Maintain a charitable foundation

and look for assistance administering the trappings of living a life of privilege like…

  • Multiple residences
  • Club memberships
  • Private travel
  • Trade in collectibles
  • Third-party child care.

Unlike the middle class family described earlier, this type of family has so many concerns that the operations of the family require the full-time attention of advisors and assistants. In many ways the family itself starts to take on the characteristics of a business, and, thus, the need for a family office is born.

The single family office

What defines a family office? How many and what type of employees does it have on payroll? The answer is “it depends.” Some families maintain one full-time employee who is the centralized dispatch coordinator for a handful of outsourced services (legal, accounting, and investment). Some families employ dozens with titles ranging from “CFO” to “Manager of Real Estate Services” to “Art Curator” to “Staff Manager” (this last person oversees housekeepers, groundskeepers, chefs, nannies, and other staff that cater to the family’s personal needs). Family offices are as varied as the goals and needs of the families that establish them.

The growth of the multi-family office

A significant downside to a dedicated single family office is the expense of maintaining it. Some high-net-worth families are not complex enough to justify the cost of running a family office. These families are simply not so demanding that they would keep advisors and assistants busy on a full-time basis. Into this middle ground, the multi-family office has arisen.

What is a multi-family office

Multi-family offices are typically wealth management or accounting firms that have added specialized services to attract ultra high-net-worth clientele. This has resulted in a growth of firms offering services like the ones listed below to special clients called “Family Office Services.”

  • Bookkeeping and bill payment
  • Travel and entertainment booking
  • Sophisticated estate and tax planning
  • Trust maintenance and accounting
  • Family communications seminars and consulting
  • Philanthropy advising

As the number of families with significant wealth continues to grow, it is expected that the number of single family offices and multi-family offices will grow as well. What remains unclear is whether family offices are as successful as they could be in perpetuating the family wealth profile from generation to generation, aka stewardship. Family offices will always be nothing more than a collection of services that the family demands and is willing to pay for. If the family values stewardship, then its practice will be a priority within the family office.

To learn more about how your single family or multi-family office can get into the business of stewardship, visit Complex Interests.