Family Office

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on February 27, 2024

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What Is a Family Office?

Family offices are private wealth management advisory firms dedicated to serving the unique needs of ultra-high-net-worth individuals (UHNWI).

They provide a comprehensive financial and investment planning approach, including budgeting, insurance, charitable giving, wealth transfer planning, and tax services.

This contrasts with traditional wealth management firms that may only offer limited services.

Family offices go beyond the basics of traditional wealth management approaches, using consistent monitoring and analysis to ensure that their clients maximize their investments' return while protecting them from unnecessary risks.

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Taylor Kovar, CFP®

CEO & Founder

(936) 899 - 5629

[email protected]

I'm Taylor Kovar, a Certified Financial Planner (CFP), specializing in helping business owners with strategic financial planning.

Family offices require a nuanced approach to wealth management, emphasizing personalized strategies that cater to the unique needs and goals of each family. By focusing on comprehensive risk management, estate planning, and investment diversification, we ensure the preservation and growth of wealth across generations. It's vital to integrate values-based investing and proactive tax planning to sustain the family's legacy and impact. Ready to elevate your family's financial well-being? Partner with us to craft a bespoke plan that aligns with your vision and objectives.

Contact me at (936) 899 - 5629 or [email protected] to discuss how we can achieve your financial objectives.

WHY WE RECOMMEND:

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IDEAL CLIENTS:

Business Owners, Executives & Medical Professionals

FOCUS:

Strategic Planning, Alternative Investments, Stock Options & Wealth Preservation

What Does a Family Office Do?

A family office is a private company or advisory firm that provides comprehensive wealth management and financial services to high-net-worth individuals and their families.

This type of organization manages the complexities of multi-generational wealth, ensuring that the client's financial interests are safeguarded and their legacy is preserved.

They typically employ experts (such as attorneys, accountants, financial advisors, estate planners, and tax advisors) to provide customized services tailored to each client's needs.

Family Office Services
  • Estate & Tax Planning - Another area of expertise that family offices offer. They can assist clients in establishing an estate plan to protect their assets and minimize taxes while minimizing the amount of paperwork required over time.

  • Philanthropic Planning - Another service provided by family offices. They help clients identify charitable organizations that they would like to support while providing guidance on the best donation methods.

  • Administrative Support - A key role of family offices. They oversee all financial activities related to the client's estate, including bill paying, budgeting, asset tracking, and record keeping.

  • Family Governance - This involves helping families establish clear lines of communication between generations so that everyone is informed about important financial decisions and has input into how money is managed.

  • Risk Management - This is also an important service of family offices. They help clients assess risks and develop plans to protect their assets, such as insurance policies or asset allocation strategies.

In short, a family office serves as a one-stop shop for families who want comprehensive wealth management services tailored to their individual needs and goals.

By leveraging the experience of qualified professionals across multiple disciplines, they can provide invaluable advice and support that can help ensure that clients' financial interests are safeguarded and their legacy preserved over time.

Types of Family Offices

There are many types of family offices, each with advantages and disadvantages depending on the individual's or family's needs. Factors such as clientele, size, and organizational structure are important to consider when determining which type best suits their particular situation.

Single-Family Office (SFO)

For ultra-high net worth families, privacy guidelines and personalized wealth management is crucial. The assurance that their financial decisions are being tailored to their needs is a priority.

Establishing a single-family office allows families to trust that these matters will be handled responsibly and privately.

A single-family office is more than just financial planning; it includes a range of services, including specialized tax and compliance regulation, and concierge services such as real estate investing.

These offices are managed by a dedicated staff determined from consultations between the family members to ensure full control over decision-making.

All these features combine to create the ultimate wealth management option for those seeking security and customized financial solutions.

Setting up a single-family office requires significant capital and generally has higher operational expenses than a multi-family office (MFO). To maximize cost efficiency, some UHNW families opt to join forces and convert their SFOs into closed MFOs.

Multi-Family Office (MFO)

Multi-Family offices offer UHNW families an alternate way of managing their wealth. The most significant advantage of MFOs is the cost savings compared to single-family offices.

By aggregating services across multiple families, MFOs can offer the same suite of services but at a much lower cost for the client. Besides their lower cost structures, MFOs come in various forms, such as commercial and private.

Commercial MFOs exist primarily to gain profit from the services that they provide across multiple families, while private or ‘closed’ MFOs serve a limited number of families that share operational costs.

This diversity of options allows for increased flexibility and the lowest overall financial strain for UHNW families looking for comprehensive wealth management solutions.

In the past, one of the most significant drawbacks to having a multi-family office instead of a single-family office was that families lacked personalized wealth management services tailored to their needs.

However, many MFOs now offer customized services and product solutions tailored to meet clients' requirements.

Outsourced Family Office

An outsourced family office is a convenient solution for busy individuals or families who need assistance managing their finances.

This family office type allows them to cooperate with a single entity that collaborates on their behalf—rather than dealing with separate advisors and providers.

The designated coordinator keeps track of all communication and ensures that each team member has the same information, creating an efficient service for clients.

Ultimately, outsourcing family office services could be the perfect choice for anyone looking to streamline financial planning.

Outsourced family offices can handle many of the same services as traditional and multi-family offices, such as philanthropic planning and family wealth education.

Although these services are typically less expensive than those of a traditional family office, families have much less control over the professionals that they work with.

Embedded Family Office (EFO)

Embedded Family Offices are a cost-effective solution for families who want personalized wealth management services without the expense of setting up an independent family office.

An EFO operates within a family business/enterprise and has its wealth management needs to be tended to by senior managers from the company's finance department. However, the line between assets owned by the family and those of the business may become complicated.

If there is sufficient wealth, an EFO might be unable to offer satisfactory services. If this occurs, a multi-family office should be considered as an option for outsourcing.

Types of Family Office

Who Works at a Family Office?

An affluent family may need various services, often hiring specialized professionals. Some of these professionals include:

  • Tax Advisors - These professionals provide essential guidance and advice to ensure that clients receive the best tax treatments. Their expertise can often save their clients large amounts of money, potentially even tens of millions of dollars.

  • Lawyers - They provide crucial advice and counsel on real estate, investments, trusts, estates, and possibly even criminal matters. Qualified lawyers ensure that each office move protects the client's best interests.

  • Investment and Wealth Managers - They look after their client's fortune, offering a wide range of options for investing the money.

These professionals have multiple routes through which they can invest large sums of money, including mutual funds and creating custom plans tailored to their client's wishes.

Do You Need a Family Office?

Deciding whether or not a family office is the right choice for you requires more than just considering your net worth.

Factors such as income, diversification, staffing, overhead, geographic disparity, family dynamics, philanthropic interests, and time commitments should be considered.

When determining whether or not a family office is the right choice and when choosing between the largest family offices, an extensive evaluation should be performed.

Complexity of Financial Portfolios

Establishing a family office might be the best option when a family's holdings and estate plans become too vast to manage alone and too intricate to supervise and organize.

This allows for improved financial returns, more efficient monitoring and supervision, coordinated initiatives throughout the family, and consolidated support for long-term continuity.

The best estate plans include simple wills and remainder trusts that do not require interpretation when the principal is gone.

If multiple legal entities or trust structures exist within the estate, professional staff may be needed to help implement and carry out the founders’ wishes over multiple generations.

Size of Your Wealth

A family should generally have more than $100 million in net worth before establishing a traditional family office.

The most important measure for determining whether to open a family office is not total assets, but the family's sustainable income after all lifestyle needs are met. If insufficient excess returns cover the costs of running the family office, it may be re-imagined as a private equity firm.

Time & Resources

A family office can be extremely beneficial for anyone looking to manage their investments efficiently.

By entrusting some of the decision-making and asset management tasks to a professional team, you can free up more time and resources to focus on other important aspects of life.

For those with considerable wealth, having an experienced team to provide expert advice and guidance can help ensure that financial decisions are made cautiously and precisely.

Delegating these tasks to qualified professionals will ensure that all investment activities align with applicable regulations.

Family Dynamics

A family office benefits families wishing to manage and pass down their wealth and provide flexibility and communication between family members.

When creating a structure for their finances, a family office can allow parents to involve their grown children in decision-making and provide roles for them within the business.

This allows each individual to remain informed and up-to-date on all changes or developments in the portfolio and offers open lines of dialogue so that everyone understands what is happening with their investments.

Final Thoughts

Family offices are professional services that assist ultra-high-net-worth individuals in managing their wealth. They offer various services such as strategic planning, budgeting, insurance, charitable giving, wealth transfer planning, and tax advice.

Affluent families often need assistance with managing their wealth and taxes, which can be provided by specialized professionals such as tax advisors, lawyers, and investment and wealth managers.

These experts are well-versed in the areas of law, investments, and taxes, allowing them to save their clients money while making decisions that work in the family's best interest.

Whether or not you need to hire a family office depends on your individual circumstances and financial goals. Various types of family offices are available depending on the individual or family's needs.

Factors such as client base, size, and organizational structure should be considered when deciding which type of family office best fits their specific situation. Ultimately, it is important to do the necessary research to find a service provider that fulfills their unique requirements.

Family Office FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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