Managing the Family Office

Managing wealth often requires a different skill-set from the one that had helped a client accumulate that wealth. For the families of ultra-high net worth individuals, that can spell a transition from working with a financial advisor to a Family Office.

A Family Office is a private firm that’s established to manage all aspects of life and wealth for high net worth families ($100M in assets). A Single Family Office (SFO) is established to support a single family. Research by Ernst & Young shows that there are about 3,000 SFOs in the United States. A Multi Family Office (MFO) offers services to multiple families that may or may not be connected. Some Multi Family Offices start out when several Single Family Offices come together to share infrastructure costs. Others simply choose to focus on ultra wealthy clients.

Service offerings of a Family Office vary with the needs of each family and can include financial and tax planning, charitable giving, investment management, running a vacation home, managing security and travel, or curating an art collection. Holistic service at this high level comes with a steep price tag, and many planners and advisors aspire to run a Family Office (or work in one).

There are five major benefits that wealthy families get from establishing a Family Office (or working with one).

  • Potential for greater returns and alignment of interests through one office managing (or overseeing) the entirety of the family’s assets;
  • Business succession planning;
  • A plan for intergenerational wealth transfer with execution support to reduce conflict and improve communication;
  • Access to the expertise that matters most based on family business and life circumstances;
  • Confidentiality.

There are four major challenges in running a Family Office.

  1. Access to clients.

According to the research done by the Family Wealth Alliance, a Wheaton, IL based firm, there are about 5,000 families in the US that have accumulated over $100M in assets. Access to that limited number of ultra-high net worth clients is heavily guarded. If your sights are set on a Multi Family Office, you must identify a gap in the market and build a highly qualified team of specialists that can address that gap with the expertise that’s difficult or impossible to duplicate.

  1. Building the right team

Finding and retaining the right talent is a critical ingredient for success. The ideal candidate is technically qualified beyond reproach, has highly developed diplomatic skills, and is comfortable with wearing multiple hats.

Making sure that professionals come into the Family Office environment with the right expectations is also important for a long-term working relationship. It’s not all first-class travel and fun. Client family members can have strong or difficult personalities, so conflict can and does happen.

  1. Creating the right team structure

Many Family Offices are small teams that work closely together. Some firms have found it functional to allow for specialties but no silos so that the client’s service experience is seamless and holistic no matter which professional they interact with.

Because every Family Office is created to serve and support one (or a few) families, the structure of the office will be driven by the unique and ever-evolving needs of those families. As a result, there are some industry best practices, but no single right way to structure the firm. As the industry saying goes, when you’ve seen one Family Office, you’ve seen one Family Office!

  1. Technology stack

Because the needs of each Family Office are unique, there is no single end-to-end technology stack or platform that can address all of their needs. While their search for the Holy Grail of technology platforms continues, the best solution available today is to assess technology needs and choose technology tools that integrate well with each other. Be sure to choose the accounting system that allows for a broad range of alternative investments (such as seed investment in films, artist loans, cryptocurrency, etc.) As you consider your technology choices, make sure that every tool allows you to maximize the value of your diverse and highly capable team.