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Five Questions to Ask Clients Before Creating a Family Office

A nuanced combination of factors goes into this decision.

Creating a family office gives individuals and their families the ability to manage their wealth for years to come by choosing specific advisors and services that streamline and aid decision making. As many families choose to outsource these decisions to professionals, the decision to work with or recommend a family office to a client family encompasses more than investment advice. It involves a nuanced combination of: considering investment advice; setting family goals; evaluating work ethics; aligning diverse viewpoints; determining what, if any, services in addition to investment management may be needed; and assessing charitable/philanthropic goals.

Five Questions

To ensure a family office is the right path forward, private wealth managers must ask their potential client family these questions before getting started.

  1. Are You Willing to “Share the Wealth” Across Family Lines?

This is a question many wealthy families ask themselves and one that a private wealth manager should pose if an individual or family is considering creating a family office. The answer isn’t always easy because not all families are created equal. For some families, it’s a foregone conclusion; they want to bring all generations of the family and their diverse viewpoints into investment decision making and share wealth for generations to come. For others, the idea of a family office is interesting, but realistically, not right for them. Perhaps, they feel their wealth is better suited solely for philanthropic initiatives, or they want to keep their wealth separate from others to encourage independence.

Private wealth managers must be clear with their clients about the implications, potential benefits and potential drawbacks of sharing wealth across familial lines. It’s important to understand your client’s goals every step of the way.

  1. Do You Have a Strong Point of View on Investing and an Interest in Being Involved in Investment Decisions for You and Your Family?

This question is perhaps the most important when it comes to deciding whether your client family should pursue a family office. Creating a family office is time-intensive, so it’s critical for families to consider their level of interest and involvement in investing.

Facilitating an annual family meeting is an often-overlooked way to start the discussions of running a family office and is a good way to assess the participation levels of various family members. Determine which family members are capable of being active participants and who will be passive participants. It’s helpful to bring in a professional at this stage of the conversation to help families align on investing philosophies and desired participation levels.

  1. What are Your Asset Levels that Need Management? What’s is Your Strategy for Managing Those Assets?

First, determine the asset levels your potential client has and what their goals are for these. A popular strategy for structuring a family office is as an investment limited liability company (LLC). The LLC is a flexible business structure that allows both ownership (membership) and employer/employee relationships for the receipt of income.

Your client’s asset levels and current strategy will be critical in determining a path forward—whether that’s through an LLC or otherwise. It’s also important to determine if the family office structure might be used to offer other services to future generations, including, but not limited to, accounting, legal, bill paying and budgeting.

  1. Are There Any Familial Philosophies that Need to be Continued and Transferred Generationally?

The major focus for most family offices are wealth preservation, expense management and familial-values transfer. To create a wealth management organization to oversee a family’s assets, as well as those in the next generation, it’s important to define the family’s goals and investment philosophy. Ensuring that both the philosophy (the why) and investment selection are transferred generationally helps maintain transparency, purpose across the family and a sense of community and unity across the generations. It also prevents regulatory violations and fund misappropriation. 

  1. Is Your Family Ready to Start and Run a Family Office?

Ultimately, you must ask if they’re ready to start. Building a family office requires a tremendous amount of diligence and oversight, which includes creating strict governance infrastructure and establishing relevant boards of directors and committees. Individuals who have the drive and motivation to create and run a family office must also determine whether the business will be sustainable. For those who enjoy the excitement of creating an organization and have the time, or those who want to occupy retirement with meaningful and personally rewarding work, starting and potentially managing a family office can be a great option.

Pros and Cons

Like most decisions, there are pros and cons to creating a family office. Some of the attractive features of family offices include the continuation of successful wealth gathering, family investment techniques, maintenance of control while executing a power shift, pooling of accounts that could drive lower fees and continuity of holdings.

The downside to starting a family office include the tremendous amount of work it requires compared with outsourcing (or just hiring a private wealth manager or company). It can also be difficult to foster a homogeneous point of view on investing and how the business should run. Also, like most “businesses,” family offices take some time to start to work.

With these pros and cons in mind, a private wealth manager should be prepared to guide a potential client family through the decision-making process—wherever it might lead—and help them decide whether a family office is right for them.


Stephen Dunbar is Executive Vice President, Equitable Advisors

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