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Seven Drivers for Determining If a Family Office Is Right for Your Client

Typically only the richest, most complex clients need a family office.

By Charlie Carr

How do you know whether your client should start a family office?

It might help to take a brief detour first to define what a family office is. In simple terms, a family office is a private organization created to oversee and manage the financial needs of a specific family. They may be as small as one or two staff, supported by a network of outsourced advisors, or they may include 20 or more employees. The ideal family office is a mix of insourced and outsourced services, leveraging a network of expert advisors.

There are a series of factors that weigh into the decision. We constantly meet families who are wrestling with this question, and generally there is no easy or clear-cut answer. However, if factors suggesting a family office outweigh the ones suggesting not, then the family may decide to move forward.

Below are seven key factors, or reasons, to consider when considering whether to establish a family office. 

High wealth complexity. Is the burden of administering your client’s wealth and holdings outweighing the benefits of that wealth? Families with multiple houses, with maintenance, staffing and potential renovations often find they want additional support. Other families have assets spread across various trusts and entities, with a long list of asset managers and custodians. Often, such families struggle with knowing their total worth, identifying all of their holdings and tracking their spending.

Multiple generations. There certainly are first generation wealth-owners without children who can justify a family office, but most often, family offices benefit families who are planning across three or more generations. Frequently, a family office is a tool that families use to help achieve their desired legacies for future generations. The office may be charged with helping the family remember its history and values, providing education and prodding the family toward increasing its human and family capital. It also can protect individual family members from key mistakes that could impact the overall wealth.

Privacy. A family office can be a tool for protecting the family’s privacy about its wealth and activities. The office may house family and asset information and establish effective governance and risk assurance mechanisms to keep these assets protected. Office staff may be able to prevent actions that would hurt the privacy.

Preserve the family business legacy. What is the family’s desired legacy across the next 50 to 100 years? Is there a desire to build and maintain a family unity across generations, held together by common values, history and perhaps a business or other holdings? Other families want to split the wealth at each generation, giving each person freedom and flexibility to go their own way. A family office could provide a solution that promotes and preserves the unique identity and values of the business and the family.

Greater control. Families often form a family office to give themselves greater control over investments, holdings and staff compared to using outsourced investment firms. A family office provides the family greater control over the types of staff, what work they perform and how that work is prioritized. The office also may allow a family to concentrate investments differently than an outsourced provider may be comfortable with. 

Other factors outweigh the costs. Hiring staff, with facilities and equipment, can be expensive. Frequently, one can outsource services or use a multi-family office for a lower cost. When the importance of the other factors listed here out-weigh concerns about cost, then a family office is feasible. 

Their wealth level justifies one. The typical question is, “at what level of wealth should I start a family office?” Are we discussing overall wealth, including the business, or just marketable wealth? The right answer, of starting a family office or not, depends on the above factors just as much as the family’s wealth. However, if you are pressed for an answer, here is a rough guideline:

< $100M

Generally, a family office is too expensive. Consider using a multi-family office.
$100M to $250M    
This is a gray area. You may consider outsourced providers or a multi-family office supplemented by a small family office staff.
$250M or more

Families can financially justify a family office, but above factors drive whether or not it is the right decision.

Advice and assistance from external parties can be beneficial for families who are unsure of whether to establish a family office. Such observers may be able to pinpoint the family’s challenges, thus guiding them to the best decision for their family. 

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