What is a Family Office?
As wealth grows so do the problems of it’s planning and management. Wealthy families’ wealth planning involves deep questions about the legacy and shared values as well as countless details and strategies for maintaining wealth, its investment, passing it on effectively and preparing loved ones for the responsibilities that come with the inheritance. When the demands seem overwhelming, a family office may be the answer.
A family office is a professional organisation or a private office dedicated to managing the affairs and interests of wealthy families. An office manages the diverse interests and complex stakeholder relationships that often stem from a family in the business and/or a family with significant wealth spanning one or more generations.
Simply put, a family office is a private company whose employees help manage the assets and needs of a family. Given this broad definition, the goals are virtually limitless. As a rule, the mission revolves around wealth planning to support the current and future needs of multiple generations and helping families achieve their philanthropic goals. This may require experience in areas as diverse as trust and estate planning, investment management, accounting and overseeing houses, private jets or yachts. Depending on the needs and services provided by in-house or external experts, the size of a family office can range from a handful of employees to a large group of dedicated professional staff.
Is a family office the same as a wealth management company?
Not quite. Wealth advisory firms can offer some of the services that a family office provides, i.e. portfolio management and investment management. Advisory firms however tend to have many different clients, while a family office focuses on one (or a few if it is a multi-family office). Moreover family offices offer a much broader range of services in order to meet the full range of wealth-related needs that an ultra-high net worth family has.
Problems that a family office solves:
- preserving and increasing family capital;
- family turnkey asset management;
- differentiation between personal and business assets;
- business and capital succession issues;
- succession planning and organisation;
- tax and legal support;
- investment portfolio management;
- business entry into the international arena;
- relocation of all or individual family members abroad for permanent residence, educational or health purposes;
- minimising legal risks and tax consequences.
And not just business…
A family office does almost anything – from managing personal assets to solving everyday issues such as maintaining a yacht, organising trips, insuring horses, maintaining health of family members, supporting transactions for the purchase and sale of luxury real estate, private jets, art, antiques and other assets in Russia and abroad.
The important responsibility of a family office is to educate future generations how to handle and manage their wealth. A family office is responsible for teaching younger family members the proper handling of wealth and how it can or should be used based on family’s values. A family office can help instill in future generations an appreciation for their wealth and its demands. When formed properly, a family office can help maintain family unity and prevent intergenerational disagreements over money matters.
The main area of family office activity remains the provision of services in the field of asset management, real estate and financial consulting.
Family office is a family doctor analogue, i.e it sees the complete financial picture of a family and manages all projects simultaneously.
Single Family Office
A traditional family office or single-family office (SFO) is a private wealth management firm that serves a single high-net-worth individual or family.
As the name suggests, these organisations are solely concerned with managing the financial affairs of one family. This allows them to provide a highly personalised experience.
SFO usually consists of a team of financial advisers which may include an accountant, a tax specialist, an investment adviser and an estate planning expert.
With a dedicated team of professionals working exclusively for their family, the owner has direct access to expert advice and personalised attention.
Only very wealthy businessmen with a capital of at least $500 million can afford to maintain their own family office. The more money the more secrets you should keep.
Multi Family Office
Unlike single-family offices, multi-family offices (MFOs) serve the needs of multiple high-net-worth families. They offer the same types of services as of a traditional family office. It is important to note that what a family office does can vary greatly. While one client may need a family office to receive high-quality advice from a range of experts, the other may need a family office to organise their lifestyle needs.
This makes an MFO an attractive option for families who may not need the level of exclusivity provided by an SFO, but still want the comprehensive wealth management solution.
One of the key benefits of a family office is the ability to provide personalised services tailored to each family’s unique needs.
Family offices work closely with families to understand their financial goals and develop a personalized plan that takes into account their risk tolerance, time frame and other factors. This level of customisation ensures that families can achieve their financial goals while minimising their risk.
Family offices can provide a range of non-financial services that can be invaluable to high-net-worth families. For example, they can help families navigate complex family dynamics and develop succession planning strategies. They can also support charitable initiatives by helping families identify charitable causes that align with their values and provide guidance on how to make a meaningful contribution.
Multi Family Office clients are usually wealthy families, business owners or high-level top managers whose assets range from 1 to 500 million dollars.
Due to the fact that one does not need to maintain the staff of a personal family office, multi-family office services are more affordable. MFOs typically charge a percentage of the investment portfolio’s assets under management for their services.
Outsourced Family Office
Outsourced family offices (OFOs) are a relatively new concept in the world of family offices.
As the name suggests, hiring an OFO involves outsourcing the management of your family’s financial affairs to a network of service providers.
This allows families to benefit from the expertise and infrastructure of multiple experts, who collaborate to provide financial solutions for their clients.
They provide services similar to SFOs and MFOs such as investment management, financial and tax planning and risk management.
By outsourcing these functions, families can focus on their core competencies and enjoy the convenience of having a dedicated team of professionals working on their financial needs.
How can a family office help protect the family legacy?
Protecting legacy requires effective transfer of wealth and ensuring that new generations are prepared for the responsibility. Family offices work with wealth planning consultants in areas such as tax planning and family education.
The more personal function involves preparing younger family members for wealth responsibilities and helping to create a family culture that can sustain a family for generations. This in turn requires clear communication about money, wealth and values—topics that many families find difficult to discuss. Adult children often begin receiving funds before they are asked to participate in family decisions. Ideally wealth and responsibility go hand in hand. Family office experts can help create a plan that encourages this connection.
The number of wealthy people in Russia is growing every year and the question is not so much how to preserve their assets, but how to increase them and pass them on as inheritance. After all the children of those parents who grew up in the 90s “business giants” era have now grown up. The parents themselves are ready to move away from operational management processes, move from active to passive income from their investments and pass on their life’s work to the next generations.
Therefore, the demand for issues solutions for succession, transfer and preservation of capital for future generations (and therefore the services of family offices) is growing.
You can find out what other specialists may be in a family office team HERE.
