What is a Family Office?
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Family Offices are increasing in number and significance, with Deloitte estimating that Family Offices currently manage over £3 trillion in assets. The idea of a 'Family Office' is, however, one of those that gets used in different ways in different contexts and it can be rather confusing. In this article we therefore explain what a Family Office is, what they typically do and discuss the related terminology.
The basics
Family Offices come in lots of different shapes and sizes. Some families simply have a 'Family Office' that comprises an assistant or two that helps family members with administrative matters. At the other end of the scale, some families have a large team that deals with the management of the family's wealth and all sorts of other tasks for the family.
The key characteristics of a Family Office are that they provide advice and support services to a high-net-worth individual ("HNWI"), family, or a group of families.
What services do Family Offices typically provide?
The services provided by a Family Office change depending on size and individual family needs. Key services normally include basic administration and coordination of external professionals such as financial planners, accountants, and lawyers and managing any household staff.
For wealthier families or those with more complex needs, the Family Office will include wealth management and investment management and it is these parts of the role that are increasingly coming to the fore when Family Offices are discussed.
Family Offices can also help families with other requirements, such as succession planning and guidance on philanthropy.
For family businesses with large number of family shareholders the Family Office can also help coordinate the relationship between the family and the business.
What Is the Difference Between a Single-Family Office and a Multi-Family Office?
A single-family office ("SFO") is dedicated to one family’s wealth and affairs, typically for families with significant wealth and complex needs. It provides bespoke solutions but can be expensive to establish and maintain. A multi-family office ("MFO") serves several families, sharing resources and expertise. MFOs offer similar services but benefit from economies of scale, making them more cost-effective for families with moderate to high wealth.
Why would someone consider setting up a Family Office?
The key for many people setting up a Family Office is that managing substantial wealth can be complex and time-consuming, and a Family Office consolidates various needs under one roof in a more tailored and personal way than external service providers can normally provide. Family Offices also provide high levels of privacy and discretion, which is often attractive for families who wish to protect their wealth and reputation.
What are the challenges of having a Family Office?
The main issue with Family Offices is often cost. Establishing and maintaining a Family Office can be expensive, especially for smaller families. For ultra-high-net-worth families, the cost may be justified, but for others, it could be prohibitive. Finding staff with the right skills sets can also be challenging. There are also often occasions where the family can get a better service externally, rather than trying to bring too many services in-house. The time and effort required to set up and manage a Family Office also needs to be considered, particularly where the HNWI or other family members may like having a lot of involvement in the day-to-day management of their affairs.
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