Juliette Johnson clarifies some of the issues that surround the concept of the family office.
There has been much debate about the role and function of the family office. Many business-owning families may wonder whether they should have one, what its functions should be and how it will cost.
Family offices often have their roots in the need for administrative support to look after family matters – for example, managing assets such as family trusts, companies, shares, property, investments, and charitable foundations.
Some of these functions can be undertaken by professional providers such as banks, accountants, lawyers and trust companies. That said, families occasionally prefer to have somebody with them on a full time basis who can liaise with advisers.
A family office can also provide a complete wealth management service for families who want to have some or all of their assets collectively managed. There could be a number of beneficial reasons for this, ranging from the emotional to the purely practical, such as the existence of jointly owned assets, family trusts and investment vehicles.
Another potential benefit is the cost reduction gained through economies of scale and collective negotiating power with various suppliers. The family may also be able to access investment opportunities which would have been beyond the reach of any one family member.
If you are considering a family office, bear in mind that it can be expensive to find and hire an individual with the depth of knowledge and experience required to match that of a professional investment manager. A ‘coordination’ position may be easier to staff.
Things to think about
The need for both administrative and professional support becomes more obvious where there is a continuous flow of transactions from business ventures, property investment and philanthropy.
The family office can play a significant part in the coordination of family activities, including the management of the relationship between the family and the family business, and family education.
The development of a family wealth strategy, and a family constitution, will require significant input from the family office, although such important and complex exercises may also require the skills of an external facilitator.
Alternatives to a private family office include providers of wealth management services to wealthy families ranging from large private banks, to specialist financial boutiques and independent, multi-client family office.
For families with less than £100 million in assets outside the family business, philanthropy is perhaps the most compelling reason for a family office
Questions to ask…
- What are you trying to achieve?
- What are the alternatives?
- How much advantage is there in having the day-to-day administration under the family’s personal control, through directly employed personnel?
- To what extent do the scale and complexity of the arrangements merit having your own directly employed secretariat?
- What role can the family office play between third party advisers and the family itself?