What is a Family Office ?

The management of wealth is a very substantial industry with specialized service providers for individuals and families with investable assets. These service providers include amongst others Private Banks, Lawyers, Accountants, Fund managers and Wealth Managers. Such providers offer services to multiple clients and their value add lies, at least in part, in their specialization and expertise in their respective fields. They are not exclusively focused on the wealth affairs of a particular client. When a family has substantial wealth, it often makes sense for the family to recruit a team that will be looking after the family’s wealth affairs in a professional manner and on an exclusive basis. This team is usually called “The Family Office” and its principal activity is in allocating the family’s wealth across asset classes/managers and in monitoring performance across asset classes/managers so appropriate adjustments to allocations can be made in a timely manner.

The Family Office also deals with tax and related matters (e.g. trusts) and can also be the vehicle via which the family engages in charity and philanthropy.

How does a Family Office help ?

A Family Office helps in two major and distinct ways with the financial well-being of a family. Firstly, by housing the family’s wealth in a separate structure and entrusting it to a qualified and professional team, which may include members of the family too, the family ensures that the management and governance of the family’s business or businesses are kept separate from the management of the wealth of the family. This is good for both the family owned busines and the family itself, since carrying out the two activities properly require appropriate resources and focus and mixing the two risks compromising one or both. At the same time, such a separation does not mean that a Family Office cannot interact with the business of the particular family. Rather, the introduction of a Family Office to manage the wealth of the family, will usually mean that any interactions are more likely to be conducted and documented in a business like manner and ideally on an arm’s length basis. Experience shows that failures of family controlled businesses are often linked with family owners treating business and corporate assets as personal or family assets, which constitutes a short-circuit of corporate and family governance. In this context, a Family Office is a circuit breaker that keeps a healthy distance between the business affairs of the family controlled business and the wealth affairs of the family.

Secondly, a Family Office managed by a dedicated team with an exclusive focus on the wealth affairs of the family, can generate value for the family by finding an appropriate balance between keeping certain activities in-house and out-sourcing others to specialized service providers. So, whilst a Family Office does not obviate the need to utilize specialized service providers, it does provide a capability and a muscle with which to drive better outcomes with such providers for the family.

How do you create a Family Office ?

As has been mentioned, a Family Office focuses on managing the wealth of a family and therefore it requires a mix and balance of skills that will allow this to be done effectively and professionally. A team is usually recruited with relevant skills, experiences and networks, often from specialized service providers. Sometimes, members of the family with particular interest and strengths in allocating capital can be very active or even lead the Family Office on behalf of the entire family.