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What is a Family Office?


WHAT IS A FAMILY OFFICE

A family office or single family office (SFO) is a private company that manages investments and trusts for a single wealthy family. Its sole function is to centralize the management of a significant family fortune. The company's financial capital is the family's own wealth, often accumulated over many family generations. Services typically handled by the traditional family office include investment management, trust oversight, property management, day-to-day accounting and payroll activities, and management of legal affairs. Additionally, family offices often provide family management services, which include family governance, financial and investment education, philanthropy coordination, and succession planning. The underlying goal of this structure was to transfer established wealth across several generations.

 The office itself either is, or operates just like, a corporation (often, a limited liability company, or LLC), with a president, CFO, CIO, etc. and a support staff. Often, family offices are built around core assets that are professionally managed. A more aggressive and well-capitalized office may also be engaged in private equity placement, venture capital opportunities, and real estate development.

The underlying goal of this structure, or any family office structure, was to transfer established wealth across several generations.

More recently the term "family office" or “multi-client family office” is used to refer primarily to wealth management services for a number of relatively wealthy families.

EVOLUTION OF THE FAMILY OFFICE MODEL

The Family Office of today can trace its more recent origins back to the private trading companies of the 17th century via the large industrial fortunes on both sides of the Atlantic in the late 19th and early 20th centuries.  As the owners of the large shipping, banking, retail, and industrial fortunes sought to manage their business interests and private wealth they initially employed corporate staff members with some assistance from the family.  As the process became more complex, families began to separate their business holdings from their vast personal wealth. This partition created the first of an increasing number of single family offices in the early 20th century. Two world wars, the industrialization of the West and the rising of the middle and upper classes, lead to an ever increasing need for family office services.  At first, this need was provided by established single family offices opening their services to extended family or non-family clients with common interests. Within a short time these offices were joined by free standing newly created multi-family offices. Recent economic recovery, more sophisticated demands by the investing public, and the rapid technological evolution of the financial consulting services industry, have all contributed to a significant evolution in the multi-family office model.

 

WHY USE THE SERVICES OF A FAMILY OFFICE

Given the complexity of today’s financial markets and the frequency of regulatory and tax law changes, the costs of setting up a single family office with talented and experienced professionals is very high and can easily be in excess of $1 million per year. A Multi-Client Family Office that offers a broad range of services allows the costs of experienced professionals and the necessary support staff to be amortized over a larger asset base by employing efficiencies of scale and creating synergies across multiple wealthy families.

Although the specific circumstances of each individual family may vary, there are several common needs that exist for families that have chosen to employ the services of a MFO:

Ø  NEED  FOR  FULL-TIME  PROFESSIONAL  MANAGEMENT

§  Family’s financial assets grow to a level that requires full-time professional management

§  Sale of a business generates liquid assets

Ø  DESIRE TO  SEPARATE  PERSONAL, CHARITABLE, AND  BUSINESS  ASSETS

§  Family member(s) want to separate management of their personal financial assets from their  charitable and business assets for purposes of confidentiality and lack of time

Ø  FAMILY  EXPERTISE  NO  LONGER  AVAILABLE

§  Family has become multi-generational

§  Complexity of family wealth has exceeded family expertise

§  Next generation not willing and/or not capable of taking on asset management responsibilities

Ø  CHANGE IN  FAMILY  CIRCUMSTANCES

§  Needs of growing number of family members, requiring increasingly diverse asset management services, can no longer be effectively met by a family’s existing resources

SERVICES OFFERED BY A FAMILY OFFICE

The responsibility of the family office is to serve the family’s needs, both financially and personally. Wealthy families traditionally have realized the power of pooling their assets to obtain the best in service in just about any area they desire. Since managing the family wealth is an area of significant concern, the pooling of resources to obtain high quality management represents a high priority investment. A family’s wealth includes not only the money accumulated from the business and financial investments, but also hard assets such as art collections, jewelry, gold, real estate in addition to human, intellectual and social capital. These components are sometimes over looked by outside niche  advisors but represent a significant base of knowledge that helps a family office engage its clients at multiple levels of concern.

Moreover, it is extremely important to not only manage the financial assets but also to nurture and enhance the human capital and values that helped the patriarch generate the wealth in the first place. This is paramount to the longer term sustenance of the family’s assets across multiple generations.

The primary services offered by today’s family offices vary widely, but commonly may include combinations of the following:

·        Income tax, retirement, financial, succession, and estate planning;

·        Integration of services related to all aspects of the family’ financial matters;

·        Cash flow management;

·        Financial reporting, on family office functions as well as investment management;

·        Implementing philanthropic strategies;

·        Investment management services;

·        Holding family meetings;

·        Mediation of internal family conflicts;

·        Coordination with bankers, attorneys, and insurance brokers;

·        Oversight of real estate investments;

·        Wealth transfer strategies;

·        Trust services; and

 

·        Family governance.


 

 

S

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The above structure has the following major disadvantages. They are:

·    DECENTRALIZED PLANNING AND COMMUNICATION

·     COMPLEX WEB OF DISJOINTED ADVISORS

·     INEFFICIENT

·     NON-TRANSPARENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STRUCTURE OF A TYPICAL FAMILY OFFICE

The following chart illustrates a typical family office structure, where the Client/Family deals with its Family Office for its day-to-day affairs and the Family Office deals with its/clients web of advisors, etc.:

 

 

 

 

 

 

 

 

 

 

Client

Family

Office

BANK  TRUSTDEPARTMENTS

OTHER ADVISORS

STOCK  BROKERSINVESTMENT  BANKS

ACCOUNTANTSTAX  ADVISORS

IN-HOUSE CFOSCONTROLLERS

INSURANCEAGENTS

MUTUAL  FUNDSHOPS

MONEYMANAGERS

 

 

 

 

 

 

 

 

 

 

 

The above structure has the following major advantages. They are:

·     CENTRALIZED PLANNING & COMMUNICATION

·     SIMPLIFIED

·     COHESIVE & INTEGRATED MANAGEMENT

·       TRANSPARENT

·       LEVERAGES EXPERTISE

·       GENERATIONAL CONTINUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOW TO JOIN A family office

A Family Office’s entire mission is to manage the wealth of the family for the benefit of the family. The Family Office as a business is really a resource to leverage the family wealth and to use that wealth for the benefit of the objectives of the family. Another purpose is to provide cohesiveness to the family by realizing the legacy of the original founder.

The development of the Family Office with its comprehensive range of services has been, and continues to be, the response to the needs of wealth creators and their families. Its level of service will remain the vanguard for the stewardship of that wealth by succeeding generations as well as for the new wealth creators and their families.


 

 

 IMPORTANT DISCLOSURES

The information presented by Endowment Wealth Management, Inc. is not specific to any individual's personal circumstances and should not be taken as a firm recommendation.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.  If you have any questions please call our offices at 920-785-6010.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STRUCTURE OF A TYPICAL FAMILY OFFICE

The following chart illustrates a typical family office structure, where the Client/Family deals with its Family Office for its day-to-day affairs and the Family Office deals with its/clients web of advisors, etc.:

 

 

 

 

 

 

 

 

 

 

Client

Family

Office

BANK  TRUSTDEPARTMENTS

OTHER ADVISORS

STOCK  BROKERSINVESTMENT  BANKS

ACCOUNTANTSTAX  ADVISORS

IN-HOUSE CFOSCONTROLLERS

INSURANCEAGENTS

MUTUAL  FUNDSHOPS

MONEYMANAGERS

 

 

 

 

 

 

 

 

 

 

 

 

 HOW TO JOIN A family office

A Family Office’s entire mission is to manage the wealth of the family for the benefit of the family. The Family Office as a business is really a resource to leverage the family wealth and to use that wealth for the benefit of the objectives of the family. Another purpose is to provide cohesiveness to the family by realizing the legacy of the original founder.

The development of the Family Office with its comprehensive range of services has been, and continues to be, the response to the needs of wealth creators and their families. Its level of service will remain the vanguard for the stewardship of that wealth by succeeding generations as well as for the new wealth creators and their families.


 

 

 

 IMPORTANT DISCLOSURES

The information presented by Endowment Wealth Management, Inc. is not specific to any individual's personal circumstances and should not be taken as a firm recommendation.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.  If you have any questions please call our offices at 920-785-6010.

   
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Comment   |  6 years, 3 months ago from Milwaukee, WI