What Is a Family Office?

Wealth can bring new opportunities to one’s life, but it also introduces new challenges. These obstacles often require unique expertise to handle. For this reason, ultra-wealthy families typically look to family offices, which refer to privately held wealth management firms that offer comprehensive solutions.

Unlike a regular wealth management firm, which may assist a wider array of people, family offices serve ultra-wealthy clients. In this article, we’ll explain what these firms do and exactly who they help. You’ll also learn about the different types and examples of firms that offer these services.

What Family Offices Do

Family offices are private wealth management firms that serve ultra-wealthy families, especially those with at least $50 to 100 million in investable assets. They specialize in helping these types of clients with a wide range of services beyond typical wealth management, such as estate and succession planning, philanthropy, and taxes. According to Jon Ekoniak, managing partner at Bordeaux Wealth Advisors, “The goal of the [them] is to address the complexities that come with significant wealth, enabling the family to spend time doing things that they truly enjoy.”

Below is a more specific list of the core services family office clients can typically expect:

• Investment management. Family offices help build and maintain an effective investment portfolio. Additionally, they may assist clients with buying and selling alternative investments, such as hedge funds or private equity, that are only available to accredited or institutional investors.
• Estate and legacy planning. It takes careful planning to pass down and extend wealth for several generations. Family offices specialize in addressing these challenges, such as passing a business down to a child, drafting prenups, and establishing an estate.
• Philanthropy. Charitable giving is often a goal of ultra-wealthy individuals. Family offices help facilitate this and manage any legal or tax implications this practice may bring. In some cases, this may mean establishing a foundation or developing a coherent strategy for how and where to donate funds.
• Tax planning. For wealthy individuals, taxes become a greater challenge to handle. Family offices can ensure clients file appropriately, as well as identify tax breaks and deductions to help save money.
• Lifestyle management. A large part of maintaining one’s wealth is making smart lifestyle choices to not jeopardize what one already has. Family offices can help ensure resources are in place to make life easier and prevent unnecessary risks. This includes services like family governance, travel planning, and security.

Types of Family Offices

Often, a family office serves a single family exclusively. However, today, there are different types of firms that may serve multiple clients. Additionally, some break from traditional face-to-face arrangements and offer their services remotely. More specifically, these are the main types you’ll encounter:

Single Family Office (SFO)

Single, or traditional, family offices serve one client. These are typically entities that a wealthy person or family establishes. Then, they’ll staff the organization with experts to help them facilitate their goals, including professionals like financial advisors, estate planners, attorneys, and security.

Multi-Family Office (MFO)

Multi-family offices are larger firms that serve at least two different clients. Well-known examples are firms such as Cerity Partners and Cresset Capital. Rather than being built and established by the family itself, these are separately owned and operated. Despite this, they still offer comprehensive solutions to their ultra-wealthy clients, such as investment management, estate planning, and establishing a foundation for charitable giving.

Family Office vs. Wealth Management

Family offices and ordinary wealth management firms have plenty of overlap in their services; however, they are a bit different in how they’re run and the clients they serve. Ekoniak characterizes the “typical wealth management firm” as one that “focuses on managing investments for a broad client base of mass affluent families where scale is critical to their model.” On the other hand, a family office is “dedicated to managing the complex needs and assets of a single or limited number of ultra-high-net-worth families.”

Because family offices serve clients with unique needs, they tend to “have team members who are credentialed with deep expertise in certain areas, such as a CPA for providing tax guidance,” explains Ekoniak. This is another primary difference from other wealth management firms, which may employ professionals with a broader or less specific range of expertise.

Who Should Hire a Family Office

In general, family offices are meant for ultra-wealthy families in need of comprehensive wealth and lifestyle management solutions. However, working with a firm of this scale isn’t exactly for everybody. For some clients, having this type of assistance on your side is a necessity, whereas others may get by with a regular wealth management firm.

Elizabeth Zabludoff, principal at Anchin’s Private Client Group, explains that families “should consider setting up a family office if their lives have become too complex to manage by themselves, especially as it relates to their investments and overall financial picture.” Additionally, she says that clients may want to consider an “outsourced [firm] model first” if the task of establishing one themselves is too daunting or foreign to them. This type of arrangement can “save a family a lot of headaches and likely achieve everything that they had hoped for” originally, says Zabludoff.

Establishing a family office on your own can be expensive and time-consuming. While it may be worth it for those looking to customize the services they receive, it’s not the only option. Multi-family firms are generally able to provide most or all of the assistance one may need without the headache of setting it up yourself. As a potential client, it’ll be up to you to decide what you value more – control or a more streamlined experience.

Benefits and Disadvantages of Family Offices

Family offices allow ultra-wealthy clients to address any money-related obstacles with a team of experts. Ekoniak explains that they’re effective because they offer “dedicated resources that focus exclusively on a family’s financial needs,” as opposed to a regular wealth management firm, that serves a broader range of clients. He also says that there are typically “resources for almost any financial situation.”

While a family office can help clients address a wide array of challenges, there are some disadvantages to hiring or establishing one. Ekoniak cites the “costs associated with hiring [one]” as a primary issue, saying that they “can be substantial, especially if you are hiring quality individuals focused on all the areas of wealth management.” He adds that many “families do not need to have a full-time lawyer or CPA on their team.”

Families should also consider the challenges of establishing an office on their own. This approach allows plenty of flexibility because one can staff a firm as they see fit; however, doing so requires a significant investment of both time and money. Zabludoff points out that these “drawbacks are mitigated with an outsourced model.” For those who don’t want to handle the “logistics” of managing a firm, it may be worthwhile to think about going with a multi-family office.

Frequently Asked Questions

How much money do you need for a family office?

Typically, you’ll need around $50 to $100 million in investable assets to hire a family office. This is primarily due to the wide-ranging number of services these firms offer, which tend to focus exclusively on either one or a handful of clients.

What are the disadvantages of a family office?

Family offices require significant time and money to establish, staff, and manage. For clients looking for very specific services, it may not be worth employing an entire firm to handle your finances. However, those in the ultra-wealthy category looking for a comprehensive solution should consider it.

Do I need a family office?

This depends largely on your needs as a client. Family offices are ideally for ultra-wealthy families that face significant challenges not easily addressed with a typical advisory firm. As mentioned, clients tend to have at least $50 to $100 million before turning to this type of firm.

It’s also not uncommon for ultra-wealthy individuals to create a family office. For example, many prominent billionaires, such as Jeff Bezos and Bill Gates, do so. This is an ideal option if one wants to control the staff they employ and receive full priority, unlike an MFO, which serves more than one client. Keep in mind that this approach requires a significant financial undertaking.

Are there regulations for family offices?

Family offices in the United States are run as limited liability companies or corporations, subjecting them to state and federal business laws. Additionally, firms that both serve multiple clients and provide investment advice typically need to register as an investment advisor with the U.S. Securities and Exchange Commission (SEC). This requires it to act as a fiduciary at all times, as well as file an annual Form ADV to maintain transparency and accountability.