A family office provides management services to a family whose businesses and wealth have become too complex and significant to manage by themselves. A family office often combines investment, legal, and tax services along with lifestyle and administrative services, such as making travel arrangements or coordinating the use of the family’s private aircraft. In addition to supporting and simplifying a high-net-worth family’s lives, here are seven more reasons for considering a family office.
Reason 1: Passing Lessons and Values On to the Next Generation
With the structure and support processes of a family office in place, families are more likely to create an overall mission and cohesive vision for the legacy they would like to build. A family’s long-term vision will likely include more than just accumulating additional wealth; it will also include such things as charitable giving or making a social impact on the world in other ways. A family office can coordinate projects and plans that can help the next generation understand their potential role in executing the family’s long-term vision, as well as provide education and training to ensure that younger family members are ready to step into management or ownership roles that contribute to the family’s overall mission.
Reason 2: Comprehensive Investment Solution with Higher Returns
Families often think of their wealth in terms of separate silos: the family’s primary operating business is separate from its investment portfolio, which is separate from its real estate, which is separate from its charitable efforts. However, this disconnected mindset often inhibits a coordinated planning strategy that includes all of the family’s assets and liabilities.
Because a family office provides a centralized and comprehensive investment solution tailored to the family’s unique values, goals, and competencies (such as industry expertise or networks), family offices can often lead to higher returns without creating additional risk.[1] Further, because families who use a family office are more likely to have conversations about investment decisions and performance, there is a greater likelihood that they will reach their financial goals. Finally, a family office, with its built-in reporting and feedback, allows a family to respond quickly when a change in investment strategy is needed.
Reason 3: Comprehensive Legal and Tax Planning Solutions
As a family grows and develops, so does its need for comprehensive legal and tax planning. Life events such as marriage, retirement, divorce, and death require planning ahead to establish the right tax, insurance, and legal strategies. A family office, with legal and tax experts who understand the family and its internal dynamics, ensures that the proper plans will be in place to minimize disruptions to achieving the family’s goals when unexpected life events occur.
Reason 4: Efficiency
A family office can avoid duplication of effort and thus be more efficient and economical. By delegating the management of certain activities to a family office, family members are free to use their time and energies as they choose. Family members can also benefit from economies of scale because investing a single large pot of funds is more cost effective than having many small accounts. In addition, for many activities, adding more family members only marginally increases the activity’s cost.
Reason 5: Increased Information Flow
A family office can serve as the center for gathering and summarizing information related to the family’s businesses, investments, property, and charitable endeavors and then circulating it to the family at large. Families with family offices report that they are more informed about family matters, which promotes a feeling of transparency among all family members and in turn increases trust within the family.[2]
Reason 6: Maintain Privacy and Relationships
Working with a private family office instead of several different service providers minimizes both the number of people who have confidential and sensitive information about the family as well as the disruption that comes with change at the service provider level. By limiting the sharing of private information to a need-to-know-basis in the family office, the family can better minimize the risk of, and protect itself from, external threats such as extortion or fraud.
Reason 7: Create Career Opportunities
Not every family member who wants to work in the family business will have the opportunity to do so. A family office, with its array of investment, development, managerial, and charitable activities, provides additional career opportunities for family members to participate in and enables them to contribute to the family’s greater mission, even when opportunities within the primary family business may not be available or the right fit.
While creating a family office may seem overwhelming, there are many good reasons to begin exploring the idea if your family’s wealth is becoming increasingly too complex to continue managing alone. Start with implementing the services for which your family has the greatest need and build over time. Given the many reasons to consider a family office, not having one could be more costly to your family in the long run. To learn more about a family office and how it could help your family, please call us.
[1] Marius A. Holzer & Courtney Collette, The Value of a Family Office: A Deep Dive into the Benefits and Services a Family Office Can Provide to a Family, Cambridge Family Enterprise Group, https://cfeg.com/insights_research/the-value-of-a-family-office (last visited May 27, 2022).
[2] Id.