“You cannot generalise about what family offices do, because each office is very different,” I was told recently by a principal of a Latin American family office.
Such a claim strikes me as odd, though not surprising, given the amount of blind praise that permeates popular discussions of family offices. ‘Bespoke’, ‘unique’ and ‘tailor-made’ are typical buzzwords peddled by service providers, executives and family members alike, all perpetuators of the Myth of the Family Office. So what are they in reality?
Family offices have a lot in common, which confounds conventional thinking. There are similarities globally regarding the tendency of families to maintain operating business ownership, in portfolio allocations, in management oversight and governance structures, and, importantly, in family expectations for the office.
Let us address this every-family-office-is-a-special-snowflake misconception.
In its simplest form, a family office is a private office for a family of significant wealth. The number of staff working in the office can vary from one or two employees to 20 or more, depending on the type and number of services it provides.
Family offices handle key family assets and core holdings (tax and accountancy, property and estate management), sometimes even providing family members with educational, professional and lifestyle services (and, in some cases, dog-walking).
Sophisticated
More often, though, these offices are becoming sophisticated wealth management structures for key areas of family assets, including real estate holdings and direct or indirect investments, tax consolidation and estate management. Thus, a family office serves as a central hub for a family’s legacy, governance and succession communication.
Families with private wealth in excess of US$150m are ideal candidates for establishing a single family office structure. While it is not uncommon for first-generation entrepreneurs to establish a family office, family offices often support larger and more complex families.
A typical family office might serve a family with seven households, spread across three generations. While each household will share some similar needs, from the perspective of the family office, each household merits specific consideration. Such consideration cannot always be restricted to typical generational needs (that is, pensioners require income, while younger family members can accommodate more risk and longer horizons), because households themselves have differing liquidity requirements (for example, sibling benefactors may hold quite distinct professional ambitions). But I am getting ahead of myself.
First off, ‘multiple family office’ is not a bad phrase, no matter what proponents of so-called ‘pure’ or ‘real’ single-family offices might tell you. Multiple nuclear families may opt to consolidate and leverage resources by creating a multi-family office, rather than a single family office to manage the family wealth. Such a structure provides the benefit of economies of scale and investment deal opportunities that formal collaboration and a consolidated management structure afford.
Naturally, family complexity factors arise, again, for the multi-family office, only on another level of magnitude. Here things can get quite messy. As such, traditionally, for a multi-family office to be successful and sustainable, families should share interests and risk appetites or, alternatively, comparable levels of wealth.
Now that we have staked out some common ground for the family office space, in my next instalment I plan to focus on elucidating and dismantling what I call the Downton Abbey Family Office Model, employing key findings of the Global Family Office Report 2014. Stay tuned, advisers, for I will focus on points of consideration most relevant to you.
If none of what I have said about the commonality of family offices is news to you, please, pardon me. We had to begin somewhere. At least now you know what to say when someone tries to sell you on the mystique of family offices: no two snowflakes are identical, but every snowflake is a snowflake.
Andrew Porter is director of research of Campden Wealth
