The range of family office services can be incredibly broad. At its core, a family office is a specialized wealth management firm that provides financial services to a single family or a small group of families. These services are designed to help high net worth individuals and families manage and grow their wealth over the long term. However, what is fascinating to see is the remarkable diversity and complexity of services that are available.
Wealth Management
One of the key services provided by a family office is wealth management. This may involve discretionary management, investment advice, asset allocation, risk management, and financial planning services. Broadly speaking there is little difference here between a wealth manager and a family office. However a family office is more likely to manage a broader set of asset classes that includes alternative investments such has private equity, hedge funds, real estate and private debt. A wealth manager tends to stick with traditional assets classes – equities, bonds, cash and regulated funds. This is because a wealth manager tends to deal with smaller or less sophisticated clients. These clients cannot generally invest in alternatives for regulatory reasons or the size of their portfolio.
A family office also offers strategic asset allocation advice on the families entire wealth. This requires a consolidated view of all their bankable assets, non-bankable such as alternative investments, real estate portfolio, physical assets, art and collectibles, amongst others. This consolidated reporting is a core service expected of most family offices and multi family offices.
Another unique feature of family offices investment services is access to co-investment opportunities and club deals. Co-investment opportunities are minority investments alongside private equity fund managers or venture capital firms. Club deals are where the family leads or invests with a network of other investors to buy a controlling stake of company or real estate deal. These opportunities arise from a network of relationships cultivated over time, often many years.
In addition to wealth management services, a family office can also provide strategic advice and solutions. This may include advice on how to exit or restructure a family’s existing investment, or active management of a controlling stake in a business.
Future Proofing
Benjamin Franklin once wrote that only death and taxes are certain in life. While neither can be avoided, family offices help their clients navigate their complex tax matters and plan for generational wealth transfer. Tax planning and compliance services ensure that clients are making informed decisions about their taxes and are in compliance with tax laws. By contrast managing wealth transfer involves forward thinking and planning the two closely related areas of estate planning and succession planning.
Estate planning deals with how a person’s assets will be handled when they die or if they become incapacitated. Succession planning predominantly focuses on what happens to the family business after the head of the family or owner is no longer there. As part of the plan, families will consider what steps are needed to prepare for that eventuality. The plan may consider any training and coaching on the part of the proposed successor. The plans also clarifies the future roles and outcomes for all key members of the family. This offers a roadmap for the family which provides stability and continuity. Campden Wealth reports that only fifty-four per cent of family offices have a succession plan in place, while forty per cent report not having a a qualified family member to take over.
Charitable giving and philanthropy is another service some family offices offer. They can help clients set up a charitable trust or foundation and make informed decisions about which charitable organizations to support. Charitable giving can occur during the life of the family head or it can be part of the future estate planning,
Smart Money
Family offices also provide access to private banking services. Private banks can offer financing solutions not available by traditional lenders. One such example is a fixed loan or overdraft given against a pledge of liquid assets. For example, a family may need capital but not want to sell their investments. This way they can borrow money to finance another investment, with the loan secured against their existing portfolio. This is similar to a property mortgage but with the collateral being securities.
Family Office Services
The goal of a family office is to provide a comprehensive approach to wealth management that addresses all aspects of a client’s financial affairs. Custom reports depending the clients personal and investment needs are also family office services. This includes bookkeeping, but also complex reporting for asset & liability management and cashflow management in the case of illiquid or unlisted investments.
Beyond these services, there are a host of other areas that family offices assist with. Document management and recordkeeping services are invaluable for such families. Considering their complex structures and needs, coordinating and safely storing and accessing information becomes essential. Expense management and bill paying are other time-consuming and therefore value-added services.
Conclusion
For high net worth individuals and families, a family office can be an invaluable resource. Whether you need help with investment advice, tax planning, or any other aspect of financial management, a family office can provide the expert guidance and support you need to achieve your financial goals.
Overall, a family office is a one-stop shop for all of your wealth management needs. If you’re looking for a way to efficiently and effectively manage your financial affairs, consider working with a family office to get the comprehensive support you need. For those considering creating one, read our post on 5 Tips for Setting Up Successful Family Office.