Family offices have been around since the 19th century—the Rockefeller family is probably the most famous example. So, what exactly is a family office today? For some, the name might bring to mind an old-fashioned industry of golf courses and cigar lounges, but it’s actually far more modern.
Today’s leading family offices include Walton Enterprises, looking after the three generations of the Walmart empire. Other notable examples include Cascade Investment, which supports Bill Gates as well as his foundations. And Amazon’s Jeff Bezos' family office, Bezos Expeditions, supports his investments, including his space exploration ventures. Rather than just a physical space, think of a family office as a full-service private wealth advisory firm dedicated to the complex needs of ultra-high-net-worth families.
What is a family office?
Whether it is a single-family office or a multi-family office, the overall purpose is to grow and transfer wealth over generations. In addition to investment management, they often provide a breadth of concierge services, which eclipse any single stand-alone service required by ultra-high-net-worth (UHNW) families. In this guide to family offices, we’ll break down exactly what these services include, which can range from philanthropy to property management.
The average wealth for ultra-high-net-worth families operating family offices is around $100 million in investable assets, with the company’s financial capital being the family’s own wealth. However, there is an emerging market of multi-family offices that serve a historically underserved segment – the sub-$100m category.
Family offices are a unique breed and tend to be incredibly opportunistic when it comes to putting capital to work. Where the average institutional investors require longer and more protracted due diligence cycles, family offices have significantly greater thresholds for longer investment hold times.
What was once a niche industry focused mainly in the United States has now gone global. Over the past two decades or so, family offices have been on the rise. They also rapidly evolving, thereby changing the way in which the ultra-wealthy manage and allocate capital. An increase in private wealth has continued to expand the creation of new family offices in areas that were essentially void of them in the past. That includes regions like India, the Middle East and Asia.
The growing number of family offices is not the only pointer that showcases the power of this industry. In this list of the largest family offices in the world, we have outlined how their capital allocations span across all traditional and new asset classes, making family offices and their wealth an impactful player in the investment field.
What’s more, as a new influx of wealth owners enters the market and family offices ‘come online’, diversification of wealth categories is starting to take place. Tech wealth is growing twice as fast as other private wealth, leading to an increasing number of entrepreneurs establishing family offices to manage and professionalise their capital.
What are the types of family offices?
Like any vertical dealing with the ultra-wealthy, each family office is unique in set-up and structure, requiring a different combination of services. Usually, we recognise three main types of family offices: a single family office, a multi-family office and a virtual family office. However, as family offices start to fully realise their potential, capabilities and directions, new types are emerging.
Therefore, some families might consider a hybrid single-multi-family office when comparing single and multi-family offices. As the hybrid types are still rather rare, we proceed with describing the common types, while we are on the lookout for forms, sizes and shapes that may emerge in the future.
The single-family office
A single-family office tends to be the choice for families with complex requirements that recognise the importance of family legacy and purpose. The main advantage of setting up a single family office is customised services, a high level of privacy, and a personal approach to maintain family harmony. The costs of running a single-family office are quite high. Recent figures show that operating costs can be as high as $1 million to $10 million.
Multi-family offices
Multi-family offices best serve affluent families with less complex requirements. In contrast to single-family offices, this structure is more cost-effective due to economies of scale. The threshold of multi-family offices is also lower, and they accommodate families and individuals with a net worth of $30 million and upwards. The range of services provided is similar to a single family office, but costs are spread over a group of families instead of just one.
Virtual office
A virtual family office represents a lightweight, tech-enabled model that has become increasingly popular for families spread across geographies. Or those looking for a flexible, cost-effective alternative to traditional physical family offices. Rather than maintaining a dedicated physical space and a permanent in-house staff, the leverage modern technology platforms to access remote, on-demand services. This model is particularly well-suited for entrepreneurial founders who’ve exited a company. It offers the agility needed to adapt as their families grow.
Do you need a family office?
Be it family business owners, heirs, or individuals who gained their wealth in any other manner, it is essential to ensure succession and facilitate proper wealth management. Although there are many ways to manage family wealth, establishing or joining a family office best satisfies the unique needs of families and individuals.
“Building an SFO requires time, energy, and sustained investment. Many underestimate the ongoing effort, especially the cost of good governance. High-quality people, processes, policies, systems, and external advisors are not optional; they are the foundation.” - Simple Expert, Stephen Gerwert, in Should you really start a family office? A reality check.
There are several factors that need to be taken into consideration to determine the objectives and best-fitting structures. Above all, families must evaluate to what extent they want to be involved in their wealth management, whether a dedicated team is required, what the asset levels are, what services are needed, or the amount of control the family wants to have.
Four reasons to start a family office
Many clients think of family offices in terms of their net worth and wealth management. However, the role of family offices is more diverse than that. Above all, family offices allow families to securely store private information about many aspects of their lives. That includes their health records, financial statements, or highly confidential documents. Families benefit from this form of gatekeeping in terms of governance and privacy.
As already stated, by using a family office to manage one’s wealth, families can avoid paying fees for services that they do not need, which could otherwise be included in a package offered by banks or other wealth managers. This ability to choose desired services and monitor the budget spent on outsourcing them helps families focus their investments where their interests are.
These are the four main reasons to start a family office:
1. Complex financial needs
The financial needs of ultra-high-net-worth families can be extremely complicated, which is why a family office provides significant value through its integrated service model. Managing a large pool of wealth can also be time-consuming and difficult, and therefore, an external partner can ease the process.
2. Gaining an overview
Family offices are designed to help families best leverage assets and preserve wealth through legal support and wealth management services. When families work with multiple professional partners, it is often the case that important items fall through the cracks. Working with a family office can therefore provide oversight and reduce the silo effect.
3. Dedicated support
Family offices focus on a few clients and rely on good relationships with family members for income. As a result, they are incentivised to deliver high-quality service and support. Many financial advisory firms provide advisors a stable salary and a commission, which can mean the interest to serve isn’t quite at the same level.
4. Trust-based relationships
Where financial advisory firms often experience high turnover, family offices are built around the idea of long-lasting relationships. This personal touch creates the much-needed trust for ultra-wealthy families, where the family office advisors are in some ways seen as extensions of the family. This trust is crucial with advisors gaining deep insight into the business and finance operations, and as a result, being able to provide more strategic guidance.
What services do family offices provide?
Family offices often provide a comprehensive list of services across financial management, strategic planning, administrative support, and other services. Each of these domains is crucial to establishing a well-functioning family office.
Investment planning
Setting up financial goals and building a plan to meet them is a crucial step before investing. This service is usually provided jointly by external providers and family offices themselves.
Financial planning
While investment planning is focused on investing strategies, financial planning overviews the entire financial picture of the family office, including salaries, retirement planning or financial security.
Philanthropic investing
Family offices nowadays recognise the power their wealth has and often focus on philanthropic activities and other donations. The most common focus is on the environment, human rights, or child development.
Strategic planning
In order to support strategic planning for ultra-wealthy families, family offices must offer business advice, strategic estate planning, succession planning and educational planning.
Estate and tax planning
One of the key functions of family offices is to ensure that the legacy of the family remains strong through the next generation of wealth owners. Following laws and regulations across different geographies, estate planning focuses on estate tax liability, the succession of the family business, equitable distribution of property among family members, etc.
Concierge services
Whether provided by individuals or companies, concierge services provide assistance in different parts of personal life – be it lifestyle or household management, or travel and vacation planning.
Lifestyle management
This includes concierge services where family offices are expected to handle their clients’ lifestyle requirements including conducting personnel background checks, travel, and inventory management.
Advisory services and family financial literacy
In addition to the other domains, advisory services are where family offices provide tax, legal, compliance, and regulatory advice alongside support on risk management. It is further a responsibility of a family office to ensure that the next generation of wealth owners are educated on management.
Family office tools and solutions
1. Software and technology
While only a handful of family offices relied on technology a decade ago, automation and optimisation have become a crucial part of swift decision-making nowadays. Selecting the right software can help family offices leverage most areas of operations, from portfolio management to accounting and bill pay, governance and document management, or custody.
Find our comprehensive guide to implementing technology into the family office framework here.
2. Data and benchmarking
When it comes to decision-making, data and benchmarking are the most important determinants if one wants to match the dynamic business landscape. Having insight into how other family offices operate, what their investment approaches are or how they approach rising costs, is a key factor to keeping up with others in the game.
We explored how to manage your family office through data here.
3. Experts and advisors
Although family offices nowadays reflect great in-house expertise and specialisation, advisory still plays an important role in their operations. The two main responsibilities of family office advisors are to actively manage families’ wealth and legacy, and the other is the increasing complexity and risk associated with wealth management.
To help with selecting the right family office advisor, we compiled this guide.
4. Other resources
To keep pace with the rapidly evolving family office industry, family office executives need to stay abreast of the latest trends, best practices and regulations. To achieve this, they can choose from a range of learning opportunities, such as specialised courses, conferences, workshops, and networking events.
Family office executives can also source their knowledge from a variety of other resources. Books, podcasts, and reports published by financial institutions, research bodies, or other family offices can be particularly useful in providing comprehensive and up-to-date information on various aspects of the family office industry.
The benefits of family offices
Family offices provide access to a range of investment opportunities, including private equity, real estate, and hedge funds. By pooling their resources, family offices can invest in assets that may not be available to individual investors or smaller investment firms. With various types of family offices in mind (single-family offices, multi-family offices, or virtual offices), it’s important to consider the family office’s investment philosophy and track record before joining or building one.
While the cost of running a family office can be high, it is a good option for families with more than $100 million in investable assets, as they tend to be incredibly opportunistic and have significantly greater thresholds for longer investment hold times. Establishing or joining a family office is an essential way to ensure succession and facilitate proper wealth management, making it an increasingly popular option for wealth owners.