Because of their relative opacity to larger investors, family offices remain an unreported segment of the investor community according to Private Equity International. However, the affinity towards them is growing as they’re a solid investor group that’s playing an increasingly active role in private equity as a primary provider of new capital.
When trying to define a family office, most definitions will include the standard functions related to wealth management – that it performs tax planning, philanthropic planning, estate planning, and centralized management. Simply put; a family office is an organization that assumes the management of a family’s affairs and daily administration. We recognize several types of family offices according to the families’ goals as well as the control mechanisms they use to achieve their goals.
However, every family office is specific to a particular family’s needs. Once you have seen a family office, you have indeed seen ONE family office. One size doesn’t fit all because there are many variations in family involvement and diverse client structures.
Single-Family Office (SFO)
A single-family office is a company that performs wealth management of a single family. A typical SFO will engage in all affairs, while some also have the “concierge” function.
Multi-Family Office (MFO)
A multi-family office engages in managing the financial affairs of multiple families that are not connected to each other.
Virtual-Family Office (VFO)
A family that doesn’t want to set up a family office to manage their financial and other affairs, but wants to achieve the benefits of it can decide for a VFO. It can be done by outsourcing all financial services to external service providers.
Compliance Office
This office supports the highest diversity of clients and the broadest range of service, so it’s a bit more challenging to operate. A compliance office supports diverse owners from multiple families or multiple branches of the family.
Investment Office
An investment office supports families focused on public/private equity investing. The asset allocation needs to be tactical and strategic because it will allow for wealth diversification across multiple asset classes. Family members can pool their funds through investment partnerships.
Philanthropy Office
If the owner’s goal is to distribute the portion of the wealth to philanthropic causes, a philanthropy office is there to support their goals. For this type of office, family foundations are usually at the center of all activities.
A family can choose the services they want to include, and that’s one of the most significant benefits of having a family office. By tailoring all services based on their interests and with a dedicated staff, a family can have a family office that offers integrated and personalized client experience.
Tax, estate, and philanthropic planning, wealth management and diversification, oversight of investment, and concierge function – a family office can provide a broad range of different services. What functions it will perform depends on the specific needs of the family.
The first hire for a family office is often a CIO (Chief Investment Officer) who also serves as the day-to-day CEO as well (for smaller family offices.) Larger family offices have a CEO, a CIO, and an investment team hired and managed by the CIO. They have different operations professionals who focus on investment implementation, reporting, trading, and systems to handle all the processes. A family office also needs to hire a team to perform due diligence on managers – smaller family offices can employ 1-2 people, while larger ones need to create an entire team.
The scope of combinations and possibilities of a family office means that families can address unique issues in entirely customized types of family offices. Whether it’s small or large, outsourced or managed in-house, every family office is always driven by an ultimate goal – to enhance cooperation and communication, help the family to manage its assets easier, and align interests.
Elaine King, CFP is an expert on family enterprise consulting, creating strategies for wealth planning, family governance, and financial education programs.
