A single family office in its simplest form is the private office for a family of significant wealth, providing a central point of focus for the family’s legacy, governance and succession. The family office can provide clear strategic oversight and implementation, efficiency and a cost-effective approach to the client’s affairs. However, there are many different interpretations of what ‘family office’ means.
An industry insider claims: “When you’ve seen one family office...you’ve seen one family office”, which points to how unique and tailored single family offices can be. The requirements of the family can include having the family office manage their personal affairs and lifestyle matters such as employment of household staff and personal security, support for international schooling of the family’s children and arranging travel such as chartering flights for family members, which may be for their personal or business use.
In addition, the family office can be involved with the personal assets of the client, which could include the family’s residential property, along with other luxury assets such as private aircraft, yachts and art collections. They may also be tasked with co-ordinating other interests such as creating and executing a philanthropy strategy.
The office may be responsible for handling the family’s key assets and core holdings, while providing increased control and oversight of the family’s wealth strategy. This includes the investment strategy, asset allocation, and sometimes the appointment of investment managers or advisors, or in some cases, acting as investment managers or advisors themselves. The investment classes involved may range from holdings in listed equity and bonds to hedge funds, private equity and both commercial and residential real estate.
When initially creating and structuring a family office, there are a number of considerations, such as governance and succession planning, to ensure that the structure is appropriate for the objectives and needs of the family.
As an example, an international high net worth family may have both family members and investment assets in multiple jurisdictions, and they want to centralise the management and reporting on such assets. In this case, in terms of governance of the family office, there may be an interest in striking a balance of power between the family themselves and the appointed officers, for example, chief operating officer of the family office. Decisions then need to be made as to how this is formalised - this can include a family council being formed, with the COO or the head of the family working closely together on the strategy and long term objectives to be implemented.
The family office may also include a blue chip investment team or specialist personnel depending on the asset classes owned – for instance, alternative investments such as hedge funds and private equity remain popular for diversification and it may be desirable to have an individual within the family office managing such investments, providing reporting and developing relationships with the individual fund managers.
This can be supplemented with accounting and reporting functions, and built out to also cover the personal affairs of the family such as estate planning. The provision of these additional services can be achieved either via the family office or with assistance through an appropriate structure administered by a fiduciary services provider.
Another key factor considered when choosing a location for a family office is around political stability and where the family considers their central hub to be based. In this regard, London is often a popular choice, however those clients seeking greater confidentiality balanced with political stability often look to the international finance centres such as Guernsey. It is key that the family office is based somewhere with a global reach and access to a network of advisors for legal, tax and specific asset management and administration advice.
Trust practitioners and the fiduciary sector sit somewhere alongside family offices. The fiduciary can liaise closely with the office and provide and administer trust and company structures to house the family’s assets, which can assist with asset protection and succession planning.
At a high level, the fiduciary can assist the family office in terms of the overall strategy, working in partnership to achieve the objectives of the family. Rather than acting as a standard service provider involved in processing and administration, by developing and expanding their role through pro-activity, commitment, experience and knowledge, the fiduciary can become a trusted advisor. This will include understanding the characters involved in terms of the client, the family office and other advisors, as well as the dynamics between these parties.
The fiduciary will also work closely with other parties such as legal and tax advisors and can also act as an administrative support for the family office – for example, if the investment advisor is based within the family office, they should be able to focus on strategy and asset allocation rather than the practical administration and reporting which the fiduciary can undertake.
If there is a number of specialist advisors involved with a particular asset, for example in the building, delivery and ongoing management of a private yacht, the fiduciary can undertake the administration work for the owning entity of the yacht and engage with the shipyard, lawyers, yacht management company and crew. The fiduciary takes on the responsibility for co-ordinating all parties, effectively acting as the conductor of the orchestra while also playing some of the instruments.
In this way, thinking rather than processing, high level involvement and an active relationship leads to the fiduciary and family office working as a cohesive unit, with their objectives aligned in ensuring the client’s needs are met.
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