What is a family office and who can start one?

Published by
Lethabo Ntsoane

A family office is an organization established to manage the wealth and needs of ultra-high net worth individuals. Family offices are self-funded and are typically established in tax-friendly jurisdictions such as Seychelles, the Isle of Man, and Singapore.

Because each family office is unique, defining the service that a family office offers is difficult. We will, however, look at the types of family offices that exist, and what one should do to set up a family office. Let us first define what a family office is.

What is a family office?

A family office is a private company that serves ultra net worth individuals and handles their investments and wealth. The goal of the company is to effectively grow and transfer wealth across generations to the rightful heirs through estate planning. 

The capital for a family office is the family’s own wealth, therefore, the company is set up to manage a family’s or a group of family’s wealth. Tax planning, trust, and corporate services, family governance, wealth management, wealth planning, charity & philanthropy, and other responsibilities are all part of a family office’s tasks. 

Characteristics of a Family Office

  • A family office is for individuals with extremely high net worth.
  • It is a privately held company with management that is outsourced.
  • The wealth of one or more families can be managed.
  • A family office offers its owners services such as private wealth management and planning, tax planning,  trust and corporate services.
  • Non-financial services such as concierge services, philanthropic and charity advice, and family governance services are also provided to the owners.
  • Family offices are typically established in tax-friendly jurisdictions.

Benefits of a Family Office

A well structured and administered family office comes with the following benefits:

  1. There is a comprehensive approach to family philanthropy that includes the course of action that the family wishes to take.
  2. The succession from one generation to the next is stated unequivocally.
  3. There is a strategy in place for preserving and growing wealth, and the strategy can change over time to accommodate new market standards.
  4. A family office has goals to pursue, so strategies are in place and can be easily implemented to achieve those goals.
  5. A family office provides a variety of services, and labor can be outsourced to ensure that the family office’s objectives are met.

Types of Family Office

There are two types of family offices that can be established and these include:

  • A Single-family office, and
  • Multi-family office.

The two types of family offices are discussed in detail below. 

Single Family Office

A single-family office is a privately held wealth management and advisory firm that manages the wealth of a single person or a family with multiple members. A single-family office’s services vary depending on the single-family firm, and each single-family office has its own set of goals that influence the services that a single-family office has.

A single-family office’s goals are to increase wealth and oversee the family’s wealth, manage the family’s financial and non-financial affairs, and provide advisory services such as estate planning, tax planning, and other related services. 

Multi-Family Office

A multi-family office is a privately held wealth management and advisory firm that manages the assets and investments of multiple families who wish to collaborate. Families that form a multi-family office contribute to the family office’s capital, and their wealth varies by family.

A multi-family office’s services are offered by a combination of in-house and outsourced financial and wealth services providers, but they can also be in-house only or outsourced only. The services provided are typically those of a family office and are geared toward the entire family office.

How to start a Family Office

A family office is a private company that is managed in the same way as any other private company, but its capital is provided by a single-family or a group of families. Because a family office is a business, it must have employees, ranging from managers to entry-level employees, and the number of employees required is determined by the size of the capital and investments.

The first step in establishing a family office is to define the family office’s goals and to devise an organizational structure. Professionals such as attorneys may be involved in the process to assist in developing a structure and selecting the appropriate jurisdiction for the family office so that the goal can be met and the appropriate labour can be hired.

The second step is to decide which assets will be managed by the family office and which will be managed by family members. This is done to avoid tying up all of the family’s wealth in one company and to allow other family members to invest and manage wealth outside of a family office. 

The third step is to define the scope of the family office’s operations. The number of employees desired can now be stated clearly, and job descriptions can be created. Employee salaries will also be determined. It is important to note that the cost of running a family office is high, and a small family office typically has 6 employees.

The final step is to register the family office. This is after a cost-benefit analysis has been performed to determine whether a family office will generate more income when compared to the costs of running the family office.

Conclusion

A family office is not for everyone because the costs of running it are high, and in order to run a successful family office, professional labour must be hired, which is expensive. If you do not have a high net worth, you can use more sustainable methods of preserving and growing your wealth, such as estate planning.

For the ultra-wealthy, a family office may be required to alleviate the burden of managing large asset volumes. More time can be spent developing new portfolios and monitoring new markets.

Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at lethabo@rateweb.co.za

Published by
Lethabo Ntsoane