Trying to define what a family office is, we are not likely to ever find a uniform definition that encompasses everyone’s notions of what family offices should do or entail. In reality, family offices and the families they serve are much more multifaceted and diverse in their typology.
Origins and evolution of family offices
In the past, wealth and possession were almost always connected to rulers and the ruling class because they were the only ones with the power and means to amass vast wealth. Some examples are Emperor August Caesar, who ruled the Roman Empire from 27 BC-14 AD, Emperor Shenzong (1048-1085) of China’s Song Dynasty, Alan Rufus (1040-1093) the first Lord of Richmond, and others. There was a common trait in those examples– they shared their wealth with a trusted inner circle comprised of high-ranking officials and local representatives, who took on roles that are reminiscent of family office staff members today. The differences with modern FO chiefly exist in what made people wealthy and the strategic allocation of their assets.
More recently, American industrialist, philanthropist, and private entrepreneur, John D.Rockefeller Sr., is often referred to as a crucial figure in the history of family offices. His fortune stood at $1.4 billion at his death in 1937, accounting for more than 1.5% of the US economy. Equivalent to approximately $255 billion today, Rockefeller’s wealth is considered to be one of the greatest in history. In 1882, Rockefeller established an office of professionals to organize his complex business operations and manage his family’s growing investment needs. Generational planning formed an essential part of Rockefeller’s wealth management, as did his enormous engagement in philanthropic causes. Most of the family assets were organized under trusts over time, most of which still exist today.
It was only in the late 20th century that single-family offices grew in number and multi-family offices began taking shape. There are many reasons people consider setting up a family office, but the central goals usually include ensuring effective wealth management, superior investment results, and a smooth transfer of assets between generations.
Family offices are now arguably the fastest growing investment vehicle worldwide. This growth is evidence of the advantages of a family office in managing, protecting and distributing wealth within families with large fortunes.
What they are and what added-value they bring?
Often a family office works as an investment arm for a family. This can be managed in traditional securities investments or through family-owned business interests. In addition to investment expertise, family offices generally help find co-investment opportunities, they help transition business control (not just legal, but effective control), help train the next generation of family on the responsibilities of wealth, help manage the family’s philanthropic efforts, and much more. A family office can:
- provide increased privacy and confidentiality of financial dealings, which can help protect family members from unwanted attention.
- act as a gatekeeper that protects family members from unwanted solicitations for a myriad of matters.
- deliver services in coordinated and customized manner to the individual family members being served.
Single family offices and Multifamily offices
Interestingly, single-family offices often do not carry the title of ‘family office’ and it is not uncommon that a family does not realise that the services they have lined-up fall under the umbrella of family office services. This includes business-owning families that require one or more members of their corporate staff to support them with a wide range of personal matters. An inclusive definition of a single-family office is the following:
- A single-family office is a privately controlled (group of) staff employed within or outside a dedicated structure that supports an affluent family with the organisation, management, and maintenance of all or parts of their assets, needs, and wishes.
In the other hand, multi-family offices are almost always commercially operated companies that aim to generate profit for themselves in addition to the families they work with. A good definition could be:
- A multi-family office is a privately controlled and commercially operated organisation that employs staff to support a number of affluent families with the organisation, management, and maintenance of parts of their assets, needs, and wishes.
There are about as many variants of the family office as there are families. For a smaller family whose principal asset is a family business, the family office may simply be a personal assistant who, as well as dealing with business administration, assists family members with more domestic matters such as paying the cleaner and gardener, and making travel arrangements. At the other end of the scale, a large family with significant wealth may have a family office with staff ranging from investment advisers, lawyers, property managers and philanthropy directors.
Today, a number of single-family offices are establishing separate multi-family office entities while their single-family office continues to service their own family in a Hybrid model. Another variation is the hub-and-spoke model, where the parent’s single-family office provides the administrative support, advanced planning expertise and lifestyle services. The inheritors, meanwhile, are taking their monies and investing independent of the parents. The inheritors set up “satellite” offices focused on managing their investments. This results in the inheritors maintaining many of the advantages of a full-service single-family office without having to duplicate a variety of desired services.
Using a mixture of in-house and outsourced services can provide a useful check on the dependency of the family on their family office. Whether it is small or large, managed in-house or outsourced, a family office should always be driven by its ultimate goal: to align interests, make it easier for the family to manage its assets, and enhance communication and cooperation.
What’s clear is that single-family offices are going to continue to evolve. While they’ll likely maintain their core structure and deliverables, the way they can be configured will enable them to stay at the cutting-edge in the service of the ultra-affluent. Succession and next generation planning will become important topics of discussion and families will begin to look for a holistic approach to wealth management.
This post is based in the article Family Offices A History and Definition by Jan van Bueren