A family office may have many purposes, ranging from helping younger generations understand how to handle wealth responsibly to simply ensuring that bills are paid on time. Just as every family is different, every family office will also be unique.
However, while the needs of a given family may vary, successful family offices have certain qualities in common. These practices allow offices to provide the very highest levels of service to the families whose affairs they oversee.
First, a family office should align its goals with those of the family. The best family offices will provide independent and objective advice. This means that managers should only receive compensation directly from their clients, and that they should take care to work with other professionals who can say the same when engaging outside support. While the services offered “in-house” will vary, the staff should make sure that any outside services they seek are also provided by professionals with transparent and independent compensation structures so that such advice or work is unbiased.
A superior family office will not handle any one of its many services in isolation. One of the largest benefits an office can provide is coordinating financial or legal decisions in the context not only of an individual’s overall affairs, but also those of several generations, the members of which may have competing or complementary goals, interests and needs. Though a given office may or may not handle all of the services described in this article, the staff should integrate all the services it handles directly, as well as any work done by other professionals that the office oversees.
A basic but essential area covered by many family offices is the day-to-day administrative tasks that arise for one or more family members. Such tasks may include payroll and supervision of household staff, bill payment and bookkeeping services, arranging travel and coordinating family events, managing real estate or property, and keeping track of appointments and meetings. The support staff’s size and complexity will depend on the family’s needs. In most families, some members will rely on the office a great deal, and others relatively little. Family offices need to be sure that they have sufficient staff to keep up with the family’s concerns and that rules are in place to protect the privacy of the members who do use such services. Recordkeeping tasks may also be coordinated with the staff handling other sorts of work; for example, ensuring that employment taxes are handled properly for domestic workers or that charitable contributions are documented properly for the family’s tax preparer.
Wealth management services commonly comprise a large portion of a family office’s responsibilities. This will often involve selecting, overseeing and, if necessary, replacing investment managers or investment management firms. Since many families spread their assets among more than one investment management firm, it is crucial that the staff oversees these third-party managers as a group in order to understand each manager’s piece of the larger pie. Ideally, the office will create and maintain detailed guidelines covering the family’s investment strategy, asset allocation and long-term goals, such as educational or retirement savings plans. A good family office will also cultivate an understanding of proper due diligence procedures. If the in-house staff is not qualified to fully understand big-picture wealth management decisions, the office should evaluate and hire a trustworthy wealth manager to provide objective advice.
A bridge between wealth management and administrative tasks may be financial accounting and reporting. Providing maximum transparency and timely access to data is increasingly essential for family offices, but doing so can require a significant investment in staff, technology or both. The reports needed to review investment managers’ performance, the reports required for tax compliance, and those that are most useful to the family in managing their cash flow may include overlapping data, but will not be precisely the same. Some offices rely on third-party custodians to handle such reporting; others dedicate staff to handle such matters in-house. Either way, providing regular reports and timely answers to on-the-spot questions are central goals for most family offices.
Tax planning and preparation are tasks that few family members will want to handle themselves, given the complexity and changing nature of the tax code. To keep pace, many offices rely on one or more expert advisers to identify issues and coordinate strategy for the family’s overall tax concerns. These issues may range from estate and gift tax strategies to the timing of capturing a capital gain or loss. The family office should manage these issues proactively and regularly, whether that means scheduled meetings with outside advisers or investing in an in-house tax expert.
Estate planning should also go far beyond the tax consequences involved. Tax-saving strategies are one element of an effective plan, but the needs of the family, the desire for a charitable legacy and concerns about heirs’ future security can all factor into the equation. Thorough estate planning may involve some combination of a legal professional or team, tax experts and insurance agents, among others. The family office will need to evaluate and coordinate these professionals, and guide family members through the process of creating, updating and executing an estate plan that synthesizes many diverse elements.
A family office may also oversee insurance consultation for lifetime needs, including disability, property or liability insurance concerns. It is important to continually evaluate what coverage is needed, whether existing coverage is appropriate and efficient, and whether there are coverage gaps that family members should address. If the family has one or more business interests, the office may also cover business insurance needs. This will likely depend on the extent to which the office staff is involved in managing a closely held family business. Some offices will answer questions or provide requested feedback about the family business; others will have a more direct hand in its management. A family office may also serve as a useful resource for members of older generations who wish to create an effective succession plan. The office may oversee the creation of a buy-sell agreement, coordinate the change in oversight or ownership with family members’ retirement or estate plans, or oversee an objective valuation of the business prior to a transfer. Placing the business in its proper context within the family’s larger state of affairs will allow family members to reap the largest benefit from their business over time.