EXPERT ADVICE: Services offered include investment management, record keeping, estate planning, philanthropy and finanical education
Family offices originated over 150 years ago when wealthy families appointed in-house experts to manage their diverse financial affairs. Names like Rockefeller, Carnegie, and Bessemer are among the best known that survive even today. Over the years, family offices have become an integral part of virtually every wealthy family.
Family offices manage the family wealth and affairs as they would a business enterprise. Their services include advising on the family wealth, administering the family assets, and offering other services covering a wide spectrum, including the routine (investment management, reporting and consolidation services, document maintenance and record keeping, management of staff), the sophisticated (estate planning, philanthropy, financial education, involvement with core operating business, impact investments, legal and tax advisory), as well as lifestyle services (concierge services, travel arrangements, luxury purchases).
Some reasons to use a family office:
Beyond a certain threshold of wealth, needs of a family grow beyond just plain financial advisory services and full time professionals may be required to manage the affairs;
The family is too busy or not personally involved in handling complex financial affairs;
Sale of a business or some other such event which requires sophisticated planning.
Single or multi-family office
A family office is usually either a single family office or a multi-family office. A single family office is run by the family itself by the appointment of a team of in-house advisors and serves only one family. Since single family offices are driven entirely by the family's needs, a particular single family office may vary substantially from another. One may focus almost entirely on investments, while another may be more robust with a large staff and offer a broad variety of services.
Families may choose to have a single family office to ensure higher levels of confidentiality and privacy and help keep investment knowledge within the family. Single family offices also help avoid conflict of interest with external providers and a family can develop specific skills suited to the family's needs.
A multi-family office, on the other hand, is one run by professionals and manages the affairs of more than one family. It is important that a multi-family office is able to engage with each client with a high level of involvement and is able to provide nuanced sophisticated services to meet specific client requirements. Most multi-family offices offer tailor-made services for each family they cater to and offer it on a non-exclusive basis.
A multi-family office helps reduce costs and can deliver economies of scale, particularly for high-value professional services. The family can get the benefit of advice from professionals who have specialised experienced and expertise. Another benefit unique to multi-family offices is that it provides families with access to a wide range of investment opportunities at a lower cost.
Choosing a service provider
Once a family determines the need for a family office, one will have to evaluate what is the family's overall wealth, services required and the cost the family is comfortable with to pay for the services. Another aspect to keep in mind is also the subject matter experts which the family office can hire on their own rolls. Will they be able to get the best experts in all aspects that the family office needs to be advised on? Therefore, it may be more effective that the family hires specialists to liaise between the family and external advisers.
Many families with a single family office may also choose to use the services of a multi-family office for specialised requirements. Multi-family offices have expertise in varied areas and this helps the family accomplish varied goals, for example, a family may choose to have an external trustee or an external expert legal or tax advisor who may provide multi-jurisdictional advice. Using a combination of both single and multi-family offices can help optimise the quality and spectrum of services required to achieve the family goals.
Whether a family office is small or large, managed in-house or outsourced, a family office should always be driven by its ultimate goal: to align interests of family members, make it easier for the family to manage its assets and, in the process, give family members the freedom to focus on their interests.
WEALTH MANAGERS
- A single family office is run by the family itself by the appointment of a team of in-house advisors
- A multi-family office, is run by professionals and manages the affairs of more than one family
The writer is executive director - trusteeship services, Kotak Mahindra Trusteeship Services
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