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Managing familial wealth can be an enormous undertaking when assets reach a certain threshold. To mitigate the severity of this undertaking and to properly manage assets in an efficient and cost-beneficial manner, many families choose to set up a family office.

What Is a Family Office?

In simplest terms, a family office is a wealth management system designed to delegate the management of financial assets. Whereas most individuals might manage their acquired capital by themselves or through a wealth management agency, clients with assets of $50 million or more might employ the services of a family office.

Family offices are composed of wealth managers, accountants, and support personnel, including but not limited to drivers, personal assistants, and other support crew. Family offices employ the services of some financial overseers (as discussed below). 

What Are the Types of Family Offices?

When considering setting up a family office, it is imperative to first understand which type of family office will be most beneficial to you and your family. Generally speaking, there are two types of family offices–single-family offices and multifamily offices. 

Single-family offices are responsible for the wealth management of a single client or a single client and their family members. Comparatively, a multifamily office is responsible for the management of multiple families seeking to work together to manage their funds. Clients who choose a multifamily office often do not have individual wealth that exceeds $100 million. Because of this, it is more cost beneficial to join a collaborative, multifamily office than it is to set up a single-family office. 

How to Create a Family Office

As with most things, the first step to creating a successful family office is to set up its structure. This should begin by seeking the services of a wealth manager, wealth advisor, or family specialist. This individual or individuals can assist you with basic structural decisions, including but not limited to the delegation of responsibilities, an oft-overlooked step that can hinder goals. 

Often, family members may want to exercise control over their assets in a manner that is not conducive to growth. A wealth advisor can assist you in delegating responsibilities in a way that allows some control of finances without hindering the overall goal and processes of the family office. 

Additionally, a wealth manager or advisor is responsible for monitoring the pulse of your family office. Through their global considerations, economic background, and experience, they are better able to help you review both short-term and long-term goals for your assets and to develop a process that adapts to changing socioeconomic circumstances and global economic realities. 

Part of choosing a financial advisor is understanding your family office’s general scope and cost. The range will vary wildly according to your family’s wealth and the number of personnel that will be expected to participate in the family office. A small family office consisting of five or six employees would generally cost between $1 to $2 million annually. On the other hand, an extremely large family office might consist of 40 to 50 employees and have an operational budget between $14 million and $20 million.

Going into your financial advisory meeting with a general understanding of your anticipated operational costs will enable you to better set realistic expectations of the kind of family office you will be able to set up. 

Planning Now for the Future

The purpose of setting up a family office is wealth management. As generational understanding of wealth and assets shifts, a family office can act as an anchor point for discussions around assets’ continued growth and development. The delegation of tasks and services can help mitigate disputes and allow family members to focus on creating new wealth while old assets mature. 

Before you and your family consider setting up a family office, set aside time to create specific goals. This will allow you to have a clearer focus on your investment vision while clarifying discrepancies. Bringing these items to the table as talking points may enable a smoother initial interaction with your wealth advisor. 

Whether you’re seeking a single-family office or a multifamily office, wealth management begins with setting clear goals and realistic expectations.