Family Offices: An Introduction

Family Offices still evoke mixed responses when it comes to how much is known about them. Usually, they are perceived as investment managing entities for the ultra-affluent, which is true to the extent that family offices in their initial form were, more or less, that. But, in the western hemisphere where they first came into being and evolved, Family Offices have transformed into a much bigger role over the last few decades.

A contemporary definition of a Family Office is “an organization that serves the Ultra High Net Worth individuals or families by supporting them on almost everything concerning wealth, business and family matters through expertise spanning across financial, investment, tax and other aspects such as insurance, lifestyle planning, philanthropy, etc.”

To many this might sound similar to another wealth management firm, but a family office is different in that it offers a total solution for the wealth, business and family issues. A very important difference is that while, a family office’s vision, mission, values and objectives are completely aligned with those of the family, other wealth management firms could at best try to create that alignment through relationship management and matching available offerings to clients’ needs. A Family Office ensures independent, unprejudiced, objective and comprehensive guidance.

Although, there are different opinions about the origin of Family Offices, it is said that in the West initial form of Family Offices developed in Europe about five centuries ago with the primary motive of managing wealth in the ways that existed back in the day. It is widely acknowledged that one of the more recognisable specimen of the modern-day Family Office was that established by the Rockefeller family in the United States more than a century back. Similar examples would be Henry Phipps’ Bessemer Trust Company or the Pitcairn Family Office. These entities shifted the discourse towards organizing the family wealth in a more professionalized way, widening the area of Family Office operations and measuring performance of Family Offices.

In India, till not so long ago the much prevalent system of munims who were the bookkeepers and the trusted advisors, could be said to be a form of the family office. In the current times these offices have become more organised due to professionalization, orientation towards investment, and expanding economy. There are quite a few famous examples of Family Offices including those of Azim Premji’s Premji Invest that manages an estimated $1bn worth of assets [1] and the Burmans Family Holdings of the Burman family (Dabur) which has invested around $500mn since its inception more than two decades back [2].

Types of Family Offices

There are two types of family offices: Single Family Offices (SFO) And Multi Family Offices (MFO). As the name itself gives it away, SFOs serve only one family, whereas MFOs would serve many families at a time.

Single Family Offices are meant for families that are comfortable getting involved in creating and managing an organization for the aforesaid purposes. This is apart from the size of wealth vis a vis the economies of scale that are required for the SFO as it is quite expensive to establish and maintain. Among many reasons for establishing SFOs, the two main motives are direct control to the family and maintaining privacy about family wealth and related aspects. Other reasons are SFOs are tailored for the long- haul and always put that family first. Some of the challenges that come in the way of Single Family Offices are capital requirement, management issues, talent management, economies of scale, transition in large families, etc.

Multi Family Offices are the first choice for those families that do not want to spend a vast amount on running a SFO and are at the same time desirous of those advantages that are provided by a SFO. While, Multi Family Offices do away with the challenges associated with SFOs such as costs, talent and, management issues. and may be able to provide the best of independent advisors, expertise and practices, their objectives are not aligned to any specific family’s thus making customisation difficult beyond a point. This is where lies a major difference between MFOs and SFOs, wherein, a Single Family Office is in the very first place tailored in alignment with family’s goals.

Domains of Family Offices

Modern Family Offices operate across various domains and thus, involve a collaborative effort from experts in different areas. Following is a broad list of domains of service and operation seen across the various models of followed by the Family offices:

Strategic Wealth Management: Coordinated wealth management plans and advisory and expert services.
Investment Management: Customized alignment with family objectives and needs and performance monitoring and reporting.
Legacy Planning: Family Vision development, Inter-generational congruence on values, etc.
Succession Planning: Generational Transition, Wealth Transfer, etc.
Philanthropy Management: Family’s philanthropic objectives, charitable initiatives and foundations, etc.
Estate Management: Estate planning and Trust services.
Taxation Management: Tax efficient measures, individual tax plans and filing services
Risk Management: Financial risk, legal risk, etc.
Lifestyle Management: Education and healthcare plans, concierge services, etc.

Although, Family Office is still evolving as a concept, it is essentially about ultra-affluent families seeking to utilize their wealth in the best possible ways through the various elements. A modern-day Family Office could play multiple roles very well and thus could be the much sought-after solution.