What is a family office?

A Guide to Family Offices

You may have heard of the concept of a family office and wondered what on earth it’s all about.  If you have sought retail therapy at MYER, watched free-to-air television on the Seven network or treated yourself to some Paspaley pearls, then you have at least crossed paths with an organisation that is associated with a family with their own ‘office’. Let us explain… 

What is a family office?

In simple terms, a ‘family office’ is a centralised hub for managing the business, investments, and wealth of a family.  However, the precise nature of each family office will naturally reflect the individual priorities and preferences of each underlying family. Factors include the family’s source of the wealth, the amount of wealth, and the family’s priorities and strategy. 

There are several different ‘types’ of family office, including 

  • The ‘single’ family office, where the family office is dedicated to managing the affairs of one family.  This type of family office is usually run ‘in-house’ by people already employed by the family.  A good example of this model is Walton Enterprises that manages the wealth of the Walton family, owners of the retail chain Walmart. 
  • The multi-family office, where the affairs of several families are managed under the one roof by the same service entity.  An example is the MYER family office, which started as a single family office but later expanded to offer family office services to other wealthy families.  Advisors from within the service entity provide advice and services to the families under this management. 
  • The virtual family office, where various external advisors provide independent services to a family in a coordinated way.  The virtual family office usually arranges to have regular family board meetings with all stakeholders and advisors present. 

Depending on your family’s preferred approach to running a family office and your reasons for establishing a family office, one of these models will appeal to you more than another. 

In our opinion, the virtual family office is often the most balanced and effective approach to running a family office. This is because: 

Best-of-breed advice 

The family can select a team of the ‘best-of-breed’ advisers to assist them manage their affairs. A wealthy family naturally needs advice across a broad spectrum of issues including accounting, banking, finance, investments, legal, property, education, philanthropy, and strategy. It is very unlikely that a single family office will be able to attract and retain the necessary calibre of person in each of these areas to access the very best advice at all times. 

Checks-and-balances 

The family will benefit from the check-and-balances of having several independent advisers who can provide many different perspectives on each issue, and from the point of view of their own area of expertise and experience. In this way, errors or even fraud are more likely to be detected early, rather than buried within the family office structure. 

Broader networks 

The family will get access to much broader commercial and social networks as a result of having a range of advisers from independent organisations, each of which will bring their own networks to the family board table. This increases the chances of the family getting exposed to potential investments and other opportunities that may otherwise be missed. 

As independent advisers for many virtual family offices, we openly acknowledge that this view serves our own interests! 

Although benefitting from a more diverse and independent range of advisers, the virtual family office does require more hands-on management by the family itself, because the advisor group needs to be selected and managed on an ongoing basis. This day-to-day management role is something that the family may wish to employ ‘in-house’ even in the context of a virtual family office. 

If a ‘one stop shop’ model is more appealing to your family, then bringing the family office ‘in-house’ through a single family office or teaming up with several other families to form a multi-family office, may be the way to go. 

If you are not sure what type of family office would suit your circumstances, contact us on 1300 654 590 or email us, and we can run through these options with you in more detail.

Who should set up a family office?

We mentioned above that family offices are usually established by wealthy families.  Whilst it is true that most (if not all) of the businesses and investments of the world’s wealthiest families are managed through a family office, that doesn’t mean that there is a minimum net worth required to establish your own family office.  That said, single family offices may be unaffordable unless you are very wealthy, and a multi-family office may have minimum financial requirements. 

If your family owns a family business, invests collectively, shares a charitable aim, or has a shared source of wealth, then chances are you will benefit from establishing a family office.  

What do family offices do?

Generally, all aspects of the family’s shared business, investments, wealth and philanthropy are managed through the family office.  Financial management and banking are a given.  Investment and business performance oversight, strategic planning and management are usually factored in.  Having the family’s affairs managed in one hub can improve the efficiency and success of the family’s business and investment interests.  Family offices can be structured around the investment base or industry domain expertise of the family or principal, consider long-term investments that will benefit the family for generations, and make decisions based on more than just financial metrics. 

What family offices can achieve beyond business and investment functions is to bring purpose to a family group that transcends its business or investment interests. Commonly, the management of a family office will be based on an agreed set of shared values and common goals. 

Not all family members will be involved in the family office for reasons of youth or inexperience.  Often criteria are set by the family that must be met by family members before they are offered a function or role in the family office or family business.  By bringing generations of the family together and ensuring that there is structure and accountability in how family members deal with each other, the social and emotional bonds between family members can be strengthened over generations. We have seen non-financial family dynamics flourish when a successful family office structure is adopted. 

If you are already involved in a family office but think it would benefit from a fresh set of eyes, contact us on 1300 654 590 or email us. We will give you an honest view on whether we think we can enhance what is already in place.

Why do families set up family offices?

There are two common scenarios that lead people to establish a family office: 

In one scenario, younger or more recently established business owners get to a certain point in their lives when the realities of running and passing on a family business begin to hit home.  The key word is family business.  These business owners see their once young children suddenly growing older and taking on a larger role or more responsibility in the family enterprise.  The older generation starts thinking about how to pass on the wealth that they have grown (through establishing a business or savvy investing) to the next generation in a careful, responsible manner.  In this case, the establishment of a family office signals the start of the family’s succession journey. 

In the other scenario, established business people with generational wealth often have lived experiences with the passage of business assets and wealth across generations.  Perhaps it has been a smooth, successful transition that has set the current generation up for success. Sometimes, (and unfortunately, we see this more often than we’d care to admit) the opposite scenario has occurred, and the transition of wealth has been tumultuous and peppered with difficult conversations and disagreements about the passing of control of the family business and family wealth.  This has inevitably damaged family relationships. In this scenario, it is often the oldest generation of the family that wishes to set up a family office structure, so that their own children and generations to come, do not have the same difficult experience with succession.  If a family office is already in place, the older generation may wish to review the operations of the family office and implement a structure that suits the modern family’s needs.  

In both scenarios, there is a common thread – the desire to ensure that the next generation is set up for a smooth and, importantly, fair transition of wealth.  A well-equipped family office will ensure that not only the legal, financial, and accounting needs of the broader family group are met, but also the emotional, social, and psychological needs.  In doing so, those managing the family office must be appropriately skilled and knowledgeable in managing the delicate balance of mixing business with family. 

This means that amongst the legal and financial documents that are prepared for the family, there may also be documents such as a Family Charter or Family Constitution, which set out the mechanics of arrangement that the family has agreed will govern the family office. The family may also put in place a statement of the family’s Mission, Vision and Values. 

I’d like to set up a family office. What should I do next?

If you would like to explore setting up a family office, we can guide you through the process.  We are proud to have been involved in establishing several family offices that have had a material and positive impact on the families involved. We particularly enjoy our role as legal counsel to our family clients and the businesses they have built. 

If you are ready to take your family’s succession planning and wealth management to the next level by establishing a family office, contact us on 1300 654 590 or send us an email. We would be honoured to assist you with getting set up, or having an ongoing role as your family’s trusted legal counsel.

 

The information contained in this post is current at the date of editing – 17 July 2024.

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