The term family office can refer to a single family office or a Multi-family
office. The distinction is important since, despite the similar names, each
provides a significantly different service. This article refers principally
to single family offices. An SFO is a private company that manages
investments and trusts for a single family. The company's financial capital
is the family's own wealth, often accumulated over many family
generations. Traditional family offices provide personal services such as
managing household staff and making travel arrangements. Other services
typically handled by the traditional family office include property
management, day-to-day accounting and payroll activities, and management of
legal affairs. Family offices often provide family management services,
which includes family governance, financial and investment education,
philanthropy coordination, and succession planning. A family office can
cost over $1 million a year to operate, so the family's net worth usually
exceeds $100 million. Recently, some family offices have accepted non-family
members. More recently the term "family office"
or multi family office is used to refer primarily to financial services for
relatively wealthy families. Traditional and modern usage
A traditional single family office is a business run by and for a single family.
Its sole function is to centralize the management of a significant family
fortune. Typically, these organizations employ staff to manage investments,
taxes, philanthropic activities, trusts, and legal matters. The purpose of the
family office is to effectively transfer established wealth across generations.
The family office invests the family's money, manages all of the family's
assets, and disburses payments to family members as required.
The Family Office Council, the membership group for single family
offices, defines a single family office as "An SFO is a private organisation
that manages the investments for a single wealthy family. The assets are
the family’s own wealth, often accumulated over many family
generations. In addition to investment management some Family Offices provide
personal services such as managing household staff and making travel
arrangements. Other services typically handled by the
traditional Family Office include property management, day-to-day
accounting and payroll activities, and management of legal affairs. Family
Offices often provide family management services, which includes family
governance, financial and investment education, philanthropy coordination,
and succession planning." The office itself either is, or operates
just like, a corporation, with a president, CFO, CIO, etc. and a support
staff. The officers are compensated per their arrangement with the family,
usually with overrides based on the profits or capital gains generated by
the office. Often, family offices are built around core assets that are
professionally managed. In addition, a more aggressive and well-capitalized
office may be engaged in private equity placement, venture capital
opportunities, and real estate development. Many family offices turn to
hedge funds for alignment of interest based on risk and return assessment
goals. Modern family offices
Defining the service proposition is not straightforward and a common phrase used
by industry insiders is: "When you have seen one family office you have seen one
family office". Nevertheless, some professionals have created models to try
and explain the types of family offices which exist. Scott Gardner separated
into three classes: Class A Family Offices provide estate
and financial services and typically are operated by an independent company that
receives direct oversight from a family trustee or administrator. A typical
Class A family office: Offers comprehensive financial oversight
of all liquid financial assets. Offers daily management of all illiquid
assets, such as real estate. Can administer and manage the entire
estate with little to no supervision. Charges a flat monthly fee for all
family office services. Offers advice free from conflicts of
interest and will not sell products. Offers a comprehensive monthly report of
all estate activity for no additional fee.
Class B Family Offices focus on providing financial services and are
typically operated by a bank, law firm, or accountant firm. A typical Class B
family office: Offers investment advice for a fee.
Can offer products and services outside the scope of a family office.
Does not directly manage or administer illiquid assets in the estate.
Class C Family Offices focus on providing estate services and are
typically operated by the family with the assistance of a small support staff.
A typical Class C family office: Has a staff that will monitor the estate
and report into the family trustee with any irregularities.
Provides basic administrative functions, such as bookkeeping and mail sorting.
May have an office inside a family member's home.
U.S. law Under the Dodd-Frank Wall Street Reform
and Consumer Protection Act, an organized effort was undertaken by
single family offices nationwide led by the Private Investor Coalition that
successfully convinced Congress to exempt SFO's meeting certain criteria
from the definition of investment adviser under the Investment Advisers
Act of 1940. The Securities and Exchange Commission promulgated the final "family
office rules" on June 22, 2011. Notes and references
^ Douglas, Craig M.; Todd Wollack. "Case highlights family office risk". Boston
Business Journal. Retrieved 2007-06-27. ^ Beyer, Charlotte B., "Family Offices
in America - Why the Bloom is off the Rose", The Journal of Private Portfolio
Management, Fall 1999 ^ Frank, Robert. "How to Bank Like a
Billionaire". The Wall Street Journal. Retrieved 2007-06-27.
^ Wakem, Maria. "Family Matters". wallstreetandtech.com. Retrieved
2007-06-27. ^ https:familyofficecouncil.com
^ Opalesque. "Opalesque BACKSTAGE Video-Terry Beneke: What attracts family
offices to alternative investments.". ^ Gardner, Scott, 2010 Article: "Family
Offices Abound" ^ http:www.sec.govfinalia-3220.pdf
See also Private foundation
Investment management