The Family Office:Not Just for the Super-Rich Anymore
by Christine Rew Barden
Attorney, DeWitt, Ross & Stevens
Family Offices conjure up images of grand office suites in which workers go about managing the massive wealth of a high-profile family.While there may be such offices in operation, they are the exception rather than the rule.Family offices are becoming an attractive and practical option to an ever-increasing segment of the U.S. population.
At last count, there were approximately 5,000 family offices operating in the United States (Marianne Mihailidis, Project Consultant, Family Office Exchange, Inc., Oak Park, Illinois).With millionaire households growing at an annual rate of 12% (“Emerging Technologies Change Financial Services Industry,” FOX Exchange Newsletter, Jane Adler, Special Fall Forum Edition, 12/2000), the number of family offices only promises to climb.The high net worth family faces unique challenges ranging from how to obtain the best investment returns on family assets to how to instill in the next generation the family values which made their family great.
The purpose of this article is to introduce the concept of a Family Office:what it is and how it might be an option for your own family.
What is a Family Office?
Quite simply, a family office is an institutionalized version of whatever services the family requires.It ranges from one family member and a bookkeeper managing family financial and legal matters from their home, to a large staff of legal, financial and accounting professionals working in an office setting to manage all financial and personal matters for the family.The vastness and complexity of the family and its financial holdings are often mirrored in its family office.
Why are Family Offices Created?
Family offices are borne out of necessity.A common scenario arises when the founder of a family business sells the business for a substantial sum.The founder, who has devoted his entire life to the care and feeding of a family business, is faced not only with the task of how to manage a large sum, but with the family changes which often accompany such a drastic transition.While this new challenge may be greeted with enthusiasm, it also carries with it the uncertainty of any new venture.Upon leaving the business, the founder often hires a trusted bookkeeper away and moves his base of operation to an office in his home.Voila’ – a family office is born.
Another major reason for creating a family office is to institutionalize a set of family trusts created by senior family members to be the repository of family wealth.These trusts are typically structured to outlast all current family members.Thus, providing consistent, ongoing administration is a vital issue.The family office can be a way in which to memorialize knowledge of the trusts and interrelated financial matters so that the death or disability of one family member or one key advisor would not interrupt the administration of the trusts or pose a threat to continued family control of a business venture.
What do Family Offices DO?
The mission of any family office is driven by needs of the family it serves.The office may perform ministerial acts such as making travel arrangements and paying family bills, or it may handle the most sophisticated legal matters such as structuring and administering all family financial and legal holdings.
The most important function of any family office, large or small, is that of being a facilitator for open and candid family communication.Effective communication is the key to avoiding family disharmony and litigation.History, both ancient and recent, is rife with stories of family dynasties destroyed by intra-family fighting. Great families have allowed themselves to be ripped apart in a public forum at great expense to their fortunes and their reputations.A family office is one way to keep the family connected and communicating, thus hopefully avoiding such spectacles.
Some concrete examples of what family offices do are:making wealth last for generations; administering complex legal structures with vigilance; facilitating family philanthropy; chronicling family history and passing it down to future generations; educating younger generations about working with financial and legal advisors; and keeping the family cohesive as it grows in number and geographic diversity.
Exploring the Family Office Concept for Your Family
At its heart, the family office is a customized, devoted relationship between a family, its advisors and service providers. The professionals who staff the family office are proactive in their oversight and management of the family matters they have been charged with.While maintaining a family office can mean a commitment of substantial resources by a family, it can also yield benefits far in excess of the costs. Beyond economic benefits from vigilant planning oversight of family assets, a family office can render the intrinsic benefits of a harmonious, cohesive family that continues to thrive for generations.
This article appeared in the August, 2001 issue of Family Ties, a publication of the University of Wisconsin-Madison’s Family Business Center.