LIDO INSIGHTS | How Do I Set Up A Family Office? | January 2022
By: Gregory Kushner
With so much wealth being created over the past two decades, many newly minted centimillionaires (or even billionaires) have created their own family office. For most investors, the term “family office” is somewhat unknown, however for generations, the world’s wealthiest families have established entities to oversee all aspects of a family’s wealth. This is generally considered to be managed on an extremely long-term basis for multiple generations (think Rockefeller, etc.) The family office is charged with not only looking after the investments but to coordinate other aspects of wealth like income taxes, estate taxes, insurance, philanthropy, homes, artwork, etc.
So, you have had a liquidity event, and you are thinking about your options. Should you set up your own family office to manager your affairs or increasingly wealthy individuals are looking at alternatives such as a Multi-Family Office (“MFO”) or creating a Virtual Family Office (“VFO”)? Many in the industry believe that without at least $250 million in assets, it is not practical to set up your own single-family office. At lower asset levels the MFO or VFO route is typically viewed as more practical, though I have seen single offices with $100 million or less.
In my role as Founder and Chairman at Lido Advisors (a MFO and VFO) and our related family office consulting firm, Lido Consulting, I have said for over 25 years working with family offices of all types, “when you have seen one family office, you have seen one family office!” While of course there are many similarities, all families have unique needs that dictate specific, customized solutions so there really is no one size fits all solution when considering the issues when establishing a family office. A MFO might work great, particularly if the main focus is on investing the portfolio as many MFOs can invest the portfolio and coordinate with the client’s various advisors (CPAs, attorneys, etc.) Many MFOs can customize their offering to fit the needs of the family.
The VMO approach takes the MFO to a higher level. In this case the client selects what they believe are best in class advisors and creates a virtual family office with each of these advisors holding a specific role. For example, the CPA instead of just providing tax advice or tax preparation assumes the “CFO” role for the family. Similarity, the estate planning attorney, might be able to serve as the outside general counsel for the family bringing in other attorneys when needed. The firm or individual that manages the investments would become the Chief Investment Officer, etc. The point is that each of these firms/individuals would meet on a very regular basis so that everyone is kept in the loop with the objective to best serve the long-term needs of the family.
In my view, the family when deciding to set up a family office should seek out professionals that have a long and proven record of working with successful families to start a dialogue of what would be best for them. Over the years, I have put together a list of questions that should be considered when deciding to establish a family office. I have found that most people do not know the questions they should be asking, let alone coming up with the answers. These answers take time to develop and implement but it is the first step in establishing an effective family office that will serve you and your family for many years to come.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call (310) 278-8232, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.