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.