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What Should Someone Look For When Setting Up A ‘Family Office’?

By Julie Jason, originally posted on Forbes.com.

If you have sold a business for a significant financial profit, inherited a large sum of money or recently won a very large lottery, you might want to consider the merits of a “family office” in order to manage your financial affairs.

A reader, C.P., wants to know how to get started.

What Is a ‘Family Office’?

While definitions and responsibilities can vary, as every family is unique, in general a family office is a firm designed to handle all things financial for the ultra-wealthy and their families – everything from investment management to bill paying, tax planning and funding charitable causes and educating multiple generations. A single-family office’s client list consists of one family. Note that there is no regulatory definition of a family office.

Who Might Need a Family Office?

The website Family Office Exchange (familyoffice.com) provides some thoughts as to when you should consider starting a family office. Among its suggested guidelines:

  • The family typically has at least $100 million in investable assets.
  • The family wants to maintain control of their assets and the decision-making process.
  • The family wants to preserve privacy.
  • The family wants a dedicated team devoted to providing key services and helping achieve long-term goals.

How Does a Family Office Work?

The Global Family Office Report 2021, issued by UBS Group AG, a multinational financial services company and investment bank, breaks down the activities of family offices into four categories: investment, administrative, general advisory and family professional services.

A family office likely will involve a full-time CPA, a money manager and a tax lawyer — people who will be in charge of organizing financial affairs and making sure assets are titled properly for estate-planning purposes. If you have a single-family office, those employed there will be your own personal experts. The office also can include specialists for various subjects — for example, if you have a valuable art collection, are heavily involved in real estate ventures or need someone to organize your family’s travel or other activities. Those roles could be full time, or the family office might employ consultants for some of the specialty areas. Some family offices also serve in the role of grooming younger generations to carry on their family businesses or their family charitable interests.

Setting Up a Family Office

As far as choosing staff who will be employed by your family office, it helps to already know professionals who are familiar with your family and your financial situation. Citi Private Capital Group’s “A Guide to Establishing a Family Office” mentions some possibilities for selecting “key staff”:

  • Hiring a partner the family knows well from a law or accounting firm.
  • Recruiting senior staff from an investment advisory firm, private bank, or trust company with which the family has worked closely.
  • Hiring the general counsel, CFO, or controller from a family business.

An ideal family office would employ people you’ve successfully worked with before, and who offer expertise in their respective areas. Also, it is essential that those who are hired for your family office be able to work well in a team-based approach, especially when financial issues overlap areas of expertise.

Establish Roles

For a family office to work efficiently and successfully, roles must be defined for both family members and those employed by the family office. Many questions will need to be answered. For example, who speaks for the family when it comes to deciding issues — one person or a “family board”? Who among the employees is the “point person” or leader for the family office? What exactly are the guidelines for the family office when it comes to decision-making on, say, financial issues big and small? How often should the family office report to the family — daily, weekly, or on a case-by-case basis? How often will full-scale reviews be conducted?

These types of issues and more should be defined and put into a working agreement between the family and the family office. It’s important to remember that the family office works for the family, so it is the family’s responsibility to makes sure that communication and decision-making guidelines are clear from the start.

Cost of a Family Office

How much does a family office cost? That can vary based on needs, as every family is different. One estimate of family office expenses by Citi Private Bank placed the cost at “approximately 1% of the family’s total active assets, including investment portfolios, trust assets, and liquid assets. So, the approximate cost for a small family office with active assets of $155 million would be $1.55 million annually.”

The costs related to a family office appear to be rising. The UBS Global Family Office Report 2021 found that of the 191 of the world’s largest single-family offices it surveyed, covering a total net worth of more than $225 billion, 39% reported a significant or moderate increase in salaries, and another 33% noticed the same type of increase for information technology (IT). In the realm of IT, cyberattacks are a key concern. A report by Boston Private Bank & Trust found that 26% of family offices had suffered a cyberattack.

Some families might consider employing multifamily offices in order to reduce costs.

A Key Wealth Resource

An important resource to check out for those considering a family office is the Institute for Private Investors (IPI), which is a private membership organization that “helps its members become better stewards of their wealth and make more informed decisions for their future legacy.” According to the IPI website, “Families of substantial wealth rely on IPI to provide a safe harbor where they can learn from each other and leading experts, while fostering lifelong relationships with like-minded peers.” (Full disclosure: I am a former professional member of IPI.)


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