Overview of the Family Office
History of the Family Office
Major Functions of the Family Office
1I Comprehensive financial planning
2I Portfolio management
3I Back office/Consolidated reporting
4I Estate and wealth transfer
5I Tax planning, preparation and compliance
6I Risk management
7I Trustee services
8I Life management
9I Family governance and education
However, because family offices are tailored to serve the individual needs of their families, the services offered vary widely.5
Family Office Models
Delivering objective advice.8
Pooled purchasing power across a family group, resulting in better service for a better price than individual family members could attain on their own.9
Passing along family heritage, trusts, values, or philanthropy from generation to generation.10
Providing leadership in governance and education of family members on responsibilities of ownership.11
Challenges of Today’s Family Offices
Investment Strategies and Risk Management
Articulating clearly defined investment objectives and policies for each family entity and trust and sticking to them, which includes understanding the family’s liquidity needs and matching those needs with appropriate investment asset allocation and time horizons.
Conducting the appropriate due diligence and research in managing risk.
Staffing and Governance
Family Office Options
Considering a MFO from the Outset
Options for Existing SFOs
Selecting Existing MFOs
How long has the firm been working with wealthy families?
What is the ownership structure of your firm?
What level of experience does my primary adviser have and how many clients does he/she handle?
How is my primary adviser compensated?
How accessible are the firm’s professionals to me personally?
What is your investment platform? What services do you provide in-house, and what do you outsource?
What is the firm’s fee structure?
How sound is the firm financially?
1 Family Office Exchange, Frequently Asked Questions Q2 (March 1, 2010), at http://www.foxexchange.com/public/fox/faq.asp.
2 There are various types of family office models: (1) the SFO, (2) the MFO, (3) the multi-client family office (MCFO), (4) family investment management business, (5) external family office, (6) external chief investment officer (external CIO) and (7) virtual family office (VFO). LISA GRAY, THE NEW FAMILY OFFICE 51-52 (2004). This article focuses only on SFOs and MFOs.
3 Id. at 11.
4 Howard M. Zaritsky, Getting the Best from a Family Office, 47 TAX MGMT. MEM. 475, Nov. 27, 2006. For a more comprehensive list of services offered by family offices, see GRAY, supra note 2, at 21.
5 GRAY, supra note 2, at 21.
6 Family Office Exchange, supra note 1, Q1.
7 GRAY, supra note 2, at 11.
8 Pitcairn White Paper Report, TR. & EST., Jan. 12, 2009, at http://trustsandestates.com/press_release/family_offices/pitcairn_white_... (summary of white paper report).
9 Family Office Exchange, supra note 1, Q13.
11 Id.; Pitcairn, supra note 8.
12 Hilary Johnson, Do You Need a Family Office?, BARRON’S PENTA, Sept. 28, 2009, at http://online.barrons.com/article/SB125392425903942689.html.
13 Patricia M. Soldano, When to Use – and How to Choose – a Family Office, 35 EST. PLAN. 20, 21 (Dec. 2008).
14 Family Office Exchange, supra note 1, Q6.
15 GRAY, supra note 2, at 11.
16 Thomas Coyle, Family Offices Turning to Outside Investment Consultants, WALL ST. J., May 17, 2010, at http://online.wsj.come/article/BT-CO-20100517-71848.html?mod=WSJ_latestheadlines.
17 Family Wealth Alliance, SECOND ANNUAL SINGLE-FAMILY OFFICE STUDY EXECUTIVE SUMMARY, at http://www.fwalliance.com/store/exec-summary-2nd-annual.pdf (study consisted of 35 SFOs with average assets under supervision of $605 million); also cited in Coyle, supra note 16.
19 Bessemer Trust, What’s Next for Family Offices?, THE ROUNDTABLE NOTES 1 (Nov. 2009) (white paper notes from a roundtable with Robert Elliott, Senior Managing Director, Bessemer Trust; Amelia Renkert-Thomas, Counsel, Withers Bergman; Theodore Beringer, Managing Director, The Beringer Group; Holly Isdale, Deputy Head of Family Wealth Advisory Services, Bessemer Trust; and Kathryn McCarthy, Family Office Consultant).
21 For an excellent discussion of securities and commodities laws related to family offices before the 2010 Dodd-Frank Act, see Audrey C. Talley, Family Offices: Securities and Commodities Law Issues, 34 ACTEC J. 284 (2009).
22 Family Office Roundtable, Family Offices Face Regulatory Storm, PRIVATE ASSET MGMT. (Feb. 18, 2010), at http://www.iiwealthmanagement.com/Article.aspx?ArticleID=2395683 (summary of roundtable panelists, Tom Guernsey, National Head of Wealth Management, Wilmington Trust; Jamie McLaughlin, CEO, Geller Family Office Services; Carol Pepper, CEO and Founder, Pepper International; and Loraine Tsavaris, Managing Director, Rockefeller & Co.); Joseph Field, Amelia Renkert-Thomas, David Guinn and William J. Kambas, Keeping up with . . .
Family Office Investments, WITHERSWORLDWIDE NEWS & PUBL’N 1-2, Aug. 17, 2009, at http://www.withersworldwide.com/news-publications/600/family-office-investments.aspx.
23 Family Wealth Alliance, supra note 17.
25 Bessemer Trust, THE ROUNDTABLE NOTES, supra note 19 at 1-2.
26 Id. at 2-3.
27 Bessemer Trust, Family Office Conundrum, Sept. 29, 2009 (white paper), citing Gregory Bresiger, Farming It Out, PRIVATE WEALTH (July/August 2009) (article also can be found at http://www.fa-mag.com/component/content/article/4553.html?issue=122&maga...).
28 Id. at 3.
29 Id. at 4.
31 SFOs Worry about Sustaining Legacy, PRIVATE ASSET MGMT. (Nov. 13, 2009), at http://www.iiwealthmanagement.com/SubContent.aspx?articleID=2338642.
32 Average MFO Family Relationship Tops $50 Million, PRIVATE ASSET MGMT. (Oct. 6, 2006), at http://www.iiwealthmanagement.com/SubContent.aspx?articleID=1298725.
33 Family Offices Are Going Back to Basics as Market Events Speed Office Evolution, CANADA NEWSWIRE, Dec. 15, 2009, at http://www.newswire.ca/en/releases/archive/December2009/15/c3237.html.
34 For a list of questions in determining when to close a family office, see Kathryn M. McCarthy, Is It Time to Close the Family Office?, TR. & EST. , August 1, 2009, at http://subscribers.trustsandestates.com/net_worth/0801-when-close-family-office/wall.html?return=http://subscribers.trustsandestates.com/net_worth/0801-when-close-family-office/index.html.
35 Johnson, Do You Need a Family Office?, supra note 12.
36 Id. at 12-13.
37 Patricia Soldano and Kathryn M. McCarthy, SFO to MFO Conversions, TR. & EST. 44 (Aug. 2005).
38 Id. at 13. For the history of the Phipps’ family office’s journey from SFO to MFO, see Robert C. Elliott, From Single-Family office to Multifamily Office, J. WEALTH MGMT. 12 (Spring 2010), quoting Charlotte Beyer and Timothy Brown, Does a Multifamily Office Make Sense for You?, FAMILIES IN BUSINESS 78-80 (Jan. 2008); and Bessemer Trust, Our Heritage (2010), at http://www.bessemertrust.com/portal/site/bessemernew/menuitem.0c3c8d2cfaf3f4fe8bfbfb106e730a6c/.
39 Zaritsky, supra note 4.
40 Family Wealth Alliance, supra note 17.
41 Hilary Johnson, Watching Over the Family Fortune, BARRON’S PENTA, Nov. 30, 2009, at http://online.barrons.com/article/SB125935862713467097.html.
42 Andrew Willmott, Multi-Family Offices Hit Back at Pretenders, FUNDFIRE, Jan. 17, 2003; Sara Hamilton, The Multi-Family Office Mania, TR. & EST. , Dec. 19, 2002, at http://www.trustsandestates.com/news/estate_multifamily_office_mania_2/i.... These articles also lists MFO services. For a more detailed breakdown of services, see Hannah Shaw Grove and Richard J. Flynn, Considering the MFO, PRIVATE WEALTH (July/August 2009) at http://www.fa-mag.com/component/content/article/4551.html?issue=122&maga... (Figures 5, 6 and 7 list three categories of services, financial, administrative and lifestyle, which encompass 18 key service offerings).
43 Bessemer Trust, Family Office Conundrum, supra note 27 (contains additional interview questions).