Family offices can serve many purposes. They may help younger generations to manage wealth and pay their bills on time. Every family is unique, just as each family is different.
While each family’s needs may be different, there are certain characteristics that all family offices can have in common. These practices enable offices to offer the highest level of service to families they manage.
First, the family office must align its goals with the family’s. Family offices that are successful will offer objective and independent advice. Managers should not receive compensation from clients directly, and they should work with professionals who can offer the same advice when seeking outside help. Although the services provided “in-house” may vary in their scope of offerings, staff should ensure that they are able to access outside assistance from professionals with transparent and independent compensation structures. This will allow them to provide objective advice and work.
Superior family offices will not manage any of their many services alone. A superior family office will not handle any one of its many services in isolation. It can coordinate financial and legal decisions within the context of an individual’s entire affairs as well as those of multiple generations. These generations may have different goals, interests, or needs. Although an office may not be able to provide all the services listed here, it should coordinate all services that it provides, and any work performed by professionals within its jurisdiction.
Many family offices cover the essential but basic administrative tasks that one or more members of their family have to perform. These tasks include the supervision and payroll of household staff, bookkeeping and bill payment, coordination of family events and travel arrangements, management of real estate and property, as well as keeping track of appointments. The family’s requirements will determine the size and complexity of the support staff. Most families will have some family members who rely heavily on the office, while others may only need it occasionally. Family offices should ensure that they have enough staff to handle family concerns, and that privacy rules are in place for members who use such services. Staff who handle other work may be responsible for coordination of recordkeeping tasks. This includes ensuring that domestic workers are properly paid their employment taxes, or that the family prepares its tax returns.
A large part of the responsibilities of a family office is often devoted to wealth management services. This includes selecting, supervising, and, if needed, replacing investment managers. Many families have assets spread across multiple investment management firms. It is important that staff supervises all third-party managers together to ensure that each manager has a fair share of the overall picture. The office should be able to create and maintain clear guidelines that cover the family’s investment strategy and asset allocation, as well as long-term goals such educational and retirement savings plans. An excellent family office will teach you how to properly conduct due diligence. The office should hire a trusted wealth manager to give objective advice if the staff in-house is not qualified to understand the big picture of wealth management decisions.
Financial accounting and reporting can be a bridge between wealth management tasks and administrative tasks. Family offices need to provide maximum transparency and quick access to data. However, this can be difficult for many. While reports that review the performance of investment managers, tax compliance reports, and the ones that are most beneficial to family members in managing their cash flow might include overlap, they will not all be exactly the same. Some offices use third-party custodians for such reporting. Others have dedicated staff to do so in-house. Family offices have two main goals: to provide regular reports and respond promptly to any questions that may arise.
Given the complexity of the tax code and the changing nature of its requirements, tax planning and preparation can be a difficult task for family members. Many tax offices have one or more experts to help them identify and plan for their family’s tax needs. These issues can range from estate- and gift-tax strategies to timing of capital gains or losses. These issues should be managed by the family office proactively and frequently, including scheduled meetings with outside advisors or investing in an expert in tax.
Planning for estates should not only address tax implications. While tax-saving strategies are important, it is not the only aspect of an effective estate plan. The family’s needs, charitable goals, and future security of heirs all need to be considered. A team of tax professionals, lawyers, and agents may be necessary for thorough estate planning. Family offices will be responsible for coordinating these professionals and helping family members to create, update, and execute an estate plan that combines many elements.
The family office can also provide insurance consultations for lifelong needs. This includes property and liability insurance issues, as well as disability insurance. It is vital to evaluate the coverage needed, determine if existing coverage is adequate and efficient, and identify gaps in coverage that family members need to address. The office might also be able to cover the business insurance needs of family members who have business interests. It will depend on how involved the office staff are in the management of a family business. While some offices can answer questions and provide feedback on the family business, others will be more involved in its management. Family offices can also be a valuable resource for older generations that wish to establish a succession plan. This office can oversee the creation and execution of a buy-sell arrangement, coordinate changes in ownership or oversight with family members’ retirement plans or estate plans, and oversee the objective valuation of the business before a transfer. Family members will reap the greatest benefits from the business if it is placed in the context of the larger family’s affairs.
A family office is also crucial in philanthropy. Depending on the family’s goals and objectives, philanthropic gifting may help to implement a more comprehensive tax strategy or allow younger generations to take part in a culture of giving. Younger members may be able to learn wealth management skills, which they can use later in their personal affairs. The family office can oversee trusts, third party providers, foundations and nonprofit organizations that are set up for these purposes. The staff should ensure that charitable giving is properly communicated between them.
Family offices need to be prepared for occasional conflict even in a happy family. Relationships can be strained by divorce, remarriages and career decisions. Interpersonal disagreements are also possible. This can cause emotional turmoil as well as financial and legal problems. Communication is vital. The office should facilitate communication while protecting the family’s assets against poor investment decisions and reckless choices. This requires both skill and tact. These conflicts can be resolved by creative solutions, not only in the legal and financial aspects of the family.
