Family Office Series, Part I: What Is a Family Office?

I have a home office in my basement that I refer to as the “Smith Family Office.” Fortunately, this blog post is not about my home office.

A family office is an entity (or multiple entities) established by a wealthy family to manage its wealth and, in some cases, to provide family members with services such as tax and estate planning services, legal services and various “concierge” services. Family offices may also include a philanthropic arm for supporting the family’s charitable, social and educational interests. Family offices have existed in the United States for more than a century to manage the investments and personal affairs of wealthy families. Some family offices are established while the family still owns and manages its operating business. In other cases, a family office is established after the family sells its operating business or experiences another liquidity event.

There is a saying that “if you’ve seen one family office, you’ve seen one family office.” The structures and scopes of family offices are as different as the families they serve. Few experts can agree on a single definition of a family office, and there is no cookie cutter structure. A family office may consist of a single legal entity that invests and manages the wealth of a small group of immediate family members. Another family office may consist of multiple legal entities and trusts that invest and manage assets, provide legal, tax and estate planning services, and make charitable contributions on behalf of multiple branches and generations of a wealthy family.

Experts also disagree on how much money it takes a family to establish a family office. Many estimates range from $100 million to $1 billion of investable assets. Similarly, there is no rule on the expenses associated with running a family office. Annual operating expenses may generally range from 1.5 to 2.5 percent of assets under management. However, in smaller family offices, expenses can be higher.

The amount of the family’s investable assets, and the family’s goals and objectives, will determine, among other things:

  • how the family office is structured;
  • what services the family office provides;
  • what services are performed “in-house” (and whether those services are performed by family members or by non-family member employees); and
  • what services are outsourced to third-party investment managers, accountants and attorneys.
  • Overall, a “family office” means different things to different families based on their business, financial, investment, charitable and personal circumstances and objectives.

In our next blog post, we will explore the pros and cons of forming a family office.