Family Business Advocates: 2017 Highlights and Plans for 2018As we reflect on 2017, we thank our blog subscribers for making Family Business Advocates a great success. In case you missed them, below are some of our most popular blog posts from 2017:

We also hosted two well-attended and thought-provoking events with our clients and friends. In February, we hosted “Economic and Legislative Outlook for Family Business Owners,” and in November, we hosted “Transitions in the Family Business, Conversations with Family Business Owners and Leaders.”  Our “Transitions” event was followed by several blog posts highlighting insights from the family business owners and leaders who were panelists at the event.

Looking ahead, we expect that the recently enacted federal tax reform legislation will remain a dominant topic in 2018. The new tax law has already generated a substantial amount of commentary from accounting firms, law firms and other advisors. In the coming weeks, our Family Business Advocates blog will focus on key elements of the new tax law that impact family business owners. We plan to host an event for clients and friends in early March to discuss and exchange ideas about how the new tax law may impact, and create opportunities for, family business owners.

Please be on the lookout for our upcoming blog posts on the new tax law, and stay tuned for more information about our event planned for March.

Family Office Series, Part IV: Family Office TrendsIn the previous posts in our Family Office Series, we have examined, among other topics, how family offices are structured and the pros and cons of forming a family office.

For the final installment of our Family Office Series, we are highlighting current trends in the world of family offices. Here are several family office trends to watch:

  • Instead of investing through private equity funds, family offices are making direct investments in deals (either alone or in combination with private equity funds or other family offices) with increasing frequency.
  • Family offices are teaming up with other family offices to buy entire companies with the intent to hold and operate them for the long term.
  • Family offices are engaging in impact investing—investments that are intended to make a profit and also have a positive social or environmental impact. A recent Financial Times survey indicated that family offices allocate on average 17 percent of their assets to impact investing.
  • Family offices are forming formal and informal networks with other family offices to share information about deal flow, pool cash for “club-deal” investments, and discuss investment strategies.
  • Investment banks, private equity funds and professional service firms are increasingly catering to family offices and forming dedicated teams to serve family offices.
  • Family offices are attracting talented executives from private equity funds, hedge funds and investment banks.
  • Some family offices are funding medical research and raising awareness for diseases and conditions which afflict one or more family members.

Our Family Business Advocates team is following these trends, and we plan to report on other family office topics in future blog posts.

Family Office Series, Part III: How Are Family Offices Structured?As we noted in a previous family office series blog post, “if you’ve seen one family office, you’ve seen one family office.” There is no standard legal structure for family offices. The types and number of legal entities used in a family office differs depending on each family’s vision and goals, the family’s investment strategy, and the scope of services to be provided by the family office. There are, however, several types of family offices commonly seen in practice.

In some cases, a family office (by design or default) may begin functioning inside of a family’s operating business. In this scenario, a non-family member CFO or other trusted executive may begin handling the founder’s personal investments and financial affairs, in addition to managing the day-to-day affairs of the business. Gradually, the personal services provided by the executive may expand to other family members. There are some pitfalls associated with this approach, but in our experience, family offices often develop in this manner. If the operating business is sold or if company resources available for managing the family’s business and personal affairs are stretched too thin, the family may establish a more formal family office structure outside of the business.

The single family office (or SFO) is a family office that provides one or more services (such as investing, estate planning, tax, and philanthropy) for one family. The family members served by the family office may consist of one immediate family or several generations and multiple branches of an extended family. To the extent that the family has a shared vision and common goals for its family office, the SFO necessarily operates in complete alignment with the family—its only client.

The multiple family office (or MFO) is a business that provides family office services to multiple unrelated families. Each family pays fees to the MFO. Pricing models may include a mixture of hourly fees, fixed fees and asset-based fees, or a flat annual fee, depending on the services provided and the MFO involved. While each family must share the MFO’s resources with other unrelated families, the fixed costs for operating the MFO are spread across multiple family clients, which may result in lower expenses compared to operating an SFO. In some cases, MFOs started as SFOs and over time began managing assets for other families. Examples of SFOs that transformed into MFOs include Bessemer Trust and Rockefeller & Co.

When it comes to family offices, no one size fits all. The structure of each family office is determined by the family’s wealth and objectives, the number of family members participating in the family office, and the scope of services provided by the family office.

In our next blog post, we will examine current trends in the world of family offices.