DO YOU NEED THE SERVICES OF A FAMILY OFFICE?

Family offices gather the talents of financial, tax and legal professionals under one roof. Here’s how to know if you should trust them with your money.

By Jack Waymire

ILLUSTRATION BY HARRY CAMPBELL

John D. Rockefeller established the first family office in 1882 to manage his family’s wealth. Today there are some 3,500 family offices in the U.S. providing professional and personal services to very wealthy families. What exactly do they do? How much do they cost? And can you trust them? Before you turn to a family office, know the answers to these crucial questions.

What are the two types of family offices?

They are single-family offices (SFOs) and multi-family offices (MFOs). A typical SFO handles the financial, tax, legal and philanthropic needs of one family, which could mean either an immediate family or one with multiple branches and generations. An MFO provides the same services to a number of unrelated families — about 35 on average, according to industry group the Family Wealth Alliance — that share its resources and fixed costs.

Do I need a family office?

You certainly need the services they offer. To get them, you could contract with individual providers such as a financial advisor, accountant and attorney. They’ll work for different firms, are paid separately and may or may not communicate with each other. (If they do, it’s generally at your instruction.) Or you hire a family office to provide and coordinate all these professional services.

The more complex your situation, the more you need the intellectual heft of a family office. Say, for example, that you’re selling a business and are faced with complicated decisions regarding tax, legal and financial management; a family office could handle all those issues. Or you want to build generational continuity using family trusts, philanthropy and estate planning. A third need is managing philanthropy in a way that is effective and tax-efficient.

Should I choose an SFO or an MFO?

This decision is determined by the amount of your wealth and the complexity of your finances. You should have at least $250 million (some industry experts put the number as high as $1 billion) before you consider the dedicated resources of an SFO. One hundred percent of the professionals’ time is dedicated to helping you grow, preserve and transfer your wealth, and you’ll pay a premium for that dedication.

If your assets are between $25 million to $250 million, consider an MFO. You’ll still have access to talent, counsel, intellectual capital and systems, but you’re not paying for a level of service that your wealth doesn’t justify. One caveat: You probably won’t get the access to investment research you would from a big bank.

What services do family offices offer?

A family office may agree to provide any service you’re willing to pay for. But your overriding consideration should be: What is the family office really good at, and what should be outsourced?

Perhaps the family office’s greatest strength is its ability to deliver packages of coordinated services tailored to your needs. Primary services include: planning, investment, tax, legal, risk management, trusteeship, charitable giving, lifestyle management, closely held business management, concierge and foundation management.

Concierge refers to a package of services that includes bill paying and travel planning, as well as managing household staff, medical services, caretakers and transportation.

What are the four major advantages of a family office?

First, you avoid paying the layered expenses of individual providers. Plus, you may receive superior services.

Second, you receive coordinated advice, strategies, services and solutions because the professionals at the family office can easily communicate with each other.

The third advantage is simple convenience. With all these services and tasks being completed for you, you can spend more time on other activities.

Finally, working with a family office involves building a long-term relationship on trust and mutual respect. The transactions it handles can be deeply personal; it’s nice to have someone you know and feel comfortable confiding in overseeing your affairs.

How do I find an MFO?

The best way is to ask other wealthy families if they use MFO services. Not only can you obtain the names of firms, you can also learn about the quality of their services in advance of contacting them. You can also ask a professional you already work with, such as a CPA or an attorney, if he or she knows any reputable family offices. A word of caution: The family office may compete with his business interests, so he may sound skeptical.

How are they priced?

Depending on the number and types of professionals on the staff, an SFO can easily cost $2 million annually. Some cost considerably more. The fees add up fast when you factor in the dedicated services of investment, tax and legal professionals.

Multi-family offices have pricing models that include hourly, fixed and asset-based fees. For example, the attorney may charge an hourly fee, the retirement planner a fixed fee and the investment professional an asset-based fee. Sometimes an asset-based fee covers all their services. Finally, a growing number of MFOs charge families a flat annual fee — $250,000 is typical — for MFO services, giving you the benefit of knowing your costs in advance.

Bottom line: For anyone worth $25 million or more, working with a family office merits consideration. But don’t rule out private banks, trust companies and registered investment advisors that offer family office services.

A former wealth manager for 20 years, Jack Waymire is the author of Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and the founder of InvestorWatchdog.com, an advisor research website for high net worth investors.

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