What Does a Family Office Do - SmartAsset

A family office is typically a full wealth and asset management firm that works with ultra-high-net-worth families to grow that wealth and pass it on to the next generation. Most people don’t need a family office, but it’s good to understand the services they offer. Some firms will let friends and family get access to their services without meeting minimum requirements. Instead of a family office, however, most people can find use of a financial advisor to do similar activities at a more affordable cost.

What Is a Family Office?

A family office is a one-stop financial shop for the extremely wealthy. They serve as wealth management and financial advisors for high-net-worth clients typically focused only on the category known as “ultra-high net worth.” This is generally defined as anyone with $30 million or more to invest. A family office isn’t likely to work with people that have a seven-figure net worth.

There are two main models of family office:

1. The Single-Family Office

Traditionally, a family office serves one client. The idea behind this business model was to create a financial advisor who handles the expansive needs of someone with a vast fortune to invest. This created the first single-family offices in Europe, but modern family offices emerged in the United States during the 19th Century. A single-family office conducts the full-time job of managing dynastic wealth. This is often run by a family member, close friend or trusted advisor of the family.

2. The Multifamily Office

As financial firms have grown more efficient they have also expanded their capacity. The Rockefeller Family Office, for example, initially opened to manage only the affairs of the Rockefeller dynasty. Today it handles money for more than 250 clients.

This is the model of the multifamily office. This business will still focus on ultra-high-net-worth individuals but will take on more than one client. This has grown in popularity in recent years in part because of improved technology. Services that once demanded the entire resources of a dedicated firm can now be provided in a fraction of the time. That opens up the capacity for family offices to expand their services.

Demand for family offices has grown substantially. One estimate from the Wall Street Journal suggests that the number of firms has grown by more than a third since 2011, driven in part by the sheer number of multi-millionaire families.

What Does a Family Office Do?

The ultra-wealthy are different. Someone with tens or hundreds of millions of dollars in the bank has to think about their assets more like a business. They operate less in terms of personal finance than in terms of asset management. They consider how to maximize, preserve and best handle their vast resources. A family office does everything for its clients to manage their wealth. That can include tax planning, charitable donations, buying and managing properties and investment management.

A family office will also typically handle tasks well beyond traditional finance. A family office normally won’t employ lawyers, but it often has to find them. It might handle issues including lobbying or immigration. It might handle lifestyle concerns such as careers, school, travel plans or art acquisition. In many ways, it is a full-service concierge.

The purpose of the family office is to help wealthy people grow their fortune and preserve it for generations to come. It also helps that person simply get things done. Whether they would like to get a child into college or begin a second career in public speaking, a family office is likely the first place they’d call.

Who Works at a Family Office

A family office employs a collection of professionals that offer a variety of services. Here are some of the most common professionals you’re likely to find working at a family office:

Investment and Wealth Managers: These financial professionals look after the fortune. They will invest their client’s money and can do their job in a wide variety of ways. Given the sheer amount of money managed by a family office, these members of staff have options that range from putting money into a mutual fund to creating an entirely new one structured around their client’s wishes.
Tax Advisors: The office often will employ a team of dedicated accountants and lawyers who specialize in taxation. They make sure that the client gets the most favorable tax treatment possible. Their work can save a client tens of millions of dollars.
Lawyers: A family office needs legal advice on a wide variety of subjects. Clients rely on their knowledge of real estate law, investment concerns, trusts, estates and possibly even criminal matters. The office needs to make sure that each move it makes protects the client’s best interests. This cannot be done without highly qualified legal counsel.

These are, of course, just an example of the professional expertise you’ll find at the office but it isn’t all-inclusive of every function. A typical family office will employ not only support staff but also a wide variety of professionals who can help meet the client’s needs.

Estate Management at Family Offices

In many ways, estate management is the core function of a family office. The job of this office is to make sure that the fortune survives for generations to come.

A family office structures money around multi-generational needs. This will mean handling family trusts, ensuring that the terms of a trust are met and that the funds are carefully managed. It also means handling tax issues that very rarely come up in other contexts. Estate taxes only affect a small handful of American families, but someone with a family office will certainly pay those taxes.

A family office also manages illiquid asset transfers. It will pass down property, businesses and real estate from generation to generation. In particular, this means balancing the needs of a new generation against the priority of not subdividing the fortune into meaninglessness.

Finally, a family office helps to manage the family itself. It can provide financial education and interpersonal oversight. It does what’s necessary to make sure that the people who hold the fortune today keep some around for the people who’ll want it tomorrow.

The Bottom Line

A family office can handle the affairs of wealthy families that need to function more like businesses. They can handle the day-to-day financial minutiae, but they also oversee long-term, multi-generational planning. While most U.S. families will never need one, those that do need them for a variety of reasons. Whether it manages an estate, handles legal affairs, or educates the next generation about how to best maintain the fortune, a family office can be invaluable to those looking to secure existing wealth.

Wealth Management Tips

Even those who don’t have an estate large enough for a family office may benefit from the financial oversight of a professional. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Do you need a financial advisor or a wealth manager? If the answer is the latter, you may want to consider private wealth management. SmartAsset offers an overview of private wealth managers that may help you determine if they’re right for you or your family.