Family offices come in different types and choosing what might be the most suitable one isn't just about looking at the family's liquid wealth or even if they still have an operating business or not. There's a lot more to figure out. This article considers some of the choices at stake.

The following article on family office models comes from Bessemer Trust, and is written by Mark A Tremblay, who is managing director and head of family office management at Bessemer Trust (more about the author below). 

There has certainly been plenty of debate on whether generalizations can be made about family office models and issues. To the claim that "if you have seen one family office, you have seen one family office," some industry figures argue that it is possible to make broad points about business models, best practice and benchmarking data. 

In any event, as the family office becomes more visible in the US and further afield, then debate will continue. The editors of this news service are pleased to share these insights and invite responses. The usual caveats about guest contributions apply - we don't necessarily agree with all comments here. Jump into the debate! Email the editors at tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com
 

Over the past two decades, family offices have come into greater focus. Global wealth continues on its phenomenal growth trajectory, with supporting data highlighting the surge in the number of family offices established in recent years. Many wealthy individuals are now asking themselves, “is a family office right for my family,” while those who have a family office that has evolved organically over the years may question if their current set up is still optimal to meet their needs.

Given the range of choices available when it comes to establishing a family office – a single family office, a multifamily office, or a combination of both models – there is wide flexibility in developing a structure that accommodates complex financial needs. While there’s no one-size-fits-all approach, the following factors are imperative to guide decision-making and ensure that a family office is designed and constructed for long-term success: 

-- 1.    Identify clear family office objectives;  
-- 2.    Conduct detailed business planning; 
-- 3.    Institute strong support and controls; and 
-- 4.    Establish clear chains of command and management succession planning

These critical steps drive the foundation of every family office, but can also serve as a guide for existing offices to ensure that effective structures are in place to carry out each family’s unique and evolving financial needs.
 
Identify clear family office objectives
When determining whether a family office – or particular family office model – best suits your needs, the first step begins with clarifying objectives and goals, and outlining the services required. Families might start by asking themselves, “what is the mission of our family office?” Whether to enhance and preserve wealth, support philanthropic efforts, or ensure that succeeding generations will be good wealth stewards. These goals should guide decision-making on what key services will be offered, such as customized asset allocation, financial reporting and budgeting, or family foundation advisory. 

Conduct detailed business planning 
Having a solid foundation lays the groundwork for another key planning stage: determining structure and staff requirements. Single and multifamily offices offer different benefits and drawbacks: the right decision will depend on a family’s goals, and the services needed to manage the wealth and its related complexities. For example, some families may want to control and own their office, including selecting their own paid staff who will only serve their family, in which case, a single family office model makes sense. In other instances, a family may trade the exclusivity of a single family office for a multifamily office approach to achieve lower costs and shared access to talent, counsel, intellectual capital, and other services to transfer wealth.

An additional component of this stage involves mapping out administrative details, such as establishing an operational headquarters, understanding the administrative budget, and defining who will pay for the cost of the family office. Another consideration includes how a family business, if one exists, relates to the office structure and clarifying which family members will manage the office and oversee various programming such as investment strategy and research. 

Once these details are established, the next planning stage involves determining which services are best maintained in-house and which are best to outsource. In making these decisions, families should consider factors such as the depth and breadth of expertise required by examining the nature of their wealth, including the variety of assets under management, and the costs to acquire that specialized expertise. Families should also weigh the benefits and costs of necessary technologies and the types of non-investment services required such as real estate advisory, insurance advisory, bill pay, or charitable gift planning. While it may be tempting to bring all services in-house, in certain scenarios, it may be more efficient to handle some key services in-house and retain a third-party specialist with technology platforms and specialized resources in place for noncore services such as tax and legal advisory or reporting and recordkeeping.
 

Institute strong support and controls
Once the staff and structures have been selected, a family office must implement internal processes and controls to streamline how the money is managed and invested. These processes are imperative for minimizing opportunities for conflict or fraud. To guide this decision-making, families should consider what goals or risks are most important to them. For some, it might be safeguarding capital; for others, it may be preservating the family legacy or a combination of both. 

With these goals in mind, families will need to determine who supervises portfolios and staff, who assesses infrastructure needs and family demands, and who oversees management or disbursements.

Families should also establish metrics to track investments, along with time horizons in place to create effective financial systems tailored to meet their wealth needs. While these decisions are critical in minimizing opportunities for internal conflict, families should also identify external cybersecurity threats and arm their offices with technology plans and resources to strengthen security vulnerabilities.

To ensure that these decisions are upheld and evaluated in the family’s best interest, instituting governance measures, such as establishing a board of directors, is critical. A board not only provides additional expertise as needed, but also delivers oversight in the execution of a family office’s strategy and vision. 

Establish clear chains of command and management succession planning  
The longevity and success of a family office relies on management structures and open channels of communication, including succession planning among talent and family members. This begins by instituting a management team with specific responsibilities, to ensure alignment on key priorities and decision-making. 

To encourage a smooth transfer of leadership and wealth across generations, families should also develop succession plans for executive leadership or staff. Internal processes should be implemented to determine how to attract and retain top talent, including establishing channels of feedback for management or staff evaluations, and an understanding of the costs that the family is willing to incur to have access to specialized skills. 

Ultimately, succession planning is just as important for family members. To ensure a responsible transfer of wealth across generations, family office structures should implement various controls to manage distribution of assets while incorporating family and next-generation education planning. 

Preserving today and tomorrow’s wealth
As global wealth grows, family offices are becoming an increasingly valuable way for wealthy families to successfully manage finances today and for generations to come. While there is no one-size-fits all approach to determining which structure will most effectively manage a family’s wealth, the ultimate decision relies on a careful assessment of the amount of wealth, its complexities, and the family’s priorities, objectives, and service needs – for both new family offices and existing ones that have evolved over time. Though these considerations may feel extensive, working with knowledgeable advisors can facilitate the process to either create or refine a customized strategy designed both for now and for future generations. 

About the author

Mark A Tremblay, managing director and head of family office management at Bessemer Trust.

Tremblay leads a specialized client service team that manages the operational and administrative complexities of wealth for large, single family offices outsourcing some or all functions. He previously served as the firm’s head of operations strategy, director of strategic planning, and senior investment analyst for the Old Westbury Strategic Opportunities Fund. Prior to joining Bessemer, he was a strategy consultant with the Monitor Group, responsible for large-scale corporate transformations, including both operational turnarounds and financial restructurings.