Family Office

There Is No Such Thing As A Family Office – Part 1

Edward Marshall January 15, 2024

There Is No Such Thing As A Family Office – Part 1

With this provocative title, this article explores the terminology of the family office space and how to improve the quality of life for complex, wealthy families.

The following essay comes from Edward V Marshall (pictured), who is the global head of the Dentons Family Office Group and a member of this news service's editorial board. (More on the author below.) Marshall and his team have published research about the activities of family offices. Marshall is also the co-author of a book about the sector. It is therefore very welcome to see him return to these pages with a two-part article. We hope readers find this analysis interesting and respond. Please jump into the conversation and email

It may be a form of heresy to even question whether family offices really exist. Of course, the structure and concept known as the “family office” has yielded the creation of family office-focused clubs and organizations, drawn highly-skilled talent to family offices, and convinced numerous companies to create and staff service offerings geared toward family offices.

Yet there is value in exploring this question, and it is not purely academic. At a cocktail party, if you were to ask five people to define a family office, you would probably receive at least five different answers. Unsurprisingly, the more "family office experts" there are at such a party, you would find even greater differences in definitions. You might even hear arguments about what constitutes a "true family office" or “family enterprise” during this often jargon-filled discussion.  

Defining a family office can feel more like a Rorschach inkblot test. But does it have to be that way?

We’re from the government, and here to define family office
While discussing the intriguing topic of "what is a family office?" at that cocktail party, some of your fellow partygoers might focus on the "Family Office Rule" implemented in 2011 by the US Securities and Exchange Commission. That rule discusses how family offices are “established by wealthy families to manage their wealth and provide other services to family members,” that family offices “generally serve families with at least $100 million or more of investible assets.” The rule also mentions that a family office can only serve “family clients,” should be “wholly owned by family clients,” and should not hold itself out to the public as an “investment advisor.”   

Along with the rollout of the Family Office Rule, then-SEC Chair Mary Schapiro separately defined a family office as providing “services to family clients and other entities such as trusts and charities that are alter-egos of family clients, but were established for tax reasons, estate planning or administrative ease.” In the end, the Family Office Rule did not universally define a family office. It was created to give specific groups an exemption from the Investment Advisers Act of 1940's definition of an "investment advisor.” Even the Monetary Authority of Singapore acknowledges that the term "single family office" is not defined by [Singapore’s] Securities & Futures Act (SFA). 

Is there any common ground on defining a family office?
It appears that the differentiation between a multi-family office (MFO) and a single family office (SFO) is generally accepted. MFOs provide services to multiple families, whereas SFOs cater to the needs of a single family (notwithstanding the industry jargon construct of a “multi-single family office,” which just makes the author’s head hurt).

Beyond this numerical differentiation, consensus regarding the precise meaning of the term "family office" is scarce. The most frequently cited threshold arguments regarding the definition of a family office are a family's net worth, investment management activities involving family capital, the "complexity" of family operations, and the family's objectives.

A line of reasoning that is frequently encountered is that a family must have, justify, and/or afford a family office with a net worth of $X. As threshold values, typical levels of net worth include $100 million-plus, $250 million-plus, $500 million-plus, $750 million-plus, or $1 billion-plus. But is net worth a good measure of what constitutes a family office, or is it merely a stand-in for the expenses of running one?  

Another common refrain regarding the definition of a family office is that it involves the management of family capital. But what happens if a family's operating businesses are the source of all their wealth and they have very few liquid assets? A family that operates a substantial manufacturing company, real estate firm, or technology startup may not have much need to "manage money" or invest in unrelated asset classes. Does this imply that a family that owns a privately held business worth $2 billion is not a family office?

The idea of a "true family office" is another recurring theme of discussion. The personalized definitions that follow this moniker are extensive and, in general, unhelpful to the family seeking assistance in achieving their goals.  

When attempting to define a family office, complexity and the scope of operations that support a family are also discussed. In other words, to qualify as a family office, a family must perform a specific set of functions. Financial planning, investment management, legal counsel, accounting and bookkeeping, bill payment, household and estate management, concierge services, risk management and security, cash management, insurance, charitable contributions, and more are typical functions (in-house or outsourced) that fall under this version of a family office rubric. Wealthy families can afford to personalize services to an infinite degree. As a result, defining a family office by the number of services it provides appears to be at best subjective, given that some families may require some, none, or all of these services.

Lastly, the objectives of a wealthy family are sometimes used to define a family office. For instance, the family office exists to ensure the transfer of wealth to future generations. This further exemplifies the subjective nature of the term "family office," given that some families choose not to pass their wealth on to future generations or do not have any children.

Perhaps there is no such thing as a family office if we cannot agree on what it is or is not?  

Family office is a mindset and methodology 
Rather, one might more productively view family offices as not defined by monetary thresholds, lists of responsibilities or tasks, or predetermined objectives.  

Family offices are more accurately described as a mindset and methodology.

Because the primary objective of all family offices, regardless of resources, ambitions, family net worth, or operational and organizational style, is to improve the quality of life for families. 

Framed in this way, all of us technically have a family office. We all perform activities to increase our quality of life in some form or another. Bills must be paid, taxes must be filed, residences must be kept clean, legal services must be utilized, and the banking system must be deployed for operations to continue, regardless of the wealth of the individual. We put our own version of control systems in place to make all of these tasks happen and to keep our sense of being in charge of the whole task management process. 

However, the resources available to complete and control those tasks are the primary distinction between an entry-level employee and a billionaire. A billionaire can just pay a team to support activities that improve their quality of life far more easily.  
While there are numerous advantages to being a member of a wealthy family, there also are unique challenges. These may include increased complexities associated with maintaining one's personal security and privacy, increased risks from litigation related to business and personal activities, additional costs and complexity associated with financial-related activities, and more.  

And for professionals who support or work for wealthy families, you can improve results immediately by understanding why you are “family office-ing:” everything you do is to improve the quality of life of a family. 

Why does the family office “industry” fail to serve families effectively?
In all corners of the world, there are individuals, firms, and organizations dedicated to serving the needs of wealthy families. The family office "industry" is based on the idea that wealthy families have needs and issues that must be fixed, and the industry has ways of doing these things. 

This concept appears to be quite logical when compared to ecosystems found in other industries. 

As an illustration, the automotive sector comprises organizations that provide support for a multitude of industry-related functions – such as automobile design, manufacturing, lobbying, financing, technology, enthusiasts, regulation, marketing, repair, and modification. From trade associations to Fortune 50 corporations to hobbyists, the auto industry is a complex ecosystem capable of delivering both Bentleys and Buicks to its customers. Cars have changed dramatically over the last century, but both Ford's Model T and Tesla's Model S serve the same function: mobility.

Even with such a basic and similar function, car companies have come and gone; safety failures have resulted in regulation and innovation; and consumer demand has shifted the very definition of car ownership to include renting a car for a few minutes at a time. Today, we can easily order a car to take us from point A to point B using handheld devices that connect to satellites orbiting 12,000 miles above the Earth. Arguably, the process is easier than ordering a pizza. Cars are even learning to drive on their own. 

But, despite technological advancements, expanding auto ownership options, and our basic need for mobility, there is no car utopia. Accidents, product recalls, and company failures continue to occur. 

Wealthy families have existed for millennia. Why have we not reached a family office utopia yet? With all the shared experience, new technology, and family resources that could permit customization to go on forever, what is the main goal of all family offices?  

Let us examine a few causes of less-than-ideal results for wealthy families that arise from a failure to view family office as a methodology. These less-often-mentioned causes will help illustrate why the family office “industry” sometimes fails to serve families effectively. 

(In the second half of this article, the causes of the situation are explained.)

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