Family office
Encyclopedia
A family office is a private company that manages investment
s and trusts
for a single wealthy family. The company's financial capital
is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family offices often provide family management services, which includes family governance, financial and investment education
, philanthropy coordination, and succession planning. A family office can cost over $1 million to operate, so the family's net worth
usually exceeds $100 million. Recently, some family offices have accepted non-family members.
More recently the term "family office" or multi family office
is used to refer primarily to financial services
for relatively wealthy families.
The office itself either is, or operates just like, a corporation (often, a limited liability company
, or LLC), with a president, CFO, CIO, etc. and a support staff. The officers are compensated as per an arrangement with the family, usually with overrides based on the profits or capital gains generated by the office. Often, family offices are built around core assets that are professionally managed. In addition, a more aggressive and well-capitalized office may be engaged in private equity placement, venture capital opportunities, and real estate development. Many family offices turn to hedge funds for alignment of interest based on risk and return assessment goals.
Class A Family Offices are operated by an independent company that receives direct oversight from a family trustee or administrator. A typical Class A family office:
Class B Family Offices are operated by a bank, law firm, or accountant firm. A typical Class B family office:
Class C Family Offices are operated by the family with the assistance of a small support staff. A typical Class C family office:
if they met certain criteria (family offices previously relied on the so-called "less than 15 client" rule to avoid registration under the Act but the rule was eliminated under the Dodd-Frank). The Securities and Exchange Commission (SEC) promulgated the final "family office rules" on June 22, 2011.
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
s and trusts
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
for a single wealthy family. The company's financial capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
is the family's own wealth, often accumulated over many family generations. Traditional family offices provide personal services such as managing household staff and making travel arrangements. Other services typically handled by the traditional family office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family offices often provide family management services, which includes family governance, financial and investment education
Investor education
Investor education is a term used to describe programs and information to help individuals make informed investment decisions.- Studies and Research :...
, philanthropy coordination, and succession planning. A family office can cost over $1 million to operate, so the family's net worth
Net worth
In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
usually exceeds $100 million. Recently, some family offices have accepted non-family members.
More recently the term "family office" or multi family office
Multi family office
A Multi-family office is usually an independent organization that supports multiple families to manage their entire wealth.- Definition :...
is used to refer primarily to financial services
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
for relatively wealthy families.
Traditional and modern usage
A traditional family office is a business run by and for a single family. Its sole function is to centralize the management of a significant family fortune. Typically, these organizations employ staff to manage investments, taxes, philanthropic giving, trusts, and legal matters. The purpose of the family office is to effectively transfer established wealth across generations. The family office invests the family's money, manages all of the family's assets, and disburses payments to family members as required.The office itself either is, or operates just like, a corporation (often, a limited liability company
Limited liability company
A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...
, or LLC), with a president, CFO, CIO, etc. and a support staff. The officers are compensated as per an arrangement with the family, usually with overrides based on the profits or capital gains generated by the office. Often, family offices are built around core assets that are professionally managed. In addition, a more aggressive and well-capitalized office may be engaged in private equity placement, venture capital opportunities, and real estate development. Many family offices turn to hedge funds for alignment of interest based on risk and return assessment goals.
Modern family offices
Modern family offices are typically separated into three classes:Class A Family Offices are operated by an independent company that receives direct oversight from a family trustee or administrator. A typical Class A family office:
- Offers comprehensive financial oversight of all liquid financial assets.
- Offers daily management of all illiquid assets, such as real estate.
- Can administer and manage the entire estate with little to no supervision.
- Charges a flat monthly fee for all family office services.
- Offers advice free from conflicts of interest and will not sell products.
- Offers a comprehensive monthly report of all estate activity for no additional fee.
Class B Family Offices are operated by a bank, law firm, or accountant firm. A typical Class B family office:
- Offers investment advice for a fee.
- Can offer products and services outside the scope of a family office.
- Does not directly manage or administer illiquid assets in the estate.
Class C Family Offices are operated by the family with the assistance of a small support staff. A typical Class C family office:
- Has a staff that will monitor the estate and report into the family trustee with any irregularities.
- Provides basic administrative functions, such as bookkeeping and mail sorting.
- May have an office inside a family member's home.
U.S. legal situation
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, after intense lobbying pressure from trade organizations and large family offices, the U.S. Congress provided an explicit exception for family offices from registration under the Investment Advisers Act of 1940Investment Advisers Act of 1940
The Investment Advisers Act of 1940, codified at through , is a United States federal law that was created to regulate the actions of investment advisers as defined by the law.-Overview:The law provides in part:-Contents:...
if they met certain criteria (family offices previously relied on the so-called "less than 15 client" rule to avoid registration under the Act but the rule was eliminated under the Dodd-Frank). The Securities and Exchange Commission (SEC) promulgated the final "family office rules" on June 22, 2011.
See also
- Private foundationPrivate foundationA private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...
- Investment managementInvestment managementInvestment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
- List of family offices in Australia
- List of family offices in Switzerland