Family offices have long been held as a subtle yet powerful strategy in wealth management. In recent years, however, they have emerged as a necessity in the financial sector. This shift has not gone unnoticed, causing significant attention throughout the traditional financial landscape.
One of the greatest ways of managing wealth and assets for ultra-high-net-worth individuals (HNWI) is by utilizing a family office. According to Allied Market Research, the global family office industry generated $27.2 billion in 2022, and is anticipated to generate $54.7 billion by 2032, witnessing a CAGR of 7.5% from 2023 to 2032. Read on to learn more about family offices, including who they are for, the types of family offices, and how to utilize them to your advantage.
What’s a Family Office, and Who Is It For?
Family offices are experiencing a surge in popularity, driven by several factors: increased wealth concentration, generational changes, and the pursuit of more customized and direct investment strategies. A family office is a private wealth management advisory firm catering to HNWIs. Unlike traditional wealth management firms, family offices provide comprehensive solutions to meet the financial and investment needs of affluent individuals or families.
In addition to financial planning and investment management, many family offices offer services such as budgeting, insurance, charitable giving, wealth transfer planning, tax services, and more.
Responsibilities of a Family Office
There are over 10,000 family offices worldwide, holding over $7 trillion in assets under management. Significant wealth has been passed down through generations in the United States and is bound to increase by 2030. US millennials are estimated to have inherited over $30 trillion in the next 30 years. With that said, here are the roles of a family office:
- It ensures that financial wealth continues to grow with the families. It is essential, especially when dealing with the younger generation, who are reluctant to take over the custodianship role since it can seem like a burden to some. It ensures that financial wealth continues to grow with the families.
- Assist families with budgeting, charity management, wealth transfer, and insurance.
- Specialize in educating the younger generations about the best way to take care of the wealth passed down to them.
Types Of Family Offices
There are two main types of family offices: single and multi-family office setups. The preference is extensively based on the level of control and confidentiality you need.
Single-Family Unit
One wealthy family establishes single-family offices (SFOs) to manage their finances. They often support multiple generations and households within the family. Frequently, these structures need a more hands-on approach but are flexible for customization.
Multi-Family Unit
Multi-family offices (MFOs) handle the needs of many families. Pooling together resources means that such setups access a massive range of services while sharing the expenses. The leading family is often the wealthiest, but not always.
Despite the two above being the significant branches of family offices, hybrid models could be based on each family’s preferences. That includes outsourced, hybrid, and embedded.
Outsourced Family Office
Such a unit offers a family unit’s benefits without an in-house office. It combines the expertise from both single and multi-family office setups. They provide access to tailored strategies and skilled professionals in advanced technology.
Hybrid Family Office
Like an outsourced family office, hybrid offices offer the best of both worlds from SFOs and MFOs. It is best compared to having a personal chef who can access the community table anytime you need a delicious, healthy meal. Therefore, families get customized services focusing on their specific needs and preferences.
Embedded Family Office
These offices integrate family office services with a financial institution such as an investment firm. One of their most significant benefits is that family members can access a global reach, thus offering leverage between institutional backing and personalized services.
How a Family Office is Beneficial
A family office is beneficial because it provides comprehensive, personalized financial and investment services tailored to the unique needs of families, ensuring effective wealth management and long-term financial planning.
- It offers greater returns because it can access institutional quality investment choices and allocate capital better.
- Having a family office is economical since there is some cost-effectiveness when negotiating prices.
- Wealthy families often see a broader picture in terms of investments. Therefore, having a family office means that generations will implement the family’s long-term goals.
How To Choose Proper Help For Your Family Office
The family office concept is not only popular in the Americas but also in the Asian markets. According to Deloitte, establishing or expanding a family office requires careful consideration and planning to protect the family’s wealth. Here’s how to select a family office:
- Ask the right questions and figure out some of the family office services available within your area.
- Look at the cost, governance, and privacy.
- Choose a family office that is results-driven.
- Strategically outsource experts to senior levels to understand how your wealth is being managed.
Should You Join a Family Office?
Being part of a family office unit is one step towards keeping generational wealth under the proper care. It is the ideal way to lay a foundation for your family. Therefore, determining the multigenerational objectives is paramount in deciding which direction and the type of structure to pick. Family offices are created to help the wealthy grow and protect their assets. Hence, work with the right professionals to implement the best practices. To learn more about your specific situation and how a family office can help, get a complimentary consultation with one of our team members.
