There are different ways of managing wealth for high-net-worth individuals — from complete immersion in the financial affairs by the family members to the transfer of these powers to family offices (FOs). The latter completely relieves wealthy families from stress and worry on various issues, including investments, taxes and estate planning, etc. Intermediate options on this spectrum are financial or investment advisers. The choice of the appropriate solution depends on many circumstances of a particular wealthy family. Still, one of the most popular options would be family offices since they allow family members to fully focus on their favorite activities. They know that the family’s financial and other affairs are reliably protected.
Areas of Client Life Served by Family Offices
Family offices are private companies that serve high-net-worth families or individuals on multiple issues, including:
- Investment management;
- Tax and estate planning;
- Family governance;
- Consolidated reporting;
- Philanthropy;
- Preparing younger generations to manage family affairs, etc.
The main focus of FOs, like those of financial advisory firms, is wealth management. It is the primary task of family offices because they will lose their value without profitable allocation of assets. This means that the next generations will have less income. Therefore, special attention is paid to investment strategies. However, other questions essential for a family may be equally important:
- Selection of educational institutions and documentary support for the education of the younger generation;
- Organization of business meetings, tourist trips, charity events, etc.;
- Organization of media campaigns covering the family’s charitable activities, investments in socially significant projects, etc.
Also, family offices can provide personal protection for high-net-worth families. As Fred Burton, a security expert, notes, FOs are among the best agencies in this regard. They make security decisions that guarantee the safety of family members but, at the same time, do not limit them in leading their usual lifestyle.
Rules and Principles of Family Offices
Since FOs are in close contact with affluent families, they are aware of their clients’ dreams, plans, and concerns. Therefore, high demands are placed on the activities of these companies. To earn an excellent reputation, FO should show its effectiveness and high integrity. For example, Certuity Company has solid experience providing family office services for ultra-high-net-worth individuals and families certuity.com/ocio/. This attracts new clients to the company since the best evidence of the reliability and effectiveness of a family office is the good reviews of other wealthy families that it serves. Among the rules that guide the company are the following:
- Fundamental research of any niche or direction for which the company takes responsibility;
- Adherence to a holistic approach that emphasizes that harmony in the family is only possible when taking care of the interests of each family member;
- Identifying and mitigating all risks before making any decision;
- Partnership with the best CPAs and Estate Attorneys in their field;
- Research of new promising areas for investment to balance traditional investments with alternative ones;
- Strict protection of all non-public client information, including enhanced cybersecurity measures.
Features of Family Offices in Comparison with Other Advisory Firms
Comparing family offices and financial advisory firms based on function alone would be misleading. Many other factors are also important, such as the workload of advisors with other clients, the time horizon of cooperation, a personalized approach, etc. Therefore, when choosing a company that will manage the wealth of a family and other issues, you should consider the whole range of factors given in the table.
| Indicator | Family Offices | Financial Advisory Firms |
|---|---|---|
| Number of clients | Serving one (single-family offices, SFOs) or several (multi-family offices, MFOs) families | Serving a large number of clients |
| Functions | Wide, depending on customer needs | Limited to financial, tax, estate and investment issues |
| Investment horizon | A longer-term horizon with stable investment returns | Inclination to short-term trading |
| Relationship | More personalized relationship | More superficial and distant relationships |
| Regulatory oversight and reporting requirements | Mild reporting requirements and lack of strict government oversight | High reporting requirements and strict regulation by authorities |
The goals of family offices and financial advisory services also diverge. The latter strive to invest their clients’ assets most efficiently so that they can get the maximum profit. It is essential for them since their compensation is most often calculated as a percentage of profits. Family offices also care about growing family wealth, but they take a longer view because they must take care of the wealth of subsequent generations. Thus, LLC Certuity emphasizes its multi-generational approach to managing family wealth. When giving advice or making decisions, the company considers the interests of living family members and those who have yet to be born.
The Bottom Line
Thus, if you want high exclusivity and personalized services, it is better to choose a family office. FOs customize their services depending on the needs of family members, so all your dreams and projects will have the opportunity to be realized most effectively. If your priority is multiplying wealth to cover the expenses of a huge family, your assets will be placed in the most profitable and reliable projects. If you are interested in ESG investments (Environmental, Social, Governance), the FO will select the most significant projects in this area. If you are an art collector, you can be sure that your family office will source masterpieces from around the world at the lowest possible prices. Whatever the needs of family members, the FO will develop the most effective solution to fulfill them.
