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23 minute read
As a high-net-worth individual, you have likely encountered the term “family office” with increasing frequency. This trend reflects the growing popularity of family offices as a preferred option for managing substantial wealth. But what exactly is a family office? In this comprehensive guide, we will thoroughly explore the concept, clarifying what family offices are, the types of family offices that exist, their target clientele, and what they do.
Though family offices are experiencing a surge in popularity, conceptually they are not new: in fact, family offices date back to 15th century Italy. Over time, they have developed into our modern conception of a family office, which provides comprehensive, personalized wealth management strategies to high-net-worth and ultra-high-net-worth families.
Consider this your definitive family office guide – a centralized resource providing all of the information you need to understand the ever-evolving nature of family offices. We aim to equip you with the knowledge to assess whether a family office aligns with your family’s financial objectives, and how one could help in preserving and expanding your wealth for future generations.
To start, let’s define what a family office is. In essence, a family wealth office is a private firm that manages wealth and investments for a family or group of families. However, that definition is a bit simplistic for what a family office actually does. While early family offices did begin with a focus on managing the taxes, investments, and philanthropic endeavors of wealthy families, over time their offerings and approach have expanded what wealth management means for families, and now includes concierge services, estate planning, family governance and education, wealth preservation, and more.
In brief, family office wealth management is holistic, with a focus not only on growing wealth, but on the seamless transfer of wealth across generations. These offices provide a consolidated approach to managing family wealth, integrating investment management, financial planning, estate planning, and more. As we delve deeper, we will explore the different types of family offices, and the extensive offerings they provide.
The list above is non-comprehensive, and we will cover all of these offerings and more in greater detail below. While these solutions may seem wide-reaching, by providing all-encompassing support, family offices ensure that the financial and personal needs of the family are met. This approach acknowledges that financial planning, investment strategies, and lifestyle are interconnected, allowing for both the preservation and growth of wealth across generations.
Here, we will more closely examine the most commonly provided aspects of a family office, including those mentioned above. You will notice that in addition to traditional wealth management solutions, family offices also handle seemingly non-financial issues, such as family education and lifestyle services.
Because family offices utilize an integrated and personalized approach, they are well-equipped to structure both financial planning and investment strategies with specific goals in mind. Both financial planning strategies and investment portfolios will be focused on aligning with the family’s overall financial objectives.
Family office investing as a practice is as varied as family offices themselves since each family’s short- and long-term goals will be distinct. However, there tends to be a focus on long-term growth, with an emphasis on growing wealth across generations. Family offices also tend to provide a unique level of control regarding how and where investments are made.
Each part of the investment process will be personalized, from determining goals to assessing the family’s level of risk tolerance. From there, a diversified investment portfolio will be constructed to meet the defined goals. These customized portfolios will often contain a combination of asset classes, including equities, fixed income, real estate, and alternative investments. Family offices may also offer direct access to private market investment opportunities. These private investments offer the opportunity for higher returns and portfolio diversification. They may also offer greater control and influence compared to public investments, as well as a more long-term focus. Specific investment strategies will vary based on each family’s unique finances but may include first defining investment goals, diversifying portfolios and income-producing assets, and various strategies to maximize returns over time.
Similarly, financial planning will begin with identifying the family’s unique objectives. From there, a comprehensive financial strategy will be developed based on the family’s identified goals and current financial situation. The client will be involved in the monitoring process, and adjustments can be made as goals and finances change over time.
Wealth strategists develop comprehensive wealth plans to ensure smooth and effective generational wealth transfer. These strategies involve optimizing both lifetime gifts and inheritances to ensure that wealth is transferred efficiently with minimal tax implications. Wealth strategies also include asset protection, lifestyle funding, cash flow analysis, and more. A family office will tailor their strategies to the needs and goals of the family to preserve and grow wealth across generations.
A well-crafted wealth strategy not only secures family legacy, it supports the family’s overall stability and prosperity. Working closely with clients, a family office wealth strategist will provide tailored solutions that align with their long-term objectives, so that wealth is protected, managed and effectively utilized for future generations.
As part of a wealth strategy, a family office can provide estate planning, trust establishment, and ongoing maintenance. Since a core principle of family office wealth management is ensuring that control remains with the family, this extends to estate and trust planning. The family office’s role in this process is to establish and maintain estate plans and trusts according to the family’s specifications.
There are several types of trusts available, and a family office can assist in determining what vehicles are best suited to your family’s needs. In each case, the family office team will ensure that the trust is administered properly. They can assume trustee responsibilities while upholding fiduciary standards, overseeing the investment of trust assets to ensure proper management, and providing performance monitoring and reporting. Additionally, they handle all tax reporting and optimization, making sure your family receives any available tax benefits.
Similarly, the family office will provide comprehensive estate planning, including drafting any wills and testamentary documents, asset protection, and tax optimization. They also assist in succession planning, including business succession and leadership preparation for the next generation. Additionally, they can incorporate philanthropic giving into an estate plan, ensuring that the family’s legacy is preserved.
Beginning with assessing and understanding your family’s values, a family office can help you determine how, where, and when to make charitable gifts. Defining your family’s focus areas will help to streamline both shared and individual giving. From there, the family office will help you determine the most effective giving structures to support those goals and values, including the creation of donor-advised funds, charitable trusts, or other philanthropic entities.
Beyond strategic planning, monitoring, and impact reporting, a family office will also assist with tax optimization surrounding the family’s philanthropic activity. Not only will they ensure that any giving is accomplished while adhering to tax regulations, but also while taking advantage of available tax benefits. It is important that your philanthropic giving supports your financial goals while benefiting the causes you care about.
Family governance and education are both crucial aspects of wealth management for high-net-worth families. They will help ensure that family wealth is preserved across generations, and that family members are aligned and informed about financial responsibilities and opportunities.
Family governance helps enable effective communication, as it refers to structures and practices employed by a family to manage their collective wealth, including decision-making and conflict resolution. A family office can help establish these structures by assisting the family in articulating a family vision, mission statement, or shared family values. Once these processes are established, a family office can help facilitate their implementation, guiding families through meetings and decision-making.
Educating family members about financial literacy, wealth management, and the responsibilities that come with wealth is also key for ensuring a lasting legacy. A family office can help family members determine their financial strengths and understand philanthropy and leadership. Family offices can also provide sudden wealth counseling, following events such as inheritance, divorce, or the sale of a business. They can also preemptively help educate the rising generation, so that they are well prepared for wealth transfer.
A family office stands apart from traditional wealth management solutions by offering an extensive array of lifestyle services. Beyond addressing basic financial needs, family offices enhance and support various aspects of daily life, from health and wellness to travel, education, entertainment, and more. Here’s how a family office can elevate and streamline your lifestyle:
These comprehensive solutions will enhance your lifestyle while minimizing stress and effort. With an in-depth understanding of your family’s finances, a family office can discern what experiences and resources are worth the investment, connecting you with reliable, cost-efficient providers.
CFO (or Chief Financial Officer) solutions encompass a wide range of financial management, planning, and advisory functions to support effective management and growth of family wealth. A family office CFO’s role begins begin with assessing the family’s overall financial situation, and then developing a strategy to handle any oversights and optimize efficiency. From there comes the execution and management of that strategy via a team of professionals, including executing treasury, accounting, bookkeeping, and payroll activities. They will also liaise with third parties such as financial institutions, vendors, and insurance brokers, as well as manage properties, any related insurance, and charitable activities.
Another area where a family office CFO can provide assistance is with bill pay and financial reporting. By centralizing these tasks, which can be time-consuming and complicated, a family office will simplify the process and help avoid any errors. Not only will the family office ensure that all financial obligations are met promptly and accurately, but they will also help families manage their day-to-day finances and gain a comprehensive view of their financial situation.
The risk management process involves identifying, assessing, and mitigating risks that could adversely impact financial health. A family office advisor can play a pivotal role in this process by thoroughly analyzing income, liabilities, and assets to pinpoint vulnerabilities and implement strategies to reduce threats to your portfolio or net worth.
One of the primary tools in this process is insurance. Comprehensive insurance coverage is essential for high-net-worth individuals, as it provides a safety net against unforeseen events. A family office advisor will assist in selecting products and solutions that align with your specific needs and will handle negotiations with carriers to optimize coverage and benefits relevant to pricing.
Effective risk management involves proactive planning and continuous monitoring. A family office advisor will regularly review and adjust your risk management plan – which will also include establishing trusts, diversifying assets, and more – to adapt to any changing circumstances.
Liquidity planning ensures that families have enough liquid assets to meet both short- and long-term needs. In terms of investing, liquidity planning will not only help to ensure that a portion of your investment portfolio is in liquid assets, but also balance the necessity of liquidity with the desire for higher returns from less liquid investments. Additionally, a family office can help you and your family prepare for liquidity events, such as the sale of a business or significant asset, by providing financial advice and ensuring financial readiness.
Exit planning refers to the sale of a business or the transition of leadership within a business. Exit planning assists with these transitions and makes sure that the business can continue to thrive and that the owner’s financial needs are met. Family offices will support liquidity events and business sales by advising on pre- and post-sale planning, succession, tax optimization, and estate planning. But, as with all aspects of family office wealth management, while the family office acts as the facilitator, the family itself maintains control over all decision-making.
High-net-worth and ultra-high-net-worth individuals and families should both consider family offices. Whether you are considering a HNW family office or a UHNW family office, the principles are the same: family offices are for those seeking a combination of comprehensive support, tailored approaches, and familial control. The first step towards deciding whether a family office is right for you is understanding the many kinds of family offices that exist.
Since family offices are tailored to meet the unique needs of the families they serve, no family office will be exactly like any other. However, while they vary greatly, family offices generally fall into one of several key categories:
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Cresset is an independent, award-winning multi-family office and private investment firm with more than $65 billion in assets under management (as of 1/15/25). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.
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