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Every family wants to do right by the next generation. High-net-worth families are in an enviable position, but they also face substantial risks. The stakes are high, and legacies are on the line. That’s why the family office has become a fixture of the financial world. 

What is a “family office” … and how do you know if forming a family office is right for you? 

What Is a Family Office? 

A family office is a business that exists to manage the financial life and legacy of a single family (or a small group of families). 

There are two ways to look at this: 

• High-net-worth families outsource the management of their financial life to the family office. Employees of the family office are tasked with managing and growing the financial legacy of the family.
• Think of the family office as a kind of hedge fund … only instead of a group of investors, the funds under management are the net worth of one family (or small group of families). Like a hedge fund, a family office might invest in public equity, private equity, debt, real estate, commodities, and more — all for the benefit of the family who owns the office. 

What Does the Family Office Do? 

The first charge of a family office is to protect and grow the wealth of the family. This might include: 

• Selecting and managing investments, with fiduciary duty to the family. 
• Managing risk. 
• Setting budgets.
• Lifestyle management. 
• High-level financial planning. 
• Estate planning. 
• Tax planning. 
• Philanthropy 

In some cases, a family office might be called upon to manage an even more priceless asset — the family’s reputation and public relations. 

What Are the Advantages of a Family Office? 

A family office is a cost-efficient way for high-net-worth families to free up time and improve results by outsourcing its financial life to a team of professionals.  

Family offices also have certain regulatory advantages compared to institutional investment entities like hedge funds. Because they exist to serve one family and don’t typically take on new investors, they have more leeway with which investments to select. They can get a little more creative — even to the point of taking on more risk. 

What Are the Disadvantages of a Family Office? 

Of course, any business is only as effective as the people who run it. If one of the employees of the family office turns out to be incompetent or crooked, the family’s financial legacy is at risk. 

What Does It Take to Run a Family Office? 

A small family office typically has 5-6 employees and an operating budget of in the neighborhood of $1-2 million. 

A medium-sized family office might employ closer to 15 people and cost $3-4 million per year to operate.  

When Am I Ready to Form a Family Office? 

Because of the cost to operate a family office, a family needs to have a substantial net worth to justify the annual expense. The cutoff point where it makes sense to create a small family office is about $100 million in assets. If your family is worth $100 million or more, it may be time.  

How Do I Know I Need a Family Office? 

• You don’t have the time. Wealthy families tend to be busy. They don’t have time to source private equity deals or inspect potential real estate acquisitions. A family office can take the grunt work and busywork of wealth-building off the family’s plate.
  

• You don’t have the expertise. Your family must have done something right to amass its fortune, but may lack crucial skill sets in areas like tech, foreign equity, private debt, commercial real estate, risk management, etc. A good family office can plug up the gaps in the family’s financial strategy. 
  

• You’re ready to step back. Maybe it’s time to retire and enjoy the fruits of your labor. But money never sleeps, and no family can afford to simply check out of its financial life — especially a high-net-worth family. A family office puts the reins in capable hands, empowering key family members to step back with confidence.
  

• You want an experienced hand on the wheel of your family’s legacy. Most high-net-worth patriarchs and matriarchs don’t want to just hand over large sums of assets to their heirs — they want their children to make their own mark, but to also be comfortable and benefit from their fortune. A family office ensures that the family assets remain under the control of professionals. 

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 If you think a family office might be right for you, reach out to J&G Associates today. We’re at your service to help you assess your needs and take the next steps.