We are often asked “so what is a family office anyway and does my family actually need one?” The short answer, as with many questions in life, is “It depends”.The question is a perfectly legitimate one – there is plenty of information in the market place on family offices and there are many service providers claiming to operate in this space. The term ‘family office’ has been thrown around and today it means many things to many people and has become somewhat confusing.

To narrow it down and provide some clarity, we have identified four types of family offices that are commonly used.

Single Family Office

A family of significant means (>$250m) will establish their own family office to preserve their family legacy, manage the financial affairs of the family as a collective and facilitate the intergenerational issues that arise through transitioning wealth from one generation to the next.

Typically, to operate a single family office, a large base value of assets is required in order to pay for the sophisticated systems and in-house professional capability a family needs.

 Family Business Office

A family that owns and operates a significant business will utilise its finance staff to also manage family investments, outside the business, and deal with family matters.

This office, which may seem economical in the first instance, can provide a variety of challenges. Finance staff are often torn between the demands of the business and demands of family members, making it difficult to focus on the right task at the right time. Additionally, sometimes there is little separation between the business strategy and the family investment strategy, creating poor returns over time which may ultimately fail to deliver on family outcomes.

Family Virtual Office

A family may choose to manage all their affairs online through sophisticated systems and processes where one family member will be responsible for executing the family wealth strategy. From our perspective this office will work well if the family are digitally sophisticated and engaged online.

Multi-Family Office

Most families that do not fit into the above categories will typically opt to use the services of a multi- family office. This is an organisation where many families will select a number of services they need and operate on a user-pay basis making it the cheapest option available. A true multi-family office will invest deeply in systems, people, provide best practice advice and services and ensure continuity across generations as there is reduced key person risk.

So while there are a number of types of family offices available, the important question to ask before pursuing any one of these options is “What outcomes do you actually want from your family office?”.

A good place to start is to go back to basics and ask your family three questions:

1. What is the purpose of our family’s wealth?
2. What outcomes does our family want to achieve?
3. What infrastructure does the family need to achieve those outcomes?

 Defining the purpose of wealth

We often start with a blank canvas and ask the patriarch or matriarch of a family “What is the purpose of your wealth?”. It is a fundamental question, one that many families spend significant time pondering.

We adopt a broad definition of what constitutes a family’s wealth. It extends beyond just financial means and crosses over into the realm of a family’s values, knowledge, education, health and wellbeing. The ultimate test of a family’s wealth is whether there is harmony between family members and whether there is a sense of fulfilment amongst individual family members.

We engage with families through an intensive and often confronting interview and questionnaire process designed to uncover and define the family’s collective vision for their wealth and values. Unless families have a shared vision and purpose and adhere to a common set of values, it will be difficult for them to work harmoniously, let alone achieve their long term goals.

From our experience, once a family engages in this process, the purpose of their wealth will be well defined. Below are some examples from families that we have worked with.

Legacy

The notion of a legacy is deeply personal and unique to each family. In its narrowest sense, a legacy may be defined as simply providing financial support to family members across generations. Often, once a family’s financial interests have been secured, they will seek to create legacies that support many other purposes, such as a family business, unique family asset and/or a family foundation. It is often these types of legacies that underpin the real purpose or meaning of a family’s wealth.

Education & Leadership

This issue creates a great deal of anxiety for parents of children who stand to inherit wealth and/or assume responsibility for their family’s legacy. We dedicate a large part of our time to helping families define certain knowledge and education outcomes for family members in order to prepare them for future roles in the family and help them achieve their personal goals. For example, assisting family members pursue an independent career or vocation, ensuring financial literacy and preparing the next generation of owners for the responsibility that comes with being a steward of wealth.

Philanthropy

Families may define their objectives around having a meaningful impact in the community or environment of which they are passionate.

 Entrepreneurship & Opportunity

A family may have a deep rooted belief in fostering entrepreneurship and may therefore be focussed on providing opportunities for family members to build and grow business ventures to create jobs, prosperity and continue adding value to the family’s wealth

Lifestyle

Some families may wish to provide family members with an income stream to provide a safety net. This will vary from family to family however many hope that the income provided to support lifestyle will be enough to allow them to pursue their dreams, but not be too excessive that it impacts their work ethic and limits their contribution to society.

Irrespective of what specific purpose a family may have, almost every family we meet universally shares the desire for a smooth and seamless transfer of wealth across generations and that their wealth is sustainable for generations to come.

 Building a Family Office to achieve outcomes

The breadth, depth and functionality of a family office infrastructure should be tailored to deliver on a family’s purpose and meet specific outcomes.

In determining how your family office can achieve your desired outcomes, we often refer to the following roadmap, depicted below, which can act as a useful guide to oversee your family office function and enable the optimum chance of success.

Step One: Clearly define your family’s purpose of wealth with your family aligned around a shared vision, legacy and values

Step Two: Agree what outcomes or goals are to be achieved for the family as a ‘collective’ and for individual family members across the purposes of wealth;

Step Three: Development of wealth strategies to achieve desired outcomes

Step Four: Agree and implement the appropriate governance structure, decision making processes, authorised delegations

Step Five: Assign accountability for implementation and delivery of those strategies across family members, family office executives and employees, outsourced providers and advisors

Step Six: Scope and price all system infrastructure, services and advice required including remuneration for family members undertaking a role in the family office. Agree performance metrics with ongoing review

Step Seven: Prepare the next generation

This roadmap is evolutionary in nature and provides the framework for the family office to change and reset as family circumstances change overtime and across generations. From our experience working with families for over 60 years, following this process will help determine what type of family office you may require to deliver your desired outcomes and optimise your family’s chance of success.