How Family Office Structures Help Owners Plan for The Future

Owning and running a business is a stressful endeavour at the best of times. For the many family-owned businesses out there, that stress can put significant strain on relationships between those family members, but the commitments and investments involved often make it hard to discuss the necessary decisions that need to be made.

There are many idioms regarding the mixing of personal and business life, and a lot of them suggest that the best approach is simply not to do it. Perhaps abstaining from family business altogether is a little excessive, but there is certainly something to be said for making a clear distinction between business and family life, and that is something that family office structures help with.

That being said, family office structures are often mistaken for a thing that only applies to families who run businesses, and that is not the case. Let’s take a closer look at what this term means.

What is a family office structure?

In short, family office structures are used by families to administer their business affairs, as well as investments and general wealth. In essence, a family office is a type of financial planning, and it can handle all aspects of a family’s wealth. It can act as a safeguard for the future of the family wealth and can even, in an indirect manner, keep families from drifting apart over time.

A family office typically costs around 1% of the family’s wealth, but few wealthy families would argue that the benefits it provides are not worth that small portion, especially when the family in question is particularly large and spread out geographically speaking.

What does a family office structure do?

On the face of it, a family office may seem little more than a legal entity responsible for wealth management, whose aim is to protect the interests of an entire family rather than a single person and their private wealth. Broadly speaking, this would be true. Where it differs from that broad definition, however, is in the other ways that the office supports the family.

Take the traditional image of a family in the UK, for example. A mother and father, along with two or three children. In most cases, those two or three children will go on to have children of their own, and the family grows exponentially with each passing generation. A family that works hard to build wealth can operate perfectly well when the family consists of two adults and a few dependents, but when those dependents come into the decision-making fold, and when their dependents reach an age of maturity, it’s very easy for conflict to arise.

Family office services allow a family to put in place measures that can safeguard the family’s interests through things like leadership changes, and the family expands and spreads out. Succession planning, family governance, and risk management are all factored in when setting up a family office, as well as many other factors, such as tax services and asset management.

When is a family office structure needed?

As useful as a family office is, they’re not always necessary, so it’s understandable to whether one is right for you. However, for the families that do need a family office structure in place, the advantages that family offices offer are typically too good to dismiss. For example, those who travel a lot may opt to use this system because it will ensure that the family’s finances continue to operate smoothly in their absence. This includes things like ensuring investment portfolios continue to be managed and bills are not defaulted on.

There is also a myriad of ways in which a family office can help their private clients, such as contacting a bank on behalf of the client in the event of a lost or stolen credit card. There are many other situations of this nature where a family office can help their clients, which is one reason why retired executives—now lacking the personal assistant they previously benefitted from—choose to set up family office structures.

What to look for in a family office partner

A partnership as significant as this obviously requires a great deal of thought before entering into, whether it be multi-family offices or single-family offices. A family that has gained wealth in the current generation will likely have solid business acumen and will therefore be better placed to make decisions on things like whether to trust companies offering family office services or not.

The main things to consider when looking for a partner to start a successful family office will likely differ depending on the family, but a company with an established reputation will always be a good start.

Final thoughts

Ultimately, “need” always comes at a given value, and what one family considers a need might simply be an extravagance to another. It should be noted that families who attempt to transition wealth in this manner fail more often than they succeed. That being said, that failure is commonly down to a lack of planning or an individual family member’s inability to operate within the established family structures.

A good family office partner will be able to give advice on how to avoid this fate. For example, creating a structure that involves the various family members in a meaningful way can help to improve the chances of success.