Affluent families are gradually considering setting up a family office. The benefits of engaging a family office are brought about by the growing concerns on wealth preservation and succession planning with the family’s developing enterprise.
Setting up a family office has many ins and outs. Nonetheless, the family’s objective for a smooth transfer of wealth across generations and minimize disputes among families is the core of setting up a family office. As the family wealth increases, the challenges of managing the wealth also grows. In the same manner, understanding the need of a family office certainly improves from one generation to the next.
The intricacy of the family’s wealth needs a family office which can provide governance and management structure in order to be transparent in most, if not all to its dealings. Having a structure for the family can help avoid future argument. Also, the family office structure can make sure of the confidentiality in all transactions, referring to wealth management and other financial services because it is owned by the family which is under a single entity.
The family office deals mostly with financial advisors together with the members of the family. One of the functions of a family office is to align the interest or the family’s objective along with the financial advisors the family is working with. On the other hand, there may be a difficulty with the alignment with a non-family office structure for the reason that multiple advisers work with multiple family members and management given the number of these people pose as a challenge.
The creation of a family office may be inclined to pull off either higher returns or lower risk by making sound financial decisions especially on investments. The family office handles asset management activities and by its professionalism and centralization when it comes to assessment, it is likely to succeed on investment options thru careful planning.
In connection to professionalism, the family office also establishes the line between the family business and the family’s wealth. It enables to define the difference which will facilitate in making decisions for the business and even planning for the future of the family.
Another function of the family office is setting aside operational consolidation of risk, performance management and reporting. This will guide the financial expert and principals to gather valuable resolutions in order to accomplish the family’s investment goals.
Aside from the financial services that a family office can consolidate, it can also merge other professional services such as tax and estate planning, philanthropy activities, communications, family governance and family wealth education which will result to carry out the family’s objectives.
Starting up a family office is major responsibility and commitment. The benefits of setting up the family office could not be denied. There are instances however, that a family office did not realize the family’s aspirations. For one, it entails a huge amount of cost as to the fees on regulatory and compliance reporting. The fees maintains to be high and that the level of assets being managed by the family office needs to be strengthen with the purpose to offset its fixed costs.
A family office turns out to perform well when it works with established markets, legal and tax structures. The lack of these in the rising markets can destabilized the development of family offices. This translates of the level of connection between the wealthy families in some up and coming markets and the number of family offices that were established which unfortunately is still minimal in that area. Mostly, the wealth in those markets is still manipulated by the first generation which is primarily the decision makers of the family. It could also be related to the growth of family offices since most were created at some point of a family’s wealth transition from one generation to another.
The emergence of a multi-family office also provided a challenge. The creation of a multi-family office set-up provided an alternative to the less wealthy family of a family office set-up and address the family’s concern on high operating cost since as a concept, it gathers the family’s wealth altogether. The multi-family office set-up mainly has the lead family which started the office and assets will be managed in one umbrella. in general, the multi-family office accommodates to a family size, its wealth and maturity levels. More often than not, families put at risk of not getting the customized financial service they could avail if the family opted for a single family office set-up.
Despite the ordeals in setting up a family office, the setbacks can also turn out to be opportunities to discover. The number of the wealthy families is growing especially with their presence in the emerging markets. It is without a doubt that family offices will play an integral part considering the management of significant wealth in the coming years. The next generation has different goals and objectives and ventures which is an opening for the family office to also grow and innovate on managing the family’s wealth.