A family office may not be a new idea. Business literature credits the development of modern theory and concept of family offices in the 19th century. It is remarkable that wealthy enterprising families brought about the creation of a family office. Back then, family offices are described as a private office which is in charge of the managing and preserving the funds of a wealthy family. For example, in 1838 the family of J.P. Morgan established the House of Morgan which managed the families’ assets. Also, the Rockefellers founded their family office in 1882. Wealthy enterprising families in the U.S. would hire trusted advisors to oversee the families’ wealth especially when they were travelling. Great American entrepreneurs created the first family offices in the United States which provided the need of the wealthy families for a centralized management of funds which came from their various businesses.
In 19th century Europe, however, it was common for wealthy families to be counselled by private banks on how to administer their assets. With this, banks are mainly involved in managing family wealth back in the days. On the other hand, these financial institutions were not entirely the reason for the passing on of the family legacy or even training successors to handle the family wealth.
The stability and growth of financial markets significantly added boost in restoring prosperity in the United States during the great industrial period. By the turn of the century, large companies started the move in nation and wealth building. As a result, the pioneering families of entrepreneurs were occupied not only in the daily operations of their rising businesses but also with the complexities that brought about their wealth and investments. Attention was divided because managing various businesses and the family’s wealth both involves time. As it progress, wealth management became a challenge to entrepreneurs then who had limited time to learn how to efficiently manage along with the businesses.
And because of the details of these various businesses, family offices then included services such as dealing with tax, taking charge of the family’s charitable activities, managing trusts and formulating family constitutions, advising on art, architectural matters, property or direct investments and up to domestic activities such as buying opera tickets, paying school fees, screening chauffeurs and making sure the cleaner got paid. Every family had its specific needs, thus the family office’s function varied for that reason. As time went on, some families with similar needs formed their single-family offices into multifamily offices.
Family offices mainly started their business as what they call single family offices. It is a family-owned business which serves only the owner family. Single family offices are those groups who take care of the financial and other related affairs of only one family. The increasing operative costs of maintaining the business led to the decision of most owners of family offices to offer its services to other families as well. This paved way to the creation of multi-family offices or others call it as multi-client family office. A multi-family office caters to more than one family. A multi-family office may arrange for a comprehensive service to a variety of families or offer them with purely investment management. It was known that only a few multi-family offices have self-sufficiently established their business and without a large family supporting it.
The development of multi-family office was primarily an outcome of the growing number of wealthy families. Along with it came the developments in technology within the financial markets which would also need the complex and advance skills of financial advisors in the 1980s and 1990s. At this time, family offices started gaining reputation. The modifications, together with the consolidation of financial services industry considerably reduced the role of the bank trust departments. These financial institutions usually accommodate the super-rich families. These changes in the financial realm brought about an increased need and cost for family office-type services. To bear the cost, many families ventured in opening their family offices to non-family members, having additional client apart from the family owner and in effect became multi-family offices.
The family office has been an institution that serviced affluent families over the centuries. However, in today’s business climate of unstable economy and mostly increasing operating costs, family offices are facing challenges in supporting the wealthy families who in the first place have created such business. Nevertheless, depending on how you look at history, the concept of family offices had reached heights unimagined during the 19th century and had extensively provided assistance to the family wealth management. Interestingly, many families are still turning to family office as an approach to satisfy their needs in providing greater control over their wealth and to handle other family’s daily affairs. Consequently, when a family office is established, it is likely to serve multiple generations. This could also mean that there may be a range of different needs which will involve applying various wealth management strategies. An efficient family office successfully integrates these strategies and techniques to make sure that they support the wealth management goals of the family in general.