August 28, 2018
Many cultures across the globe are familiar with the paradox, “more money, more problem.” The more money you have, the more the things you have to worry about. When an individual’s net-worth becomes significantly sizeable, many things that an average person addresses offhandedly become stay-awake issues for him or her. From basic issues like where to live, appropriate vacation destinations, to more serious issues like what to invest in, how to ensure smooth multi-generational wealth transitioning, to an ultrahigh net-worth individual, the consequences of getting it wrong could be very dire. The above problem statement created an industry of its own, firms offering family office services.
The typical wealth management boutiques are increasingly becoming ineffective to take care of all the needs of the high net-worth and ultra-high-net-worth individuals and families since the main focus of these outfits is assets management. Wealthy individuals and families are demanding more from their assets managers. They now want a one-stop advisory and wealth management shop, a collection of professionals who are well equipped to advise on every area of life and business. They now prefer to have a firm who will be on top of all issues, ranging from what insurance policy to take, tax advisory and tax compliance services, to advice on which educational institution best serves the family’s vision, at what age should the children become involved or aware of the family investments, how to best transmit the wealth to the next generation in a self-sustaining manner, etc. As you will imagine, hardly can a traditional wealth management firm comprehensively provide these services.
Given their very nature, family offices all over the world are a major improvement on the traditional wealth management firms and are better positioned to take care of the needs of the high net-worth and ultra-high-net-worth individuals. In this series, we will be discussing what a family office is and its place in the family governance framework as a tool that ensures the smooth running of the family and family businesses/ investments, from one generation to another.
The family office has been defined differently by various experts, with certain keywords cutting across the various definitions. These keywords include “group of professionals”, administration, management, wealthy individual or family, family investments, etc. We can therefore safely say a family office is an organization consisting of a group of professionals who are responsible for the management and administration of a wealthy individual or wealthy family’s investments/ businesses.