Regardless of your background, source of wealth or family dynamics, managing significant wealth presents a wide range of unique opportunities and challenges. Making the most of your situation and supporting a strong legacy require significant focus and resources. For many wealthy families, the answer is a family office.

Family offices are specifically designed to serve the unique needs of families with significant wealth. They can take many forms, and their structure and capabilities are often a reflection of the specific priorities and goals of the families they serve.

DETERMINING WHETHER A FAMILY OFFICE IS RIGHT FOR YOU

Family offices can offer wealth and legacy planning advantages over more traditional forms of wealth management.

  • Family governance structure: Family offices can provide a formal governance structure that helps families navigate difficult financial decisions. They are designed to provide transparency and a decision-making hierarchy that helps avoid conflicts during times of stress, conflict and change. While a family business or foundation can provide some level of structure, it is generally less comprehensive than that of a family office.
  • Alignment of interests and centralized planning: In traditional wealth management relationships, there may be multiple advisors working with multiple family members. This can lead to contradictory wealth planning approaches and unintended risk. Family offices seek to avoid these pitfalls by taking a family’s holistic wealth picture into account and streamlining objectives so they align with family members’ collective desires and mission.
  • Customization: A family office can offer a much greater degree of customization than other forms of wealth planning. Governance, investing, estate planning, philanthropy, business interests, and other wealth considerations can be coordinated according to the family’s specific preferences and priorities. An office may leverage a diverse range of professionals with deep expertise in different specialty areas, allowing them to collectively help a family achieve its investment, estate planning, philanthropic and lifestyle goals.

DETERMINING THE RIGHT STRUCTURE

Your preferences for control, confidentiality, and cost may help you evaluate which type of family office structure may be best for you and your family

TYPICAL FAMILY OFFICE FUNCTIONS
BUSINESS OVERSIGHT PORTFOLIO MANAGEMENT PERSONAL RISK MANAGEMENT INTEGRATED PLANNING
Manage real estate, private business interests, and family partnerships Develop investment policies, oversee advisors, and monitor performance and risk Plan and review insurance policies, health care, long-term care, and debt strategies Develop wealth transfer, income tax, and asset protection strategies
PHILANTHROPIC MANAGEMENT FINANCIAL ADMINISTRATION FIDUCIARY MANAGEMENT FAMILY GOVERNANCE
Establish and oversee charitable vehicles, tax reporting, and IRS compliance Manage portfolio aggregation, the general ledger, banking, and payroll Oversee record keeping, tax reporting and various trustees Establish a family office board, advisory council, legacy plans, and wealth education plans

Control

What degree of control do you want over the family office? How centralized should that control be? Who should make family office employment decisions?

A single-family office can offer the greatest degree of control. It allows you to handpick employees and determine other essential aspects of operations. Due to the shared nature of responsibilities in a multifamily office, control is often less centralized within a single family or decision maker. If you decide that a multifamily office makes sense, consider how decision making is shared among families and how well aligned your priorities and areas of focus are with theirs.

Confidentiality

How important are privacy and confidentiality? How important is security? Do you have confidentiality concerns with a multifamily office?

Although there are exceptions, a single-family office employed by actual family members is typically considered a more private and confidential structure than a larger multifamily office or institutional provider, which has a larger staff and services multiple families. However, information control and confidentiality are only as good as the employment contracts, policies and procedures utilized. For example, many institutional providers have compliance and regulatory frameworks and employee policy safeguards in place to uphold confidentiality.

Security, and specifically cybersecurity, is another important consideration. Larger multifamily offices or institutional providers can usually dedicate more resources to security than smaller family offices can, though maintaining the confidentiality of information can be a bigger challenge with more employees.

Cost

How much are you willing to spend? For what services are you willing to pay more or less? How much time and energy do you have to devote to the office?

It’s no secret that having a family office can be an expensive endeavor. The staffing, IT, operational, and regulatory and compliance reporting costs can be high, not to mention the amount of time you may need to devote to it. It can easily cost $1 million to $2 million a year depending on the services provided and the structure. A multifamily office can be less expensive than a single-family office because the resources and operations are shared.

In thinking about what you’re willing to pay, it’s important to consider what services and capabilities are most important to you. If, for example, investment objectives or philanthropy are particularly important, you may be willing to pay more for much more personalized services in those areas. Outsourcing some services can be a way to help lower the cost.

PERSONALIZING YOUR FAMILY OFFICE SERVICES

There is significant flexibility in how a family office manages wealth and operates, and you should build or find an office that reflects what’s most important to you and your family. Taking time to consider your mission and how you want to use your wealth can help ensure alignment between capabilities and your goals.

Investment strategy & management

How much control do you want to have over implementation? How customized should the investment strategy be?

Some investors prefer to maximize return on investment, while others seek to sustain steady wealth for as long as possible over many generations. Consider your investing priorities and whether investment strategy and management are important to you. If they are, you may have preferences on how the portfolio is structured or what types of assets should be included (for example, you may prefer they manage a physical real estate portfolio instead of investing in real estate equities). You may also want to employ a chief investment officer (CIO), engage tactical advisors for specific asset classes, or fully outsource investment management to an external CIO or investment advisor.

Wealth & estate planning

How important is it that you transfer wealth to future generations? How important to you is tax-efficient wealth transfer? Is there a business that may be sold or transferred?

Taxes can have a significant impact on the transfer of wealth, and especially so when there is a business sale or transfer involved. If you have a business or are generally concerned about succession and multigenerational estate planning, consider using a business or estate planning specialist who can help you identify appropriate wealth transfer strategies that will reduce the impact of taxes and support your long-term legacy plans.

TWO BASIC FAMILY OFFICE TYPES
SINGLE-FAMILY OFFICE MULTIFAMILY OFFICE

Dedicated to one family, although it often supports multiple households and generations within that family.

Single-family offices can often be more expensive and may require a more hands-on approach. However, they can offer much more flexibility and customization.

An office that manages the wealth of a variety of families.

A variation of this type is the Multi-Client Family Office, which has a lead family that takes on additional families to defray costs. Most often, the lead family is much wealthier than the additional families, although in some instances they are several families who were partners in a business and therefore closer to the same wealth.

 

Philanthropy

How important is philanthropy to your wealth management and distribution mission? Would using a giving vehicle such as a private foundation, donor-advised fund or charitable trust help you more effectively formalize your philanthropic strategy?

If philanthropy is core to your family’s values, you may prefer a family office with in-house specialized expertise in that area. Some families that are considering or have already created a giving vehicle, such as a foundation, choose to bring it under the family office umbrella. If you are interested in effective, efficient and impactful giving, you may want to have an advisor who has specific expertise in that area.

Education

Should the office provide wealth education programs for future generations? How customized should those programs be?

Some families consider education to be a critical role of the family office. Offices can offer sessions to further the financial literacy of future generations. If this is important to you, consider implementing a financial literacy program or including an advisor on the team who can help develop customized lessons for younger family members.

Reporting

How much reporting detail do you need, and how frequently do you need it?

In-house reporting can be more confidential and secure, but it can be very expensive and is often less flexible or customizable than an outsourced solution. Some families want the ability to aggregate reporting across multiple custodians or want cash flow and balance sheet reporting in addition to basic holdings and performance information, which can also be more expensive. You should talk to a family office advisor who can help you determine your reporting requirements and how to balance cost and complexity in finding the right solution.

General administration

Do administrative services require daily monitoring? What is the scope of the services they must support?

Consider the breadth of back-office solutions the family office will need to accommodate. This may include supporting legal, public relations, or other professional services.

 

TAKING THE NEXT STEPS

U.S. Trust has a long-standing history of providing family office consulting, advisory services, administrative and operational support, and guidance to wealthy families. Regardless of your goals and circumstances, we can help you navigate the various decisions related to setting up or joining a family office and connect you to the resources that best fit your needs.

U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the "Bank") do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.

Bank of America, N.A., Member FDIC

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Making the most of your situation and supporting a strong legacy require significant focus and resources.
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