Family offices offer ultra-high-net-worth individuals a centralized platform to manage their wealth and personal affairs. These firms deliver a range of tailored services, from investment oversight and tax strategy to estate planning and lifestyle support.
In this guide, we’ll talk about:
- What is the point of a family office?
- What are family office services?
- How much does a family office charge?
- What are the challenges faced by family offices?
- How to set up a family office
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Some facts might change from the time of writing. Nothing written here is financial, legal, tax, or any kind of individual advice, nor is it a solicitation to invest or a recommendation of any specific product or service.
What is the purpose of a family office?
The primary purpose of a family office is to centralize and coordinate various aspects of a family’s financial affairs.
Family offices tailor services to meet the specific needs of ultra-high-net-worth individuals.
What services are provided by family offices?
Wealth Management and Investment Services
Family offices develop and implement comprehensive investment strategies, manage asset allocation, and provide ongoing portfolio management to preserve and grow family wealth.
Financial Planning and Reporting
They offer detailed financial planning services, including cash flow management, budgeting, and consolidated financial reporting across all family assets and entities.
Tax Planning and Compliance
Family offices coordinate tax strategies to optimize the family’s tax position and ensure compliance with relevant tax regulations.
Estate and Succession Planning
They assist in developing strategies for intergenerational wealth transfer, creating and managing trusts, and establishing governance structures for family businesses.
Philanthropy Coordination
Family offices help establish and manage charitable foundations, develop giving strategies, and monitor the impact of philanthropic activities.
Lifestyle Management
Beyond financial services, family offices often handle personal matters such as travel arrangements, property management, security, and other concierge services that simplify and enhance their clients’ lives.
Family offices also play a crucial educational role, teaching younger generations about wealth management and preparing them for their future responsibilities as wealth stewards.
This aspect is particularly important for ensuring the sustainable management of family wealth across multiple generations.
How Much Does A Family Office Cost?
Family offices typically cost at least 0.25% of assets under management (AUM) to operate.
The actual cost varies considerably based on several factors, including (but not limited to):
- Scope of services provided
- Size and complexity of the family’s wealth
- Chosen staffing model
Family offices typically charge fees using one or more of the following structures:
Asset-Based Fees:
Most family offices charge a percentage of assets under management, typically ranging from 0.25% to 1.5% or more.
This wholly depends on the complexity of services provided and the size of the family’s assets.
Performance-Based Fees:
Some family offices implement performance-based incentives tied to investment portfolio results.
These can be structured as a percentage of profits generated or as rewards for outperforming specific benchmarks.
Fixed Fees:
Certain services may be charged on a fixed-fee basis, particularly for specialized advisory work or specific projects.
Note: The total operational costs of a family office can be substantial. Especially, including expenses for professional staff, office space, technology infrastructure, compliance, and external service providers.
Families should conduct a thorough cost-benefit analysis when considering establishing a dedicated family office.
What Are The Disadvantages Of A Family Office?
- High Costs. The overhead expenses of maintaining a dedicated family office can be significant, potentially outweighing the benefits for families with insufficient assets.
- Privacy and Commingling Concerns. There may be challenges in maintaining privacy, and the family’s personal finances can become mixed up with family business finances.
- Governance Challenges. Without proper governance structures, family offices can become sources of conflict, particularly regarding investment decisions and succession planning.
- Regulatory Complexity. Family offices must navigate a complex regulatory landscape, which may vary significantly across jurisdictions and can change over time.
- Talent Acquisition and Retention. Attracting and retaining qualified professionals can be challenging, especially for family offices located outside major financial centers.
Which Country Is Best For A Family Office?
Four locations stand out as particularly attractive destinations for family offices:
- London, UK:
As a global financial powerhouse with a rich financial history, London offers access to diverse investment opportunities.
It comes with an established legal and regulatory framework, proximity to Europe, and a high standard of living.
The city has cultivated an extensive pool of top-tier talent across all disciplines, particularly in investment management.
- New York, USA:
As a major global financial center, New York provides access to some of the world’s largest markets and investment opportunities, along with a deep talent pool.
- Singapore:
Known for its political stability, strong legal system, and strategic location, Singapore became a leading financial hub with favorable tax policies for wealth management.
- Dubai, UAE:
Dubai is renowned for its tax advantages, strategic location between East and West, and rapidly developing financial services sector.
Dubai has also emerged as an increasingly popular choice for family offices.
The decision on where to locate a family office should align with the family’s global footprint, investment strategy, and long-term objectives.
Interestingly, over 30% of family offices now operate from multiple locations, according to the 2023 Global Family Office Compensation Benchmark Report.
How To Start A Family Office
Establishing a family office is a complex process that requires careful planning and execution.
The following five-step approach provides a framework for families considering this path:
1. Feasibility
The first step involves conducting a thorough assessment to determine if a family office is the right solution.
This includes:
- Developing a clear vision and purpose for the family and its wealth
- Reviewing the family structure and succession plans
- Analyzing the complexity and potential costs involved
Working with expert advisors during this phase can help inform the decision to proceed.
2. Define structures and processes
Once feasibility is established, the next step is developing a detailed business plan that outlines:
- Resource requirements
- Staffing decisions (insourced vs. outsourced)
- Legal and tax structures
- Governance protocols
- Reporting frameworks
This roadmap to implementation ensures that the right structures are designed to support the family’s needs.
3. Build
With a robust business plan in place, the focus shifts to refining operational models and processes and securing necessary resources.
This includes finalizing
- Job descriptions
- Recruiting staff
- Assigning outsourced services
- Securing premises
- Selecting appropriate technology partners with robust data security measures.
4. Test
Before launching, it’s crucial to ensure that all systems and processes work effectively in reality.
This involves stress-testing IT infrastructure, systems, and processes, and developing contingency plans for potential disruptions.
5. Launch and review
After thorough testing, the family office can begin operations, either all at once or through a phased approach to service delivery.
Regular performance tracking and periodic reviews of people, processes, vendors, and technology ensure that the family office functions optimally.
Conclusion
Family offices play a vital role in helping UHNW families manage complexity with clarity. By bringing together financial, legal, and personal services under one roof, they provide the structure and support needed to grow, protect, and transfer wealth across generations.
While building and maintaining one requires careful planning and significant resources, the result is a highly personalized service platform that helps families stay aligned, organized, and future-ready.
Pained by financial indecision?
Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
