A single-family office is a private institution that manages the finances of a single family. It is involved in all or part of the family's investment, trustee, trust, and estate management affairs. Most single-family offices also provide non-financial butler services.
A joint family office manages financial services for multiple families, which may or may not be related to each other. Most joint family offices are commercial in nature and sell services to multiple families at the same time. They usually provide different families with a variety of financial and non-financial services such as wealth management, wealth planning, tax planning, trust and corporate services, inheritance planning, family governance, and philanthropy.
A virtual joint family office is for families who seek to use a family office to manage their finances and other affairs but are unwilling to set up a physical company. Usually based on cost considerations, they can choose to outsource services to external providers who provide consulting and advisory services to achieve and solve the problem.
When setting up a family office, family leaders need to consider the development stage and future direction of family wealth, their own actual needs, family goals and related challenges, and refer to the successful cases of other family offices before adopting the appropriateness of the type of family office to tailor it for themselves. After a clear positioning, the family office needs to help carefully design the asset structure and governance structure and model to create an environment that allows family members to understand what values they want to maintain, an environment that can stand the test of time. The next generation of family members needs a place where they can take responsibility for family wealth. Without the responsibility of ownership and management, wealth will decrease or disappear.
If family wealth and family businesses continue to grow, risks must be faced. A family office can help family members understand and balance the risks and opportunities in the entire process of family wealth and business development, and help establish an effective family governance structure or strategic plan to improve the human capital in the family. This ensures family control, manages risks, enhances the democracy of family decision-making, maintains the participation and cohesion of family members, and encourages each member to understand the family's history, future heritage, and the true value of wealth in the present moment.
The governance and management structure of the family office can clearly deal with complex issues regarding family wealth, helping the family avoid future conflicts. Confidentiality is also guaranteed in the family office structure, because the management of wealth and other consulting services provided to family members are integrated into a single entity controlled by the family.
The family office structure can also ensure that the interests of the financial advisor and the family can be fully coordinated. In a non-family office structure, multiple consultants will serve multiple different family members. It is doubtful whether they can be consistent.
Through the centralization and specialization of asset management activities, family offices are more likely to achieve higher returns or lower risks for their investment decisions. The family office can also help formalize the investment process, which may help maximize the return on investment for all family members.
The family office can separate the family business from the wealth or surplus held by the family, or at least sort it out and treat it differently.
The family office helps to integrate operational aspects such as risk, performance management and reporting. This helps advisers and clients to make more effective decisions to achieve the family's investment goals.
The family office can also integrate other professional services, including tax planning, property planning, communication and education, family governance, and philanthropy to accomplish family missions and achieve family goals.
Cost is a content that every family must understand. The cost of supervision and compliance reporting remains high, which means that the amount of assets under the management of the family office needs to be large enough to offset these fixed costs.
If the family office operates in a central area with a mature market, legal and tax structure, its functions will be better utilized.
In order to solve the problem of high operating costs of family offices, some families will centrally manage their wealth through joint family offices. Generally speaking, a joint family office serves multiple families with different family sizes, wealth, and maturity. This means that this model may have such a risk: compared with the one-to-one proprietary services provided by a single family office, under the joint family office service model, some families may not be able to obtain the same level of personalized advice.
When considering the establishment, some people regard some potential positive aspects as negative aspects. This tendency is more common in the following aspects
Some families may hesitate to integrate wealth information into a centralized joint family office structure.
The establishment of a family office often depends on the family’s trust and acceptance of external asset managers. However, trust usually comes from a long-term cooperative relationship with external managers.
After all, the family office must be able to maintain wealth in order to be a long-term solution. In recent years, the difficulties in obtaining market returns have made this not so easy. In addition, in the process of intergenerational succession, they often face devastating tests, because the next generation strives to pursue different goals and results in managing family wealth.
