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When to form a family office

The family office model has existed for centuries, beginning with European families and later adopted by American industrialists, like the Carnegies, Phipps and Rockefellers. GenSpring Family Offices improves upon the family office model in three ways: creating a multi-family office with multiple locations; advising on all elements of wealth and providing sustainable wealth management.

Each family member benefits from a consolidated group of professionals in the family office – investment and financial managers, estate planners, tax accountants, philanthropic administrators, and compliance personnel all dedicated to, and knowledgeable about, each family’s unique situation.

A family office is usually created when: (1) the liquid assets of the family grow to such a size that professional management is required for the investible assets of the family that cannot be provided by the family business professionals, since they usually do not have the expertise to manage these assets or, if they do, it cannot be done effectively without the business suffering; (2) the family’s business is sold creating liquidity that again needs to be managed by the appropriate professionals; or (3) the family has attempted to manage their personal financial affairs, but the business has suffered, with the time they have spent doing so, or they realize that they are not equipped to manage the level and complexity of their own assets.

Relying on objectivity, not fees

A family office differs from financial planners, investment managers, stockbrokers, bankers, and accountants in the services it provides and its role as a trusted family advisor. The “true” objective family office sells no product to their clients except that of their service and it collects no fee from any person or organization except the client of the family office.

The family office is not paid a broker fee for insurance placement, securities purchase, real estate purchase, custody, commissions or transactions fees, unlike that of brokerage houses, investment management firms, and investment banking firms, private banks, and product-compensated financial planners. The real difference between a family office and many of the organizations that provide product to the family office industry is that the family office has a “serve” culture and the others have a “sell” culture. In the “sell” culture, the client does not pay a fee for the service; the client pays a fee for the product.

Taking care from A to Z

The full-service family office not only plans, but also executes and manages all of the financial affairs of a family over generations. The typical full-service family office will provide the following services: investment management, which includes asset allocation and investment policy development, in addition to performance reporting and monitoring; bill paying; cash flow management and accounting for investment assets in addition to all personal assets; tax projections and advice with tax return preparation; philanthropic management, including the grant making process and all necessary filings; estate planning, execution of the plan, and trust administration; regular organized and facilitated family meetings; insurance placement and management and personal services as needed by the family.

Final Thoughts

While there are many issues for a family to consider when deciding to form or join a family office, the most important factor is the objective and wishes of the family. Family members should work together closely to make sure the family office model they choose is the correct mode with the right services for themselves and future generations. The development of a family governance structure with the participation of the family members would help insure that the family office continues to serve the family needs.

Patricia M. Soldano is chair of the GenSpring Family Office’s western region which includes Phoenix. Learn more at www.genspring.com.