Our Family Office is at the heart of our service offering. It is designed to cover everything you would want from your own family office and a lot more. Family office can offer a hub of knowledge, experience and operational capability, which can support the requirements of the family across the whole range of their affairs, from long-term planning to routine transactions and administration.
The service is individually designed around the requirements and preferences of your family. Whilst no two families are alike, the family’s history, size and location, the nature of the principal assets and the aptitudes of senior family members will all be key factors in defining your requirements.
All families have one thing in common: the need to plan the practicalities of passing the baton from one generation to the next and laying the foundations for an enduring legacy. This, perhaps above all, is the common theme which helps define our approach.
Your key adviser is there to act on behalf of the whole family, as required, and to proactively help the family plan for significant decisions which may have a long-term impact.
The key adviser will share the benefits of his or her extensive practical experience of working with other families.
We routinely work closely with your family’s other trusted advisers. Where necessary, we procure and coordinate specialist advice on behalf of clients, either from our internal experts or from our wide network of professional contacts around the globe.
We identify the need, together with the family, and we select and brief the adviser; we apply the advice given to the totality of the situation and we make clear recommendations to the client.
We manage the family governance framework to ensure both routine and strategic decisions are consistent with agreed objectives and that they adhere to the agreed decision-making processes.
We support families in the development of their plans for succession. We frequently chair and facilitate family meetings.
Our Family Office provides a full range of high quality administration services. These ensure everything is correctly processed and documented and that all the necessary information is available in the form you want it - to help make sound decisions on a day-to-day basis.
We run bank accounts, operate companies and trust structures, and manage properties, art collections, aircraft, boats and philanthropic foundations.
We support clients in all transactions, including buying or selling businesses, investments, properties, art or leisure assets.
Thirty years ago the term ‘Homme d’Affaires’ was well understood, describing a true adviser with real wisdom drawn from deep and broad experience of the world. The trend towards specialisation has caused us to forget the supreme importance of an individual who is able to look at the whole picture and pull together the advice of all the specialists.
Wealthy families are rediscovering the need for such individuals and in an increasingly complex world, they are not always easy to find.
It is not quite clear why the English had to borrow an expression from French to describe the role of a trusted adviser to the wealthy, but until thirty years ago, the term ‘Homme d’Affaires’ was well understood and in common usage. It is strange that there was no equivalent in the English language the closest being the Italian word Consilieri.
The essence was that such a person was a true adviser with real wisdom drawn from deep and broad experience of the world, including business, investment, families, the law and even philanthropy. The Homme d’Affaires was thus a reliable and impartial sounding board for nearly every major decision his client had to take. This might range from business acquisitions and investment to succession and inheritance, from personal relationships to dealing with awkward situations such as divorces within the family, where the parties involved are directors and shareholders in family businesses.
This does not mean that he would advise on the technical detail of every issue, but he would know enough to apply his experience, wisdom and common sense to ensure the decisions made were not only based on sound technical advice and on a proper understanding of the overall context.
Over the last 30 years, the term Homme d’Affaires has pretty well disappeared from our vocabulary, as the remorseless trend towards specialisation has caused us to overlook the generalist. This generalist is someone who pulls it all together, is able to look across all aspects of a situation and make judgments and recommendations which bring together the advice of all the specialists.
It can indeed be argued that the focus of the specialists has become so narrow that they are less able to appreciate the broader context in which they operate or the relevance of their advice to the overall picture. By their nature, specialists tend to complicate their own fields of activity to the point where they create barriers to entry for newcomers, thus increasing their own market value. This makes it more and more difficult for their advice or their contribution to be evaluated by others.
It is therefore argued that the trend to specialisation has gone far enough. In the words of the late Kenneth Williams specialists “know more and more about less and less and eventually someone will earn their living from knowing everything about nothing!”
This is indeed one of the many lessons of the banking crisis, where the boards of great banking groups have allowed armies of specialists to develop huge areas of business which are far beyond the understanding and control of the board itself. In the past, the boards of banks had some direct understanding and appreciation of ALL the major risks to their business, but this can never be the case again.
To some extent, the same applies to wealthy individuals and families. Their affairs are complex by nature, because they frequently mix the highly sensitive issue of family relationships, succession and inheritance with the ownership of one or more businesses, the management of investment portfolios, property and leisure assets, all overlaid with tax planning and efficient holding structures.
Complexity is increasing as tax authorities become more aggressive and we live in an increasingly regulated and litigious society. The cost of professional advisers is thus rising at a rate which is simply unsustainable. The complexity of risk means all major decisions are inter-related and it is almost impossible to give sensible advice about one part of a client’s assets, without considering the knock on impact elsewhere.
In other words, it is now not just desirable, but increasingly essential that all advice on major issues is channelled through someone who really understands the whole picture. Not only is this essential for proper coordination and risk management, it can also help reduce costs as the sophisticated generalist can much better commission, coordinate and evaluate the more detailed advice required from specialists.
Take, for example, the case of a family which owns a substantial family business, where the cash flow has been under pressure and bank finance hard to come by during the recent crisis. Do they sell investments in a bad market to finance the business or are those investments intended precisely as a nest egg for a rainy day when the company ran into trouble? Furthermore, if you use family investments to support the business, how do you protect the interests of family members not involved in the business?
Of course, ideally, the wise man and his advisers will anticipate these problems and have put in place structures and governance designed to achieve the right balance of risk and ensure all family members are treated fairly. The wise man will also have looked at the detailed risk correlations between the family business and the investment portfolio, to ensure that the market risks in the business are not replicated in the portfolio and that the potential liquidity needs in a downturn are fully assessed and anticipated, before committing to long-term equity investments.
There are however many other types of risk. Some are ongoing, such as monitoring the success and direction of the business, the performance and calibre of family directors and keeping an eye on family relationships, looking for potential sources of friction which might turn into major disputes, with catastrophic consequences. Then there are the one off occurrences, such as an acquisition of a new business, perhaps financed by significant debt, or a divorce where the ‘in-law’ is chief executive of a family company.
Increasingly the management of risk means looking at the interrelationship between all aspects of the family finances and of the family itself – segregating risk into different compartments each overseen by a specialist is no longer enough.
Then there is the matter of ‘strategic vision’. Who helps the family decide where it is heading, what the purpose of the wealth is and what their broad objectives are over the next generation. And again, how to pass on the baton from one generation to the next, ensuring that healthy rivalries in the business or other family concerns (such as a philanthropic foundation) do not spill over into family relationships, or vice versa.
The notion of resurrecting the Homme d’Affaires is not entirely new. Very rich businessmen have usually found an individual from among their advisers or employees who steps up to the role. Lower down the market, private banks and wealth managers have for a long time been marketing the concept of a trusted adviser (often using the medical analogy of general practitioner), but they have too often undermined their own promotional literature by fielding relationship managers who lack the experience or gravitas for the trusted adviser role and are clearly trained and motivated as salespeople rather than advisers.
It is one thing to articulate a need and another to meet it. Partly because of the product sales approach of many private banks and wealth managers, there is a massive shortage of people who genuinely merit the Homme d’Affaires title. It is not just a case of re-inventing a role that existed 30 years ago – in a much more complex world, the knowledge and experience requirements to fit this role have expanded dramatically, so they are likely to be outstanding individuals who command a very high price.
Family offices are struggling to cope with the growing demands for advice and expertise arising from increased regulation, a more litigious society and the risks of an unstable global economy. Andrew Nolan argues the need for tighter definition of its role and responsibilities to enable the family office to adapt to the current environment.
There is no blueprint for a family office, as each should be designed to serve the particular needs of the family concerned. There have, however, been some clear trends over the last two decades which need to be considered by any family establishing a new family office or reviewing the role of an existing one. Indeed the extent of the changes now taking place in the external environment is challenging the fundamental concept of a modern family office and its economic viability. Never before has it been more important to define the objectives and to design a working model which can realistically meet those objectives in a cost efficient manner.
Whilst a family office should in theory be ‘purpose built’, most have evolved over decades, new functions being added on in response to events. Many started as offshoots of a family business or an estate office.
The role was primarily administrative, keeping accounts, processing transactions and administering trusts and other vehicles. The family would take advice directly from professional advisors such as lawyers, accountants, stockbrokers and land agents and the family office would be responsible for implementing that advice.
Over the last twenty years, the role has gradually evolved from administration and implementation to adviser and ‘gatekeeper’ between the family and their professional advisers.
There are four main reasons for this significant change of role:
The problem is that the need for advice is growing so rapidly that it is challenging for a typical family office even to meet the requirements of being an effective gatekeeper.
The combined impact of ever more complex tax compliance, increasing regulation and a highly litigious environment is testing the capabilities of even the largest and best resourced family offices. Many indeed are so busy responding to the latest tax or regulatory changes that they scarcely have time to consider the bigger picture, especially family strategy, governance and succession planning.
The problem is often exacerbated by loose definition of the role of family offices, causing muddled thinking and duplication of effort between the family office and external advisers. Some family offices, for instance, have already overreached themselves in trying to duplicate the role of an external asset manager, without the critical mass or resource to deliver a fully competent service. Not only is this inefficient, but by immersing themselves in excessive detail in one aspect of the family’s affairs, they can be distracted from their core responsibility of implementing the family’s wider wealth strategy.
Defining what is expected of a family office can be more difficult than it sounds, as it involves articulating very precisely the relationship between the family, the family office and external advisers, both in reaching decisions and in the implementation. It will involve analysis of:
Whilst each one is different, the services required will strongly reflect the circumstances, size and history of the family itself:
Clearly it is a very different proposition to run the family office for a 1st generation entrepreneur with two young children than for a 5th generation family with 200 members scattered around the world, led by senior family members who are not particularly interested in business and are thus less involved in day to day decisions.
Equally, the role of the family office is strongly affected by the complexity or otherwise of the structures through which the assets are held and the governance framework which aligns family decision making with long-term strategy and objectives. The family office is often the guardian of family governance processes and in larger families, with many different trusts and companies, it requires considerable skill and experience to ensure key decisions reflect the interests of the family as whole.
The priorities of the family office will also reflect the main collective activities of the family which will generally include some or all of the following:
In each area, the precise role of the family office needs to be defined, for example:
How is responsibility for asset allocation and manager selection apportioned between external investment managers, the family office and the key decision makers within the family? Is the role of the family office to be a manager of managers and supplier of investment services or to stand in the shoes of the family in purchasing such services from the external market?
The difference may be subtle, but if not precisely defined, there is every chance the family office will become a shadow investment manager, with all the resource and cost which that implies.
Relationship with Family Business
To what extent is the family office involved in overseeing the relationship between the family business and family shareholders (often through trusts and other vehicles), ensuring that the interests of all shareholders are properly represented, especially when major decisions are made which impact on the risk profile of their investment?
In many cases the family leadership is directly involved in the business, so knowledge and skill may be required in ensuring their decisions are subjected to proper scrutiny on behalf of other family members. The family office may also be closely involved in succession planning for the business, often through a formal framework defined in the family constitution.
Private Equity and other business interests
Is the family office a mini private equity house accountable for performance or does it simply implement the ideas and decisions of senior family members to invest in private businesses on an opportunistic basis? If the latter how are the interests of other family members protected?
Again, the difference is quite fundamental, one requiring a team of highly experienced private equity professionals, and the latter requiring someone with sufficient corporate finance experience to research and implement, but not ultimately responsible for decisions. Either way, suitable governance will be required to protect the interests of the wider family.
Is the property for residential, leisure or investment purposes or a combination of all three? Does the family office find and negotiate the purchases on the family’s behalf, or does it simply implement the instructions of the family and provide ongoing administration services? Is it also responsible for considering the tax and succession implications and the alternative structures through which the properties should be held?
Is there a philanthropic legacy and what are its objectives, both externally and within the family? What role do the family members play in this and what support is required from the family office?
Arrangements for philanthropic giving vary considerably from one family to another, but philanthropy is increasingly combined with succession planning in leaving a legacy of social capital as well as monetary wealth, in which family members play a key role.
Administration and services
The administration requirements of a family office can require considerable technical expertise (trusts, tax, legal, banking etc) and a deep working knowledge of the family is also essential, including the history, personalities, preferences and objectives, so that the family office is able to process routine transactions without continuous reference to the family leaders.
Just how complex are the family’s requirements and what is the frequency of transactions requiring decisions and judgments in the implementation? Are they, for instance, frequently buying properties, works of art or leisure assets? How complex are the banking and treasury arrangements?
Legal, structuring and tax issues
All of the above are overlaid with legal, structuring and taxation issues, some of which may be relatively routine and within the competence of the family office team, whilst others may require specialist external advice. For complex situations even quite routine transactions may have significant ramifications which need to be considered.
Finally, risk management for a wealthy family now requires a highly disciplined methodology similar to that for a business. It starts with a full risk audit, analysing and prioritising all the risks faced by the family, across all the assets including direct business interests, as well as the investment portfolios and the risks in the family itself.
To address the role of the family office from a slightly different perspective, it is worth asking in principle what level of advice and service the family requires:
A. Implementation and administration only - family make key decisions with direct input from advisers
B. Family Office selects and coordinates external advisers
C. Family Office plays lead, trusted adviser role
D. Family Office sets agenda for family and plays leading role in facilitating decisions
At the extreme, the role of the family office combines that of a service provider, trusted adviser and management consultant, working with a range of professional advisers to identify the right course and build a family consensus, as well as being responsible for implementation and administration.
In practice the level of input may vary as between the different areas of responsibility. For instance a business family may want the family office to have limited involvement with the family business, but a much deeper level of involvement with the investment portfolio.
The nature and depth of involvement may also change over time, particularly as the family leadership passes from one generation to the next. The family office may have a role to play in preparing for that transition and for succession planning more generally.
Some family offices are led by one or more family members, although this obviously depends on having someone willing and able to fulfil that role, who is competent, acceptable to other family members and willing to submit to proper governance processes.
First, it must be accepted as a fact of life that the world is changing and that wealthy families will probably pay more tax than in the past and incur greater costs in managing their affairs, if they wish to avoid unnecessary risks. Unpalatable though this may be, they have to be realistic and can only set out to manage their wealth as efficiently and effectively as possible.
Second, in order to contain these costs, the objectives and role of the family office must be much more precisely defined than in the past, clearly specifying the division of responsibilities between the family, the family office and external professionals such as investment managers and lawyers. Improved definition reduces unnecessary duplication and time wasting caused by indecision or muddled thinking.
Third, for every significant activity (including high level strategy), the optimal balance must be found between the expertise and servicing capability to be maintained within the family office and the extent of outsourcing to external specialists. This balance will depend on the volumes and complexity of the anticipated work and the impact on quality as well as cost.
Fourth, considerable thought needs to be given to the need for a trusted adviser to the family and whether this advisor resides in the family office. Having such an individual regularly involved at the heart of the family’s decision making may not only improve the quality of key decisions made, but also save considerable costs by swiftly rejecting ideas which are unlikely to be viable, before too much has been invested in their appraisal.
Finally, the model for any family office must be realistic in terms of the ability to recruit, retain and motivate suitable staff, bearing in mind that whilst there are benefits of having advisers directly employed, these must be balanced against the benefits of using external advisers who have regular and ongoing experience of working with other clients in their field of expertise.
Wealthy families are bombarded with offers of advice and service. Private bankers, lawyers, trustees, investment managers, accountants, insurers, art consultants and security advisers scrabble over one another for the role of trusted adviser to the family. To even the most assured navigator of the wealth management world, the profusion of organisations purporting to ‘be on their side’ and offering an ‘alignment of interests’ can be bewildering.
Many families look to the idea of a Family Office for this alignment of interest.
But what sort of Family Office is required?
For some families the principal need is the management of investments. Others require a diverse range of professional and administrative services to meet the complex planning needs of international families, with extensive business interests, property and leisure assets, owned through complex fiduciary structures.
Should families build their own operations from scratch or use the expertise and infrastructure developed by others?
Whilst personal preferences play their part, this choice is best determined by the particular needs and circumstances of the family.
It can be reasonably argued that the simpler the needs of the family, the stronger the case for using a Multi Family Office. Indeed, many organisations describing themselves as Family Offices are essentially asset managers focused on the needs of wealthy families. By contrast, the more complex the needs of the family, the more difficult it is for families to find the right external support.
The central task is to identify the right practical arrangements to meet a family’s needs. This will often include an assessment of the degree to which responsibilities are allocated internally and externally. This paper seeks to assist families in this deliberation and will focus on the comparative merits of the Single Family Office and the Multi Family Office.
‘Family Office’ is a flag flown by a wide range of organisations. It is taken here to describe a multi-disciplinary platform that enables families to identify and achieve their strategic goals.
A true Family Office will play a key role in determining the ‘family approach’ to a wide range of affairs, including inter alia:
The last item is obviously extremely important. Critically however, it is not the only item and the term ‘Family Office’ should not be taken as synonymous with ‘Family Investment Office’.
The strategic and technical requirements of each family are different. There are no rigid rules as to the right approach. However, several perceived advantages are often associated with the Single Family Office model.
There is clear evidence that many of those choosing to set up a Single Family Office do so in order to increase the level of privacy that they might enjoy.
More work is undertaken by a small, hand-picked group and less information about the family is circulated. Theoretically, data can be tightly managed and access to it monitored.
On the face of it, these are fair points. However, the fact that Single Family Offices have smaller operational teams can cause problems in respect of privacy. There is a greater need for the use of external agencies such as IT providers. It can be tough to properly vet the support teams and impossible in the event of need for external support to restrict access.
The concentration of a great deal of information and responsibility with a few people can also be problematic if the relationship sours. Larger organisations are able to put in place oversight mechanisms and ‘Chinese walls’ to ensure that information is managed on a need to know basis, regardless of seniority.
The physical and electronic security of smaller Single Family Offices can also be harder to protect.
A family with its own Single Family Office need not fear that it will be sold or merged with another organisation. The family is sole master of its destiny.
Ownership and control can occasionally present new issues. Great care needs to be applied to the regulatory and tax issues that pertain in each relevant jurisdiction and the consequences of control being held by residents of each jurisdiction.
A Single Family Office is a dedicated resource, devoted to one family. The personnel involved have no competing demands from other clients. The team should have an understanding of the family’s affairs that is second to none.
There is an important drawback here. Often the Single Family Office team can be seen as essentially tied to one member or sub-group of a family. They can be ‘Dad’s people’. This association can, in pressured circumstances, generate a perception of partisanship. This in turn can mean that the Single Family Office team is not in a position, for example, to navigate through tricky succession issues or other disputes. Professional organisations are able to deploy different personnel and better manage these perceived conflicts as they bring an inherent independence to the table.
The Single Family Office can be designed perfectly to meet the needs of the family in question. The right expertise can be sourced. There are no commercial pressures on the organisation to do anything other than serve the client family.
However, needs change and a smaller organisation can be less well placed to meet them than a larger, better resourced one.
Alignment of interests
The family can in theory, be confident that their own Single Family Office staff is motivated solely by a desire to do the best for the family. They are not, after all, selling any products.
However, great care should be taken to ensure that the employees’ and employers’ agenda do not diverge. Even in a Single Family Office, staff with investment roles can feel just as compelled to chase performance through inappropriate risk taking as their counterparts in the broader market, especially if their remuneration depends upon it.
This concern extends elsewhere across the multi-disciplinary spectrum. Single Family Office teams may instinctively drift towards their comfort zones in terms of expertise or even areas of personal interest. This is particularly true if they are being encouraged to keep external contact and fees to a minimum. They may, for example, be reluctant to engage lawyers on a specific issue and prefer either to avoid the issue altogether or proceed in the absence of advice. A multi-disciplinary Multi Family Office can afford to retain a breadth of in-house expertise available to advise quickly and cost effectively on a day to day basis.
Other families prefer to use a multi-disciplinary Family Office provided through an independent professional services group. Different arguments are available to advance in favour of this model.
Larger organisations may well be more able to attract talented personnel. They can often offer more compelling career paths and remuneration packages as they can include equity ownership in a growing business and the possibility to work with a number of families. This is often seen to make the work more interesting and to mitigate the career risk of an executive who is reluctant to put all his or her eggs in one basket.
A larger organisation is also able to employ more specialists, producing greater breadth and depth of expertise available in-house to clients. This can produce conflict of interest which need to be properly managed.
This should then generate a genuine culture of learning, in which different disciplines are able to interact and produce very advanced intellectual capital.
Inter-disciplinary oversight is invaluable to families. Lawyers, accountants and bankers in reality need to be able to communicate briefly and regularly. A professional Multi Family Office is able to coordinate this in-house.
However at this stage there are very few Multi Family Offices with the infrastructure and expertise to deliver a full service to international families with interests spread across several jurisdictions.
Economies of scale
The economies of scale touched upon above extend to other areas. The grouping of families within one organisation can result in enhanced buying power that reduces costs and improves standards.
This can also stretch to the opportunities to leverage off the group’s knowledge of markets, industries and other issues affecting wealthy families. Many families feel a need to find a forum in which they can exchange ideas with like-minded people who are facing similar issues. The Multi Family Office can provide this platform.
The Multi Family Office can also give the families it serves a voice in public debate. This means that policymakers’ decisions can be informed by more direct contact with groups of those affected, without any loss of privacy or the need for ‘to put heads above the parapet’.
One of the fundamental purposes of a Family Office, whether it serves one or many families, is to make sure that in the event of crisis there is an operational structure in place to ensure the family can function effectively.
Crises happen in Family Offices too. Clients of Multi Family Offices depend on an organisation and not an individual or small group of individuals. Internal control systems and alternates are in place to provide continuity to the client in the event that key advisers are not available. Checks and balances mitigate the risks associated with putting too much responsibility in one person’s hands.
The banking crisis and the subsequent economic conditions have left governments looking for more control of the financial services sector. Heightened regulation seems inevitable. Single Family Offices are not necessarily regulated but may be. It appears likely that an increasing number will fall into the regulatory net.
The effective management of regulatory issues requires considerable resources and a strong corporate discipline. Multi Family Offices do not have a monopoly over either. Nonetheless, it might be reasonable to assume that a larger professional organisation with an established compliance culture would be more adept at dealing with the changing regulatory environment.
Hard data on the typical duration of a Family Office is tough to find. A Multi Family Office with a track record of surviving both economic turbulence and transition through generations of clients is an attractive option.
A family can reverse out of a Multi Family Office with relative ease if their needs change or a better alternative is found. It is extremely hard to disentangle a family from a Single Family Office.
Multi Family Offices have other clients and a reputation to consider. In practice they are likely to end client relationships in a way that is as mutually satisfactory as possible.
Many aspects of a complex family’s life can be improved by the use of the right technology. Accounting, aggregated wealth reporting, treasury functions, investment management and research are all areas in which technological solutions abound. Larger organisations have the resources and expertise to select, set up and maintain systems that are cutting edge and integrated. They are also able to maintain fully vetted teams to manage the inevitable glitches that all IT produces. They do not need to involve outside agencies either in a support function or as service providers, for example to supply server space. This improves security.
Research suggests that the maintenance of a Single Family Office can cost in the region of 65bps of total wealth. It is unlikely that a Multi Family Office would charge fees anywhere near this amount. The economies of scale available to Multi Family Offices mean that in respect of costs the balance tips heavily towards them. This is especially relevant for those families who, in terms of net worth, fall towards the mid to lower range of those likely to require Family Office services. These families may feel that a Multi Family Office can deliver the right services within a proportionate budget.
The importance of these individual considerations will vary from family to family. The scale of family wealth will be a particularly important factor in determining the right approach.
No complex international family can function without a significant in-house function. The question is the extent to which responsibilities should be retained or devolved. In other words, families should not feel they face a choice between the two models. The challenge is to create the right relationship between them.
The fact that those closest to the family will have strong preferences and personal interests in the matter does not make this balancing act any simpler.
As always in the area, excellent advice that is truly independent remains at a premium.