There has been quite a buzz over recent years about the growth of family offices in Europe. This has been seen by many as a time-lagged repeat of the US phenomenon, which occurred towards the end of the last century. Such an assumption would not seem unreasonable and would appear to have its precedents; the growth in US private equity funds was mirrored by a similar growth in Europe some years later.
However, we believe that this theory contains an important central assumption that the growth of family offices in Europe is the growth of an "industry", implying that there are great similarities between the family offices that have been born or have grown. In our experience the reverse is true; there is a massive range of diversity regarding what those organisations which call themselves "family offices" actually do.
Here we examine the different kinds of family office, in approximate order of ascending complexity. (Please note, these categories are not mutually exclusive and family offices can bear the hallmarks of some or many of these categories).
Types of family office
The personal assistant
Sometimes the family office can be essentially a PA service. The family needs someone to help them with their daily needs (which can be anything from drafting letters to arranging flights and accommodation to walking the dog) and the Personal Assistant is at their beck and call. In this instance the family office is essentially a convenience.
The concierge/lifestyle manager
When these needs become more complex the emphasis shifts and the family needs a more proactive service than a Personal Assistant. A concierge or lifestyle manager can monitor and deal with more complex issues such as household staff management, placing insurance across the family assets, liaising with charities that the family support, and sometimes simply being a listening ear for family members. The type of person who manages this sort of office usually has deep experience in a professional services firm or a concierge firm.
The financial office
In addition to managing lifestyle needs, often the family needs someone who can manage their day to day financial affairs, paying bills, placing fixed deposits, paying household staff and managing day to day cash needs. Often this person is a book-keeper or accountant and is on many occasions someone who has been known to the family for some time, perhaps working as an accountant in their family business.
The family business office
We have come across family offices whose main purpose is to act as the eyes and ears for the family in their directly owned businesses. In this sense, the disparate businesses that the family might have invested in need someone to act as "head office" to ensure that the businesses are not unnecessarily competing with each other and to ensure good corporate governance. The individuals working in this sort of family office usually have strong experience in business management and may often sit as a director on the investee companies.
The administrative family office
Sometimes a client of a bank or a fiduciary services firm will have many complex structures in place to manage their financial and personal affairs. The administrative burden of managing those structures sometimes creates the need to have a full-time, dedicated team whose main purpose is to ensure that the companies and trusts within the structure are being managed effectively.
The family investment office
This type of business is usually staffed by investment professionals. Their main raison d'etre is to take the family's wealth that sits outside of the personal assets (homes, planes, boats etc) and invest it, often under their own discretion, with the objective of achieving a client's required return on investment. This type of office can have a listed equities focus, a hedge fund focus or even a property focus. The main characteristic of these types of office is that they live or die by their investment performance, and they are normally remunerated on investment performance or assets under management.
The trusted adviser family office
This type of office has a deep and trusted relationship with the family to the extent that they have the same "helicopter view" of the family's financial and personal situation that the patriarch or matriarch does. This allows the office to be involved in wealth and tax planning, liquidity forecasting, asset allocation and transmission of wealth between generations.
The full service family office
This type of family office does much or all of the above. They therefore have very deep and broad skills. This organisation requires two key components to be in place:
- The family have a degree of complexity regarding their affairs. This creates the necessity to manage lifestyle needs, bill payments, manage personal assets such as homes, aircraft and motor vessels, oversee complex investments such as private equity, property interests or even classic car collections, and may also include managing the family's charitable foundations
- There is high degree of trust between family and family office professionals. This is essential to allow the professionals to become Trusted Advisers as referred to above.
The diagram above shows that the client family sit at the heart of the organisation. The full service family office professionals act as the gatekeeper between family and external advisers, supervise their performance, and take and implement their advice.
Single or multi?
Complicating the situation even further... If you would like to continue reading about what constitutes a family office, download A Guide To Family Offices here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.