Family office decision factors
Advisers offer these suggestions for families considering a single-family office (SFO):
• Solicit feedback from the family about potential benefits. Is the primary purpose to bring the family assets under one umbrella, or are you mainly interested in personalized and confidential services? Do you want your family office to promote the well-being and unity of the family over generations?
• Decide if your asset levels are sufficient to offset your fixed costs. Families with lower assets who desire a wide range of services will likely pay a sizable percentage of their assets for their office. “If a family has $100 million and requires services and employees that [total] $5 million, that’s equivalent to a 5% annual fee. If a family has $1 billion, a $5 million cost for their SFO [single-family office] would be 50 basis points,” says Nichol MacManus, director of 1818 Family Office and managing director of Brown Brothers Harriman & Co.
• Consider that you’re developing an organization. “Launching a family office is as complex as starting any other family business, and it needs a clear business plan for the professional design of the office,” says Sara Hamilton, founder and CEO of Family Office Exchange, a peer-to-peer network for high-net-worth families and their family offices.
• Decide how services will be provided. “If family members already have outsourced service providers (money managers, lawyers, accountants, etc.), is the SFO intended to replace those people or work with them?” asks Jennifer Pendergast, a professor of family enterprise and executive director of the Center for Family Enterprises at the Kellogg School of Management.
• Recognize the potential downsides. Overseeing a single-family office can be costly and time-consuming. Is there someone in the family willing to undertake this task to ensure it meets the family’s expectations?
• Do your homework. MacManus advises organizers of a single-family office to reach out to other single-family offices, multifamily offices and consultants to pick their brains. “Families don’t know what they don’t know, because they haven’t been in this business. Go out and see what the landscape is like,” she says.
Hamilton suggests taking the time to participate in workshops on how to design a family office, “to make sure you understand what you are getting into.”
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