Signs you may be ready to consider a family office

By Dan Terlep

When a family experiences a liquidity event, such as the sale of the family business, they may feel as if they’re entering an uncertain phase of life.

The transition results in new wealth, but also a loss of business infrastructure, increased complexity of assets and a desire to maintain privacy. Family members will need to be educated about stewardship of the wealth.

Consider this example: Julie took over from her father as CEO of the family’s successful data analytics business. She and her husband, Steve, grew the business for another 30 years. They received offers for the business but always ignored them, until they received one that was too good to refuse. They closed the deal 120 days later and received a very large amount in cash.

After coming up for air, Julie and Steve realized they had no one to help them. Their estate plan and financial architecture were fairly complicated. Their professional office staff had helped with most of their personal finance and legal activities.

What’s more, Julie carried some guilt about selling the business her father started and the impact on the family legacy. Julie and Steve were private people. They doubted a local wealth manager would be able to provide the attention and depth of expertise they needed. They realized that a family office would be the best avenue for them.

Whether you have sold your business or have accumulated significant wealth outside the family firm, a family office might be the best option for you. Here are some signs that your family may be ready to engage with a family office:

You’ve “lost” key personnel. You have just sold your business and no longer have access to support from key office personnel you’ve relied on for years to help with your personal affairs (CFO, bookkeeper, executive assistant). You realize how dependent you have been on those people. Who’s going to help you keep your new family enterprise running smoothly? You realize it’s more than you and your immediate family can handle; you need an expert team and proper infrastructure. You may need such a team to establish legal entities. More important, you need them to help you develop processes, procedures and a governance structure for making decisions.

Things have gotten really complex. You might have a number of trusts, entities such as LLCs or partnerships, and other complex assets, like real estate and operating businesses.

When a family business undergoes a liquidity event, the family may require new financial strategies that can be extremely confusing. Financial structures often include the use of family investment partnerships with features such as preferred/common classes of interest and separate pools for investment allocation purposes. There also might be an assortment of family trusts, and the family might need to establish strategies and policies for intrafamily transactions such as gifting and family loans. Alternative investments and other entities can add further complexity. Many families find themselves unable to understand all the nuances.

For families who still have an operating company, a family office begins to make sense when they start to accumulate wealth outside their business. At that point, they need a coordinated approach to management of the wealth that is separate from the business. Families with extensive trust and estate structures, significant educational needs for younger generations, personal accounting and bill-paying needs, several properties and household employees or large private foundations should also consider family office options.

Your family office team should include well-rounded professionals from different disciplines with specialized areas of expertise.

You’ve got a big family … and it’s getting bigger. Maybe it used to be just you, or perhaps you and a few other family members, creating and managing the family assets. But today multiple households — and several generations — are acting as business partners, investing together and sharing assets as a family. How do you ensure they are all aligned on a vision for the wealth? Do they all have a voice? What does the governance structure look like?

Particularly for families who are geographically dispersed, a family office can help by coordinating and centralizing information, planning and facilitating family meetings, and providing services to all households.

You are attempting to operate as a family enterprise. Overseeing the family’s assets can be just as complex as running a business. You need to develop and implement an investment strategy, monitor investment performance and generate financial reports.

The skills required to be a successful investor are different from those needed to be a successful entrepreneur. Many families realize they need the infrastructure and expertise a family office can provide.

You value your privacy. With the accumulation of wealth come increased security risks. You are keenly aware of that and highly value privacy and confidentiality. You don’t want to involve too many outside advisers. You desire a “one-stop shop” where all your needs can be met by professionals you know and trust, and who know and trust each other.

The upcoming generations need guidance. Poor family communication and inadequate preparation of heirs can lead to an erosion of family wealth. Education and leadership development for your rising generations can help your family avoid that fate.

Family offices can create a wealth education program that’s tailored to your family’s circumstances. Multifamily offices provide synergies between “softer” services and investing and financial services. For example, it can be beneficial for the financial adviser and CFO to attend and contribute to family education meetings.

Family office professionals can also help facilitate succession conversations and help with planning for transition to the next family leader.

Your family legacy is important to you. In addition to financial capital, you want to pass your family’s social capital to future generations. You plan to develop a philanthropic strategy to support the causes and communities you care about and to ensure your values and legacy are perpetuated. How do you define that vision? Does your next generation consider themselves to be stewards of that legacy? Do they feel like they have a voice in building the legacy? Remember, the younger generations will “own” that legacy going forward and will be responsible for continuing it.

You’re a control freak (in a good way). For ultra-high-net-worth families who require a team of advisers to work exclusively for them, a single-family office could be a better option than contracting with a multifamily office or other wealth manager. Having a single-family office guarantees privacy and offers assurance that your family’s interests are paramount.

You’ve accumulated substantial wealth. As your wealth increases, so do a variety of complications. If you have more than $50 million in assets, you’ve probably experienced the complexities described above. A family office can help manage financial issues and guide the family toward good governance.

The choice of a single-family office or a multifamily office isn’t determined by net worth alone. Other factors, such as degree of control, costs and services offered, are key components in determining the right family office solution.

Running a single-family office isn’t cheap. Costs can vary widely, depending on the services provided, but one Family Office Exchange study (“FOX Guide to the Professional Family Office”) found that the median annual cost of a single-family office is about 1% of the family’s net worth. If that sounds expensive when weighed against the benefits listed above, a multifamily office or other wealth manager may be more appropriate.

You must consider your family’s unique set of needs and circumstances in order to determine the right family office solution for you. It’s important for the option you select to be aligned with your family’s values and goals.

Dan Terlep, CPA, is senior managing director of financial and tax strategy for Cresset Family Office. Investment advisory, family office and other services are provided through Cresset Asset Management LLC, an investment adviser registered with the U.S. Securities and Exchange Commission (

Copyright 2019 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact                                                        

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March/April 2019

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