For generations, families with significant wealth have created family offices to manage their financial affairs. And throughout history, the primary objective of a family office has remained the same: to help families manage complexity, preserve wealth across multiple generations and ensure a lasting legacy.
Understanding family office structures
Before determining which structure is the best fit for your family office, it’s important to understand the differences, advantages and disadvantages of each.
Single-family office
A single-family office is built exclusively for one family, typically one of significant wealth. This structure is appealing to families who value a high level of confidentiality for financial and personal affairs, complete control over decision making and dedicated focus on preserving the family’s legacy.
However, this structure requires high operational costs with a significant investment in infrastructure. In addition, single-family offices may face the risk of stale intellectual capital without a significant investment in continuing education and a cultural commitment to this process. Single-family offices may also create additional limitations on capacity, restricting scalability and flexibility. There are also the potential HR issues such as litigation from internal staffing complexities and potential weak internal controls due to a lack of segregation of duties with thin staffing.
Multifamily office
By contrast, a multifamily office provides services across multiple families. This structure leverages shared resources for cost efficiency, greater bandwidth and access to a broad pool of intellectual capital. Multifamily offices often invest heavily in technology, training, software and reporting systems. They also usually have robust segregation of duties and internal controls.
The trade-off of the multifamily office is that the family potentially relinquishes some of their control, and they may compete with other clients for the firm’s time and attention.
Hybrid-family office
A hybrid family office combines both in-house capabilities with outsourced expertise. This structure offers flexibility, the ability to maintain control in-house where direct interaction is critical and access to top-tier talent across disciplines. Additionally, a hybrid model mitigates risks and challenges related to employee turnover, HR issues and infrastructure requirements. Hybrid family offices are perceived to be more costly, but are they?
Selecting the right structure for your family office
Every family with significant wealth considering a family office structure has a myriad of professional advisors, from financial advisors like investment, tax, accounting/bill pay and private bankers to insurance brokers, trust and estate attorneys, philanthropic advisors and even art or collectibles advisors. These advisors need not only be coordinated; they also need to possess the right expertise to help your family financially prosper. The family advisory relationship extends far beyond just investments, taxation, risk management and legal matters alone, per the UHNW Institute.
Before deciding on the right structure for your family, it’s important to evaluate your professional advisor needs and how much involvement the family will have up and down the advisory continuum. Then you will be in a better position to build the right structure for your family’s needs.
Other key considerations
A well-designed family office requires thoughtful planning across technology, staffing, investment management, philanthropy and lifestyle services.
When thinking about the structure for your family office, you should also consider the following:
Technology
- General ledger software
- Investment reporting software
- IT infrastructure
Staffing and costs
- General positions like CEO or President, CIO, CFO, FP&A and General Counsel
- Executive assistant or administrative support
- Compensation including market benchmarks, incentive bonuses and geographic differentials as well as alternative compensation structures
Investment management
- Internal vs. outsourced
- Outsourced external management
Philanthropy
- Grant giving and operational services
- Administrative services
Lifestyle services
- Concierge services
- Family meetings
- Family financial education
Conclusion
Designing a family office is ultimately about building a structure that aligns with your family’s priorities and goals. There is no “best” model – whether it’s single-family, multifamily or hybrid, the goal remains the same: create a framework that will preserve and protect your family wealth and legacy for generations to come.
At Baker Tilly, we understand that each family has different aspirations. Our family office services are scalable; we can act as your family office, support your existing family office, help you build a family office, be your outsourced accounting provider or provide services a la carte. Most importantly, our goal is always the same – serve as the integrator between your family and your other professional advisors – to ensure complete alignment of your current- and long-term family wealth objectives. Visit our family office webpage to learn more about our ‘hub and spoke’ approach.
Questions? Connect with our team to learn more.
