An Unconventional History of Family Offices

The first family offices in the modern era with their own infrastructure including professional and administrative staff were created by wealthy families to look after the needs of family members, ranging from sophisticated wealth management to household services. 

Some of these single-family offices (SFOs) later branched out to provide services for other families and became known as multi-family offices (MFOs). This term was then adopted by various advisers for their wealth management services.

This, in brief, is the conventional history of family offices. The costs of either setting up a SFO or engaging a MFO can make it appear that family offices are suitable only for families of substantial wealth. However, this conceals an important and interesting fact: every family has a family office of sorts because they must devise a way of organising the business of their family.  This slightly unconventional definition of a family office – the way in which a family organises the business of their family – enables us to see how a family office often evolves over time.

Natural family office

The original family office is usually called something like, mum and dad. They set the family’s attitude and values in relation to wealth, risk and asset allocation and choose advisers to help with technical structures, planning and compliance issues.

As the family’s wealth grows and passes down the generations, the challenge becomes how to develop the family office to look after a more complex family who want to remain connected through the shared use and enjoyment of their wealth.

Embedded family office

Where there is a family business, it is common for its resources to be used to look after the business of the family.  The company secretary or finance director and other staff become involved in activities like looking after family investments, co-ordinating advisers and arranging travel.  This type of arrangement can be described as an embedded family office, meaning that the structure for managing the business of the family is embedded in the family business.

Accidental family office

Some families end up with what could be termed an accidental family office.  This arises where over time advisers put in place various structures, usually for tax and technical reasons, to look after the family’s affairs. Eventually the family find themselves with an array of structures that have a significant influence over their lives and how they use and enjoy their wealth. The fact that this has occurred incrementally is why I call it an ‘accidental’ family office; the overall structure of the family office was never designed as a whole.

Enterprising families should be aware of the importance of their natural or embedded family office and how these types of family office need to evolve to match the changing needs of a growing family. It might also be wise to avoid ending up with an accidental family office, especially if the family does not understand the structures that have been created supposedly to look after their interests