By Jamie McLaughlin, R360 senior advisor, Founder/CEO of J.H. McLaughlin & Co., Co-Founder of the UHNW Institute

You’ve worked hard and made significant wealth. As assets accumulate and complexities inevitably arise, you might be contemplating establishing family office or joining a multi-family office. Before you make any decisions, keep in mind various factors and considerations so you make the right choice for you and your family.

The Common Scenario

Wealth is like a light switch—all of the sudden you turn it on, and it can feel a little too bright.

For many families owning business interests, the bulk of their wealth exists only  on a balance sheet, with only modest liquidity. But then the business is sold, there's a lot of money to manage, and other complexity begins to evolve. During the wealth accumulation period, while there is sufficient free cash flow to support your lifestyle, wealth builds but only gradually. You have a CFO or Controller aspart of your business, and you wonder if they can also do your personal tax compliance work. Then you need other things taken care of, like maybe something to do with your summer home or a financial planning issue involving your business or your family. The next thing you know, your personal affairs have evolved to require various advisors, both internal and external. That is the genesis of a family office. There is no definitive definition of a family office—its scope can range from basic tax compliance to comprehensive wealth management. It all depends on what you are looking to accomplish.

How Do I Know If I Need a Family Office

When people come to me and ask me if they should start a family office, I look at them and say just one word: “Why?”

Typically, they pause for a bit because they haven’t fully thought it through. What is it that they need? Ultimately, we get at the heart of what they’re thinking and, more often than not, it’s this: they need a management system for all aspects of their life because their life is messy. It can be a less formal system—contracted professional advisors who manage different aspects of their needs , or more formal—a de facto family office.

If you’re wondering if you need a family office, you can download our Family Offices Service checklist by filling in the form on this page.

It’s also helpful to keep in mind that family offices come in various forms, each tailored to meet specific needs and preferences.  A few types include:

• Single Family Offices (SFOs) cater exclusively to one affluent family and typically require substantial wealth, often > $500 million, to justify operational costs. SFOs may vary in size and service offerings based on the family's service requirements and assets.
• In contrast, Multi-Family Offices (MFOs) extend their services to multiple affluent families, pooling resources to achieve economies of scale. While most MFOs are commercially driven enterprises, others operate as closed single-family offices, a single family office selectively welcoming additional clients to optimize resources.

The distinction between private and commercial family offices lies in their underlying motivations and client experiences. Private family offices prioritize personalized service and counsel, driven by the goal of meeting clients' unique needs rather than maximizing profits. In contrast, commercial family offices operate as profit-driven enterprises, often focusing on asset accumulation and revenue generation. However, there's a growing trend towards demand-driven wealth management, where families seek advisory services and expertise rooted in counsel rather than production-driven models driven byproduct manufacturing and distribution.

Which Factors Do I Consider?

When deliberating on establishing or joining a family office, several factors warrant careful consideration. Chief among these:

Control – Do you want to be in charge, or do you want to have someone else manage things for you? Many wealth creators who establish their own family offices feel they want to call the shots and prefer to do it themselves rather than trust an outside entity. Others are more than happy to delegate.

Cost – Is the cost of establishing your own family office worth it? Perhaps you are willing to pay to employ your own people because you are comfortable with having more control. Or perhaps, you’d rather keep expenses down. If you look at a family office as an equation, the denominator is typically the liquid assets, and the numerator is typically the expenses or fees. If, for example, you're paying three or four percent for a service that you get from a commercial provider for one and a half percent, you have to ask yourself, why am I paying a premium to do it myself?

Level of Involvement – This goes hand in hand with control. Do you have the bandwidth to be highly involved or not?

Expertise – Are you skilled in some of the services a family office typically provides? If you hail from the financial services world, for example, you might prefer to be more involved with the investment management component of your family office. If not, perhaps you’re willing to delegate to a commercial provider, at least for the investment management piece.

Conclusion

The most important thing when thinking about a family office is to assess your needs. By assessing individual needs, considering various family office models, and prioritizing factors such as control, cost, and expertise, you can chart a course towards effective wealth management and preservation.  

If you need help assessing your needs, download ourFamily Office Services Checklist by filling out the form on the right.