This article was initially published in Spear’s supplement “The future for family offices”.
Mike Walker and Catherine Grum started to explain why so many families stumble into family office setups or avoid them altogether. The major fears are costs, operational risks and sometimes complex regulatory requirements.
The answer is yes. When you start to strip it back, a family office is not a specific structure but the concept of professionalising a family’s personal affairs. It doesn’t necessarily require a complex series of legal structures and a significant team in-house. It doesn’t need to employ an expert on every topic to be of assistance. A poster on the kitchen wall of one family office sums this up neatly: a good family office is an addition of value — not an addition of cost.
One reason cost is hard to control is that many family offices come into being almost by accident, without a great degree of conscious thought. First you might ask the family’s lawyer or accountant to take on a more formal role, then bring in someone to help with investments, then assistants to help with admin. It can be like going to sleep dreaming of a little help around the house, only to wake up and find you have employed the entire cast of Downton Abbey!
The starting point for anyone thinking about establishing a family office should be to ask what they are trying to achieve. Having a clear set of objectives goes a long way when it then comes to deciding what is required in terms of staff and structure, if indeed a family office is required at all. For many, a multi-family office or even simply a strong team of professional advisors can be just as good.
Some common objectives for creating a family office include keeping control of the family’s information and retaining as much privacy as possible. Others are additional expertise to manage an increasingly complex set of assets, creating an enterprise that will give the family some focus and preserve the wealth for generations to come (often following the sale of a family business), relieving the administrative burden on family members, supporting the family’s philanthropic endeavours, combining the family’s capital and enabling further wealth creation using greater scale and purchasing power. However, many family offices (and therefore the costs) seem to grow as much out of a desire to ‘keep up with Joneses’ as anything else, thereby losing sight of the original rationale along the way.
Once you have an understanding of the key objectives, you can identify those elements that are really needed in-house. For those selected as in-house functions, the question is then whether active management is required or whether the objectives could be met by someone performing more of a supervisory role. Consider outsourcing the rest. This gives you greater flexibility and, by identifying a few key relationships to work with, you can then leverage these and draw on their experience with other clients.
Family offices can also use technology to their advantage here, too. In the past year we have seen the implementation of cloud-based software for accounting and bookkeeping as well as reporting tools and asset management systems.
It’s not too late if you already have something up and running. We are increasingly seeing requests from families to conduct what are effectively non-statutory audits of their family office setups, covering processes, systems and controls. Another common question is whether their old ‘special purpose vehicles’, set up every time they made an acquisition, are still fit for purpose.
Ultimately, it seems that there may not be as much to fear from family offices as first thought. If you are thinking about this as something that might help your family, identify what the essentials are and what the nice-to-haves are before you start to build. If you already have something up and running but have some nagging questions as to whether it is adding value and not simply costs, it is never too late to take a step back and have it reviewed. Unless you live somewhere like Downton Abbey, you may not need butlers and footmen, cooks and maids, but that does not mean you cannot employ any help at all.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.