A family office is a personal financial team that’s designed to streamline a family or individual’s accounts, spending, and investing.

These teams can manage complex financial structures, assets, and investments, while helping individuals preserve and protect wealth for future generations. Family office teams can be fully in-house, fully outsourced, or a combination of in-house and outsourced resources coming together.

Family offices become helpful when individuals accumulate more wealth than a principal or single bookkeeper can efficiently—and accurately—manage.

While nearly any financial team can qualify as a family office, some structures are more effective than others.

Here are a few family-office approaches individuals often take.

Self-Managed Personal Affairs

Self-managing your personal affairs means you continue to pay your bills and manage other personal operations.

Often, a personally managed family office distributes responsibilities across family members. For example, a spouse could act as the primary bill payer or person designated to handle the home operations.

Alternatively, the individual or family could hire a single bookkeeper or continue to use a business-employed executive assistant to assist with portions of the family office. However, the key decision makers are still in charge of managing the family’s personal affairs.

Single-Family Office

Individuals sometimes create their own single-family offices, which are structured like businesses, to manage their personal affairs and investments. Single-family offices can be composed of family members, friends, business partners, and professional employees.

With enough wealth and the right team, a single-family office can be the right answer for an individual or family. However, families should review the following considerations before pursuing this approach.

• Cost. Personal CFOs and CIOs often require high salaries and sometimes request a portion of investments. Additionally, the family would need to consider the cost of a support team, office space, and overhead, which can ramp up quickly.
• Experience. When choosing your team, pick someone who’s done it before. Individuals often choose a team they know and have worked with in the past. However, they don’t always choose professionals experienced in managing an individual’s full financial picture. Also, because this team will likely only work for the one family, it may not know industry standards.
• Short tenure and transition problems. Single-family office teams can have high turnover. The benefit of historical data can be lost with when employees leave frequently. On the other hand, those that have longer tenure often don’t have transition plans for when they leave or retire.
• Lack of transparency and fraud. Process and procedure are important for safe practices. Inexperienced employees can make mistakes, mishandle money, or give sensitive financial information to the wrong people. When establishing a single-family office, it’s important to establish good practices for handling finances and information safely. It’s also key to periodically have these practices tested by a third-party professional.
• Control and focused commitment. The benefit to a single-family office is that the employees are solely focused on you and your family. The employees don’t need to balance their time between different families as they do in a multifamily office. Additionally, if you prefer responses during off hours, you’re more likely to receive responses on nights and weekends if you establish those requirements as necessary for the single-family office.

Multifamily Office

Some or all of an individual’s family office needs can be outsourced to a multifamily office. This structure contains pre-agreed upon fees and transparency, which can provide peace of mind. It also includes a system of checks and balances that helps reduce the risk that individual finances aren’t being mishandled or falling through cracks.

This approach is effective when managed by an experienced firm that applies systems and research that are proven to work. A few key areas of this approach to consider include:

• Cost. A multifamily office is generally less expensive and less complicated to manage because an individual engages a professional firm to do the work. That means they don’t have to consider employee salaries, benefits, office space, or overhead.
• Qualified team utilizing like-client experiences. Generally, a client is assigned to a qualified team that serves that client and other clients. This allows the team to apply experience gained on one client to another and provide best-in-practice processes, procedures, and recommendations.
• A system of internal controls and adequate segregation of duties. A well-structured multifamily office utilizes documented processes and procedures for good safety practices. It should also have a system of internal controls and segregation of duties that includes proper levels of review. These systems prevent any one person from having too much insight into the family’s finances or control over spending.
• Control and focused commitment. Multifamily offices are just that, a firm that works for multiple families. That means your team of advisors isn’t focused on just you and your family full-time. Although a good team should make each client feel they’re the priority, the team must balance their time among various clients. Additionally, multifamily offices are professional service firms and often expect reasonable business hours to be respected unless an emergency occurs.

While new wealth may not seem complicated to manage, financial affairs can quickly become disorganized as individuals continue to accumulate wealth. This can lead to accounting and investing errors, which can be expensive and time consuming to fix. 

There are four key indicators that suggest it might be a good time to set up a family office team.

1. Invoice and transaction volumes become overwhelming, leading to late or inaccurate payments.
2. You experience a liquidity event.
3. The estate plan is confusing or hard to remember.
4. Personal and financial privacy become an issue.

An effective family office team can manage every aspect of your financial planning and operations, including:

• Personal and family financial needs, including estate planning and trust management
• Savings, investments, and philanthropy
• Cash management and cash flow, including bill pay, accounting, reporting, and household employee payroll
• Tax planning and coordination

Special-project considerations, such as buying a house or getting a visa in another country

The following steps can help you set up your family office with confidence.

1. Identify your needs and pain points. These might include cash flow and operations, legal, investment, and tax.
2. Determine how much you want to invest in the family office. Family office teams can be expensive. Do your needs warrant a single-family office where you employ all team members, or an outsourced solution or a hybrid of both?
3. Find your team.

When setting up a family office, it’s important to pick an experienced team of advisors. Your team should be able to make recommendations, help you figure out what to do with your finances, and give you piece of mind.

Here are a few key members a strong family office team should include:

• Family office operations team. This is the team that controls the spend, payroll, expense reporting, and document management. This team keeps you organized and moving forward with your goals. This team often works as the backbone or coordinator of the overall family office.
• Investment team. Your investment team manages investments and overall investment reporting. This group can be internal or an outsourced firm that plays a role in your overall asset allocation as well as a client’s focus on direct self-managed investments.
• Legal team. The legal team is generally outsourced in a hybrid model. It should be a team of people you trust that can assist with various common topics, such as household employee issues, real estate, estate planning, and entity formation.
• C suite. The C suite is the overall advisory executives that pull the various teams together and report to the principals. This team can consist of several individuals in different capacities as in a business, but it often consists of one or two main individuals who you respect and trust to lead the entire family office enterprise.