What Is a Family Office?

You may hear about family offices in stories about very wealthy families, billionaire investors or multigenerational fortunes. Family offices have grown in number and visibility in recent years, but they remain somewhat mysterious to most people. Here’s what family offices are, what they do and what alternatives exist for affluent families who don’t need one.

What a family office is

A family office is a private organization that manages the financial and personal affairs of a wealthy family. Rather than working with many separate advisers, a family office brings together professionals who coordinate all aspects of a family’s wealth under one roof.

Family offices can range from a small team of a few people to large organizations with dozens of professionals. Their structure and services are tailored to the needs, goals and values of the family they serve.

What a family office does

Family offices can provide a wide range of services. Investment management is often a core function, including developing investment strategies, selecting and overseeing investments and managing relationships with outside fund managers. Many family offices invest across asset classes, including public markets, private equity, real estate and direct investments in businesses.

Tax planning and preparation is another key service, helping families manage complex tax situations across investments, businesses, trusts and multiple jurisdictions.

Estate and succession planning helps families plan for the transfer of wealth across generations, often working with estate attorneys to structure trusts and other arrangements. Succession planning may also involve preparing the next generation to manage family wealth or businesses.

Philanthropy and foundation management helps families pursue charitable goals, such as managing private foundations, donor-advised funds and grant-making strategies.

Bill paying, bookkeeping and financial reporting provide consolidated views of the family’s finances, along with day-to-day financial administration.

Insurance and risk management involves reviewing coverage for property, liability, art, collectibles and other assets, along with cybersecurity and personal security considerations.

Coordinating lawyers, accountants and other advisers ensures that all professionals serving the family work together toward shared goals.

Some family offices also provide lifestyle and concierge services, such as managing properties, travel arrangements, household staff and education planning for children. Family governance, including family meetings, communication and decision-making structures, is another area some family offices support.

Single-family versus multi-family offices

A single-family office serves one family exclusively. Because of the significant cost of hiring dedicated professionals, building infrastructure and running operations, single-family offices are usually reserved for families with very large fortunes. They offer maximum control, privacy and customization.

A multi-family office serves several families, sharing costs and expertise among them. Multi-family offices can provide many of the same services as single-family offices at a lower cost per family, making family office services accessible to families with substantial, though smaller, fortunes. Some multi-family offices began as single-family offices that later opened to other families.

Benefits and challenges

Family offices offer coordination, customization, privacy and a long-term perspective aligned with the family’s values. They can help families manage complexity, reduce conflicts of interest and plan across generations.

However, family offices also involve challenges, such as high costs, the need to attract and retain skilled professionals, governance issues and the risk of family conflicts over decisions. Regulatory considerations also apply, depending on the structure.

Alternatives for affluent families

Many affluent families don’t need a family office. Several alternatives can provide coordinated, high-quality financial guidance.

A fee-only wealth manager or financial planner can provide comprehensive planning, investment management and coordination with other professionals. Fee-only advisers are paid directly by clients rather than through commissions, which can reduce conflicts of interest.

Private banking services, offered by many banks to high-net-worth clients, may include personalized banking, lending, investment management and estate planning services.

A team of a certified public accountant, an estate attorney and a financial adviser working together can provide many of the benefits of a family office without the cost. Encouraging your professionals to communicate and coordinate is key.

Outsourced chief investment officer services and virtual family office models are other options some families use.

Choosing help

Whatever approach you choose, look for advisers who act as fiduciaries, meaning they’re legally required to act in your best interest. Ask how advisers are paid and make sure fees are explained clearly. Check credentials and backgrounds, such as through the SEC’s Investment Adviser Public Disclosure website or FINRA BrokerCheck.

Choose professionals who coordinate well with your other advisers and who understand your family’s goals and values. Effective wealth management, at any level, depends on clear goals, good communication and trusted relationships.