How do you know when it is time to consider establishing a family office?
You have never had a family office before; you have heard about them; you have met people who have them; you have read about them; you have visited one.
So what do you need to consider? The link below is excellent about explaining some the services that you might want to consider. However, I think there are some factors you will need to consider first:
Clarity of Objective?
- Why do you want to set up a family office? For what purpose do you want the family office to do? What do you want to achieve with your family office?
Family Values?
- What are the family values? Probably you have no idea and never looked at it properly. I suspect they are very different between the family members. Are they important? Yes. It is all part of the alignment of the family. Your values could be very different from even your siblings.
The size of Assets?
- How large are your illiquid and liquid assets? Can you afford to open and run an office? They can be very expensive businesses to run.
Which generation?
- Will the office be servicing just you and your immediate family or are we talking multiple generations? This will have a bearing on what services you provide in the office.
Emotional Ownership?
- When you had your family business, there was a high emotional ownership. You grew up and could go 'to the factory and kick the tyres'. You could see it, feel it and touch it. It is not like that in a family office. So you need to think how the family office is going to bring the family together rather than divide it.
Income Requirements?
What are the income requirements of your family and next generation of the family? Is there going to be an increasing need for income? This is going to affect how you invest the money. Will you need liquidity? Private equity might sound all sexy, but they do not throw off income.
Insource v's Outsource?
You want to control everything and be in charge. Insourcing might allow you control and privacy, but ask yourself whether it is worth the cost. Are you getting value for money? Is insourcing going to deliver the performance you want? Outsourcing will give you greater flexibility.
Understanding Future Requirements?
- You will need to consider the future needs of your family. Will the family office be the best solution?
Stick to what you know?
- You are not Warren Buffett. Just because you have sold your family business or business, does not mean you are suddenly an investment guru. Most family offices focus on investing - liquid and illiquid. My advice is stick to what you know. When an investment goes wrong, you can be sure the person who sold it to you, has motored out of Monaco harbour on their new Riva. It will be left to you to fix. So I hope you know how to fix it. Stick to what you know.
Risk?
- A diversified portfolio is a good idea, but it carries with it, its risks. You might not know much about what you are investing it for the first time in your life. Are you happy with that? You need to understand how much risk you are prepared to take on now that your business is investment management.
A family office is one of the most difficult businesses to run in the world.
If you would like some help dealing with these issues, then we would be delighted to help at AH Loder Advisers.
How do you know when it’s time to consider establishing a family office? Consider: You have just sold the family business and find yourself without your longtime administrative assistant or other corporate resources who have traditionally helped with family matters. Your family business is growing and your internal team no longer has the time – nor the skill set – to deal with the more complex issues that you and your family need to address.
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