Family offices come in a variety of sizes. They differ in the value of the assets under management, complexity of asset classes, size and number of family investment entities, and the unique lifestyle of the family. Hiring of external advisors and outsourcing certain services also affects the family office team size and structure.
Most small to mid-sized family offices have lean teams of 3-4 members, while large complex family offices can have up to 10-12 people. Regardless of the team size, all family offices should have members possessing certain desired traits and carry out the following roles:
Accounting
- Core booking keeping capabilities
- Thorough understanding of investment accounting
- Strong process orientation
These traits are generally possessed by a CA/CPA or a Bachelor’s degree holder in Accounting/Finance with 10+ years of similar accounting experience.
Compliance and Tax
- Core regulatory and secretarial knowledge
This knowledge is usually brought by a CS/legal professional with 10+ years of compliance/legal experience.
Investment Research and Advisory
- Core buy-side investment and finance experience of liquid asset classes like public equities and fixed income
- Larger family offices may also require someone with specialization in sub asset classes like private equity, hedge funds, and other alternate investments
Generally, an MBA in Finance with added qualifications like a CFA and CFP brings this expertise.
Advisor and Facilitator
- Straddles both back office and investment related matters
- Is patient and able to deal with changing family member needs and personalities
Typically, someone with a pleasing personality with a sales or customer service background in the financial services industry carries out this role well.
Administration
- Adept at managing a wide range of assets including luxury homes, rental properties, car fleets, yachts, and planes
- Oversees an extensive household and administrative staff with strong leadership capabilities
- Jack of all trades and a confidante who is personally loyal to the family
Retired professionals with a military background usually fit this role.
Family Office Leadership
Family offices can be led by family members or hired professionals. Regardless of whether the leader is internal or external, most successful family offices are led by individuals with the competence and experience of running day to day operations. They should be able to make key decisions and navigate the financial and overall well-being of the family through volatile times.
The best family office organizations are designed to support the core capabilities of the leader. For example, if the leader has a strong finance and investments background, s/he is usually supported by a robust back office operation consisting of a well-balanced team and set of external resources who bring complimentary capabilities.
Managing personal wealth should be treated with the same objectivity as that of a business, and the family office should be designed and set up to mirror it.
Family Office Costs
Costs for setting up and managing family offices vary significantly. Whether it’s a fully-staffed family office or a modern virtual family office with outsourced professionals, costs can range between 50 bps to 150 bps of assets under management. This excludes fees charged by external asset managers.
One key point to note is that there is no free lunch. You either pay directly for salaries, overheads and outsourcing fees, or these costs are embedded within investment management fees. Some families feel more comfortable when they see their returns net of such costs and not have to deal with the actual transactions.
You need to structure your family office and hire professionals to suit your individual family office needs.
