What Are Family Offices? How Much Investable Capital Does Someone Need To Start One?
What Are Family Offices?
“Family offices” are entities or private wealth management advisory firms established by wealthy families to manage their wealth and provide other services to family members, such as money management, tax services, estate planning, insurance, wealth transfer, concierge services, and even charitable giving. The are Two Types of Family Offices.
- Single-Family Offices: focus on managing the entire wealth of a single individual or family
- Multi-Family Offices: manage the entire wealth of multiple families who pool their Investable Capital together for a more Formal/Institutional Investment arrangement and to reap cost economies of scale.
Some of the Duties of Family Offices
- Managing Payroll
- Managing the Staff of the Household
- Managing the Property
- Managing Accounting
- Managing and Making Travel Arrangements
- Managing Day to Day Operations
- Managing Family Governace
- Help Organize Philanthropy
- Help Organize and Coordinate Private Foundations
- Manage and Help with Finances and Investments
Who Can Invest in A Family Office
Many believe that Family offices are generally for Ultra High Net worth Families with a total of investable assets of $100 million or more. Some also believe that the Families Net Worth estimates could be as low as $30 million. It all depends on what type of services the family requires.
The Cost of Operating a Family Office
Family offices operate just like a Corporation or a LLC and because all the duties and tasks that officers and staff members do they need to be paid, and be paid well. It costs $1 million or more annually which amounts to approximately 1% of the family’s total active assets, including investment portfolios, trust assets, and liquid assets. The Officers can also be paid by incentives and are usually given a certain percentage of the profits on investments or assets that are professionally managed by them.
What Do Family Offices Invest In
Family Offices are made to manage the wealth of families and their goal is to preserve it and to make it grow. Some of the avenues they use to make it grow is by investing in Hedge Funds, Fund of funds, Mutual Funds, Private Equity, Venture Capital, Real Estate, Commodities, and also Crypto Hedge Funds or in Bitcoins.
Laws Pertaining to Family Offices
Historically, family offices have not been required to register with the SEC under the Investment Advisers Act of 1940 because of an exemption provided to investment advisers with fewer than 15 clients. The Dodd-Frank Act removed that exemption so the SEC can regulate hedge fund and other private fund advisers. However, the new rule adopted by the SEC enables those managing their own family’s financial portfolios to determine whether their “family offices” can continue to be excluded from the Investment Advisers Act.