Service update

Managing finances to counselling to dog walking. Richard Joynt and Ian Slack clarify the range of family office services on offer

There has been a buzz about the growth of family offices in Europe recently. This has been seen by many as a repeat of the US phenomenon, which occurred towards the end of the last century. Such an assumption would not seem unreasonable and would appear to have its precedents: the growth in US private equity funds was mirrored by a similar growth in Europe some years later.

However, we believe that this theory contains an important central assumption: the growth of family offices in Europe is the growth of an 'industry', implying that there are great similarities between the family offices that have been born or have grown. In our experience, the reverse is true: there is a wide range of what those organisations calling themselves 'family offices' do in practice.

There are different kinds of family office, all with varying complexities. And they are not mutually exclusive. Family offices can bear the hallmarks of some or many of the below categories.

Office types

The personal assistant

Sometimes the family office can be essentially a personal assistant (PA) service. The family needs someone to help them with their daily needs, which can be anything from drafting letters to arranging flights and accommodation to walking the dog. The PA is at their beck and call. In this instance, the family office is essentially a convenience.'¨'¨The concierge/lifestyle manager

When these needs become more complex the emphasis shifts and the family needs a more proactive service than a personal assistant. A concierge or lifestyle manager can monitor and deal with more complex issues, such as household staff management, placing insurance across the family assets, liaising with charities that the family supports, and sometimes simply being a listening ear for members. The type of person who manages this office usually has deep experience in a professional services or a concierge firm.

The financial office

In addition to managing lifestyle, often the family needs someone who can manage their day-to-day financial affairs, paying bills, placing fixed deposits, paying household staff and managing day-to-day cash needs. Often this person is a book keeper or accountant and, on many occasions, is someone who the family has known for some time, perhaps working as an accountant in their family business.

The family business office

There are family offices whose main purpose is to act as the eyes and ears for the family in their directly owned businesses. In this sense, the disparate businesses that the family might have invested in need someone to act as 'head office' to ensure that the businesses are not unnecessarily competing with each other and to ensure good corporate governance.

The individuals working in this'¨type of office usually have strong experience in business management and may often sit as a director on the investee companies.

The administrative family office

Sometimes, a client of a bank or a fiduciary services firm will have many complex structures in place to manage their financial and personal affairs. The administrative burden of managing those structures sometimes creates the need to have a full-time, dedicated team whose main purpose is to ensure that the companies and trusts within the structure are being managed effectively.

The family investment office

This type of business is usually staffed by investment professionals. Their main raison d'etre is to take the family's wealth that sits outside of the personal assets (homes, planes, boats, etc) and invest it, often under their own discretion, with the objective of achieving a client's required return on investment.

This type can have a listed equities focus, a hedge fund focus or even a property focus. The main characteristic of these offices is that they live or die '¨by their investment performance, '¨and they are normally remunerated '¨on investment performance or assets under management.

The trusted adviser family office

This type is based on a deep and trusted relationship with the family to the extent '¨that it has the same 'helicopter view' of the financial and personal situation as the patriarch or matriarch. It means the office can be involved in wealth and tax planning, liquidity forecasting, asset allocation and transmission of wealth between generations.

The full service family office

Because this type does much or all of the above, it demands a broad spectrum of skills. The organisation requires two key components to be in place:

1. A degree of complexity regarding the family's affairs. This creates the necessity to manage lifestyle needs; look after bill payments; manage personal assets, such as homes, '¨aircraft and motor vessels; oversee complex investments, such as private equity, property interests or even classic car collections; and may include managing the family's charitable foundations.

2. A high level of trust between family and family office professionals. This is essential to enable the professionals '¨to become trusted advisers as referred to above.

The client family sits at the heart of the organisation. The full professionals act as the gatekeeper between family and external advisers, supervise their performance, and take and implement their advice.

Single or multi

Complicating the situation further, a family office can deal with one family or more. This has given rise to the phrases SFO (single family office) and MFO (multi-family office). Obviously, when you combine this with the types of organisations described above, an MFO can mean many things.

Investment multi-family office

A family investment office, which deals with more than one family, is usually referred to as an MFO. In this sense it is like a boutique investment house managing the investment assets of a number of client families. There are some highly respected modern financial services firms that originated as investment MFOs. Investment professionals are almost always the driving force as they bill the client based on investment performance and assets under management.

Professional multi-family office

This type of organisation is usually focused around supporting all the complex needs of the families. '¨Examples of its responsibilities include:

• family and corporate governance

• trustee and administration services

• managing philanthropic interests

• wealth, estate and succession planning

• coordinating, managing and reporting on asset positions

• overseeing complex financial investments, such as real estate and private equity; and

• overseeing and managing private assets, such as super yachts, private aircraft, classic car collections and personal luxury assets, such as jewellery and private art collections.

Also impacting on the dynamic is which generation the family office is serving. For a seventh generation, the relationship between members can be quite distant and the office has to balance the differing needs of this diverse group in the same way a company would balance the needs of its individual arm's-length shareholders.

So, the term 'family office' has many meanings. The label has been so freely applied to organisations that would appear to have few similarities '¨(other than the fact that they '¨help wealthy families manage their'¨'¨'¨'¨ '¨affairs in some way) that to outsiders its service function can be unclear.

Therefore, any adviser who is dealing with a family office should avoid blanket assumptions and be prepared to ask what it actually does '¨to understand what qualifications and skills it has.

Richard Joynt and Ian Slack are directors of Bedell Family Office Services, a professional multi-family office

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